CHINA – MEASURES AFFECTING THE PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
Document: Report of the Panel
Date: 26 January 2009
Document codes: WT/DS362/R
Complainant: U.S.
Respondent: China
Third parties: Argentina, Australia, Brazil, Canada, EU, India, Japan, South Korea, Mexico, Taiwan, Thailand, Turkey
Dispute stage: Panel
Agreements cited: Art. 61, 41.1, 46, 59, 9.1, 14, 3.1  Intellectual Property (TRIPS)

CHINA – MEASURES AFFECTING THE PROTECTION AND
ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS

Report of the Panel

I. INTRODUCTION
1.1 On 10 April 2007, the United States requested co nsultations with the Government of the
People's Republic of China pursuant to Articles 1 and 4 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes ("DSU") and Article 64 of the Agreement on Trade-
Related Aspects of Intellectual Property Rights ("TR IPS Agreement") (to the extent that Article 64
corresponds to Article XXII of the General Agreemen t on Tariffs and Trade 1994) with respect to
certain measures pertaining to the protection and enforcement of intellectual property rights in China.
1
Consultations were held on 7-8 June 2007 but did not lead to a resolution of the dispute.
1.2 On 13 August 2007, the United States request ed the Dispute Settlement Body ("DSB") to
establish a panel pursuant to Article 6 of th e DSU, with standard terms of reference. 2 At its meeting
on 25 September 2007, the DSB established a Panel, pursuant to the request of the United States in
document , in accordance with Article 6 of the DSU (WT/DSB/M/239).
1.3 The Panel's terms of reference are the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the United States in document , the matter referred to the DSB by the
United States in that document, and to ma ke such findings as will assist the DSB in
making the recommendations or in giving the rulings provided for in those
agreements."
1.4 On 3 December 2007, the United States requested the Director-General to determine the
composition of the Panel pursuant to paragraph 7 of Article 8 of the DSU.
1.5 On 13 December 2007, the Director-General accordingly composed the Panel as follows:
Chairperson: Mr. Adrian Macey

 Members: Mr. Marino Porzio
 Mr. Sivakant Tiwari

1.6 Argentina, Australia, Brazil, Canada, the Eu ropean Communities, India, Japan, Korea,
Mexico, Chinese Taipei, Thailand and Turkey reser ved their rights to participate in the Panel
proceedings as third parties.
1.7 The Panel met with the parties on 14-16 April 2008 and on 18-19 June 2008. It met with the
third parties on 15 April 2008.
1.8 The Panel submitted its interim report to the parties on 9 October 20 08. The Panel submitted
its final report to the parties on 13 November 2008.
II. FACTUAL ASPECTS
A. M
EASURES AT ISSUE
2.1 The measures at issue in this dispute are identified in the United States' request for
establishment of a panel as follows:

1 WT/DS362/1.
2 WT/DS362/7, attached as Annex D-1 to this report.

1. Thresholds for criminal procedures and penalties
2.2 The United States claims that China has not pr ovided for criminal procedures and penalties to
be applied in cases of wilful trademark counterfeiti ng or copyright piracy on a commercial scale that
fail to meet certain thresholds. China has established these thresholds through the following
measures:
(a) the Criminal Law of the People's Republic of China (adopted at the Second Session
of the Fifth National People's Congress on 1 July 1979 and revised at the Fifth
Session of the Eighth National People's C ongress on 14 March 1997), in particular
Articles 213, 214, 215, 217, 218, and 220;
(b) the Interpretation by the Supreme Pe ople's Court and the Supreme People's
Procuratorate on Several Issues of Concrete Application of Law in Handling Criminal
Cases of Infringing Intellectual Property (adopted at the 1331 st Session of the Judicial
Committee of the Supreme People's Court on 2 November 2004 and the 28 th Session
of the Tenth Procuratorial Committee of the Supreme People's Procuratorate on
11 November 2004 and to be effective as of 22 December 2004); and
(c) the Interpretation by the Supreme Pe ople's Court and the Supreme People's
Procuratorate on Several Issues of Concrete Application of Law in Handling Criminal
Cases of Infringing Intellectual Property (II) (adopted on 4 April 2007, at the 1422 nd
Session of the Judicial Committee of the Supreme People's Court and the 75 th Session
of the Tenth Procuratorial Committee of th e Supreme People's Procuratorate, and to
be effective on 5 April 2007);
as well as any amendments, related measures, or implementing measures.

2. Disposal of goods confiscated by customs authorities that infringe intellectual property
rights
2.3 The United States claims that China's measures for disposing of confiscated goods that
infringe intellectual property rights are inconsis tent with China's obligations under the TRIPS
Agreement. In this regard, the measures at issue are:
(a) the Regulations of the People's Republic of China for Customs Protection of
Intellectual Property Rights (adopted at the 30th Ordinary Meeting of the State
Council on 26 November 2003, published by the State Council on 2 December 2003,
and effective from 1 March 2004), in particular Chapter 4 thereof;
(b) the Implementing Measures of Customs of the People's Republic of China for the
Regulations of the People's Republic of Ch ina on Customs Protection of Intellectual
Property Rights (adopted at an Administration Affairs Meeting of the General
Administration of Customs on 22 April 2004, issued by the General Administration
of Customs with Order No. 114 on 25 May 2 004, and effective from 1 July 2004), in
particular Chapter 5 thereof; and
(c) General Administration of Customs Announcement No. 16 (2 April 2007);
as well as any amendments, related measures, or implementing measures.

3. Denial of copyright and related rights pr otection and enforcement to works that have
not been authorized for publication or distribution within China
2.4 The United States claims that China is acting inconsisten tly with its obligations under the
TRIPS Agreement by denying the protection of its Copyright Law to creative works of authorship
(and, to the extent Article 4 of the Copyri ght Law applies to them, sound recordings and
performances) that have not been authorized for, or are otherwise prohibited from, publication or
distribution within China. In this regard, the measures at issue are:
(a) the Copyright Law of the People's Republic of China (adopted at the 15th Session of
the Standing Committee of the Seventh National People's Congress on 7 September
1990, and amended according to the Decision on the Revision of the Copyright Law
of the People's Republic of China, adopt ed at the 24th Session of the Standing
Committee of the Ninth National People's Congress on 27 October 2001), in
particular Article 4; 3
as well as any amendments, related measures, or implementing measures.

B. PROCEDURAL HISTORY
1. Translations
2.5 Paragraph 10 of the Working Procedures adopted by the Panel on 10 January 2008 provided
that where the original language of exhibits or text quoted in a submission was not an official WTO
language, the submitting party shall submit the original language version of that at the same time.
2.6 In view of certain differences between the parti es' respective translations of certain measures
the Panel, at its first substantive meeting, s uggested that the parties submit mutually agreed
translations of these measures. In communications dated 11 and 14 June 2008 , the parties submitted
mutually agreed translations ("MATs") of the following measures:
(MAT-1) Criminal Law (Articles 213, 214, 215, 217, 218 and 220)

(MAT-2) 2007 Judicial Interpretation (Articles 1 through 7)

(MAT-3) 2004 Judicial Interpretation (Articles 1 through 17)

(MAT-4) 1998 Judicial Interpretation (Article 17 paragraph 2)

(MAT-5) Prosecution Standards on Economic Crimes (Articles 8, 16, 23, 38, 39 and 70)

(MAT-6) Regulations on Customs Protection of Intellectual Property Rights (Article 27)

(MAT-7) Customs IPR Implementing Measures (Article 30)

(MAT-8) Customs Announcement No. 16/2007

(MAT-9) Measures on the Administration of Property Confiscated by Customs (Articles 1,
2, 3, 17 and 18)

3 The United States does not request relief in respect of certain other measures specified in its request
for establishment of a panel in conjunction with Article 4 of the Copyright Law.

(MAT-10) Law on Donations for Public Welfare

(MAT-11) Copyright Law (Articles 2 and 4)

(MAT-12) Regulations on the Administration of Films (Articles 2, 24, 25, 27, 28, 29, 31, 42
and 55)

(MAT-13) Regulations on the Administration of Audi ovisual Products (Articles 2, 4, 28 and
36)

(MAT-14) Regulations on the Administration of Publication (Articles 6, 26, 27, 40, 44, 45
and 56)

2. Request for factual information from the International Bureau of WIPO
2.7 On 21 April 2008, the Panel sent a letter to the International Bureau of WIPO requesting its
assistance in the form of any factual information availa ble to it relevant to the interpretation of certain
provisions of the Berne Convention for the Prot ection of Literary and Artistic Works (1971). 4 The
parties had been given the opportunity to comment on the draft letter at the Panel's first substantive
meeting.
2.8 The International Bureau's reply was received by the Panel and the WTO Secretariat on
7 June 2008. The Panel gave the parties an opportunity to submit comments on the reply by 7 July
2008. The United States submitted its comments on 7 July 2008. China informed the Panel that it
would not submit comments on the WIPO reply. China submitted comments on the United States'
comments on 21 July 2008.
2.9 The factual information provided by the Interna tional Bureau consists of a note that it
prepared and 16 annexes containing excerpts from the Official Records of the various Diplomatic
Conferences which adopted, amended or revised the provisions currently contained in Articles 5(1),
5(2) and 17 of the Berne Convention (Paris Act of 1971).
5
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. UNITED STATES
3.1 The United States requests that the Panel find that:
(a) China's IPR thresholds are inconsistent w ith China's obligations under Article 61, 1 st
and 2nd sentence, and Article 41.1 of the TRIPS Agreement;
(b) the compulsory sequences of steps set out in the Chinese measures mean that Chinese
customs authorities lack the authority to or der destruction or disposal of infringing
goods in accordance with the principles set out in Article 46 of the TRIPS
Agreement, and that the measures at issue are therefore inconsistent with China's
obligations under Article 59 of the TRIPS Agreement;
(c) the first sentence of Article 4 of China' s Copyright Law is inconsistent with
Article 9.1 of the TRIPS Agreement, inco rporating Articles 5(1) and 5(2) of the

4 The Panel's letter is attached as Annex D-2 to this report.
5 The International Bureau's Note, but not its annexes, is attached as Annex D-3 to this report.

Berne Convention (1971), as well as Article 14; Article 61, 1 st and 2nd sentence; and
Article 41.1 of the TRIPS Agreement.
3.2 The United States requests that the Panel recomme nd, pursuant to Article 19.1 of the DSU,
that China bring its measures into conformity with the TRIPS Agreement.
B. CHINA
3.3 China requests that the Panel find China's measur es to be consistent with China's obligations
under the TRIPS Agreement.
IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties as set forth in their executive summaries of their written
submissions submitted to the Panel, are attached to this Report as Annexes A and B (see List of
Annexes, page v).
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of the third parties as set fort h in their executive summaries of their written
submissions and oral statements submitted to the Pa nel, are attached to this Report as Annex C (see
List of Annexes, page vi).6
VI. INTERIM REVIEW
6.1 On 9 October 2008, the Panel submitted its interim report to the parties. On 23 October 2008,
the United States and China submitted written requests for review of precise aspects of the interim
report. On 30 October 2008, the United States a nd China submitted written comments on each other's
request for interim review.
6.2 The Panel has modified specific aspects of its re port, where it considered appropriate, in light
of the parties' comments as explained below, and made other modifications for the purposes of
accuracy and clarity. References to paragraph numbers and footnotes in this Section VI refer to those
in the interim report.
1. Copyright Law
Works that fail content review
6.3 China requests that the Panel consider ame nding paragraphs 7.87 and 7.103 to avoid
confusion regarding the parties' respective descriptions of works that have failed content review.
6.4 The United States opposes this request, as it be lieves that the Panel has accurately
characterized the positions that the parties expressed to the Panel.
6.5 The Panel has not made the requested modifica tion but modified paragraphs 7.87 and 7.88
and made consequential changes to paragraphs 7.103 and 7.118 to clarify its characterization of works
that have failed content review and works for which an edited version has been approved for
distribution in China, and to explain why it do es not accept some of China's description of such
works.

6 India, Thailand and Turkey did not make written submissions. Argentina, India and Turkey did not
make oral statements.

Rights specially granted by the Berne Convention
6.6 The United States requests that paragraph 7.107 be modified so as to add a reference to
Article 14bis, and to delete the re ference to Article 14ter, in the list of rights specially granted by the
Berne Convention (1971).
6.7 China responds that the request to add a reference to Article 14 bis is not warranted. That
Article does not articulate any independent rights, and the request is unnecessary in view of the
Panel's footnote providing that the enumeration of minimum rights is without prejudice.
6.8 The Panel has modified the list to add a reference to Article 14 bis which provides for the
grant of a right to a particular category of work s. The Panel has not deleted the reference to
Article 14ter, as it provides for a distinct right, but this is without prejudice to the provisions of
Article 14 ter(2) and (3). The Panel has also deleted th e reference to Article 13 and reiterates its
statement in footnote 111 that this list is without prejudice to other such rights.
Effectiveness of prohibitions on content
6.9 China requests that paragraph 7.138 be modified to refer to Article 364 of the Criminal Law
and Article 56 of the Film Regulations.
6.10 The United States responds that, in the contex t discussed in paragraph 7.138, China only
referred to Article 56 of the Film Regulations and that that Article does not change the substance of
the Panel's finding in that paragraph.
6.11 The Panel has not made the requested modi fication because the paragraph in question
concerns the actual effectiveness of enforcement ac tions whilst China's comment refers to standards
set out in legislation. The Panel has also merged this paragraph with the previous one, for clarity.
Other modifications
6.12 China requests a clarification in paragraph 7.1 01 regarding the jurisdiction of its copyright
authorities. The Panel has made the clarification.
6.13 The United States requests that paragraph 7.136 be modified to track the text of the response
quoted. The Panel has made the requested modification.
2. Customs measures
Donation to social welfare bodies
6.14 The United States requests that paragraph 7.310 be modified because there are circumstances
in which donation is possible to other social welfare bodies besides the Red Cross.
6.15 China responds that the United States appears to misinterpret the second sentence of
paragraph 7.310 because that sentence simply observ es that Customs has the power to donate to the
Red Cross in all instances where it can donate to other social welfare organizations.
6.16 The Panel has not made the requested modification. The point of the paragraph in question is
that China Customs has authority to donate infringing goods to the Red Cross Society of China, with
whom it has a donation agreement, and that author ity to donate infringing goods to other social
welfare bodies does not preclude that authority. The Panel has modified the paragraph, for clarity.

Auction and authority to order the destruction of infringing goods
6.17 The United States requests that paragraph 7.34 1 be modified due to a systemic concern
because the Panel appears to take the position that the word "shall", when used in Chinese legal
measures, does not impose a mandatory legal obligation. The meaning of the Chinese term translated
as "shall" in the formal legal context differs from its meaning in other contexts. It was because of this
difference that the parties agreed that the correct translation was "shall" for the purposes of translation
into English. China conf irmed that the use of the verb "shall" in the context of the measures at issue
meant that once Customs makes particular findings it has a legal obligation to carry out the relevant
disposal option.
6.18 China responds as follows: (1) in reaching the mutually agreed transl ation, there was no
discussion between the parties on whether the meaning of the word translated as "shall" in formal
legal contexts was different from its meaning in ot her contexts; (2) the Panel's assessment of the
measure is a factual finding particular to this di spute and does not affect future assessments by other
panels in other disputes involving China's domestic la w; (3) the dictionary definition of the word
translated as "shall" forms part of the Panel's asse ssment of the meaning of the measure and the Panel
is within its authority in using such a source.
6.19 The Panel notes that the English word "shall" is only used in a non-authentic translation.
Even then, the word is used speci fically in the description of the auction method in only one of the
three Customs measures, and that measure is a lo wer norm. The United States' case seems to place
great weight on the choice of the word "shall" in the translation of that lower norm. This may not be
the case in other disputes. However, in this dispute, the Panel is not satisfied that the translation, on
an objective assessment, can support the conclusion th at the United States apparently seeks to draw
from it as regards the conformity of the measures at issue with China's WTO obligations. The Panel
has modified the paragraph, in part as requested.
Auction and "simple removal of the trademark unlawfully affixed"
6.20 China requests a revision of the conclusion in paragraph 7.397(c) for the following reasons:
(1) Article 46 does not apply to goods from which all infringing features have been removed as they
are no longer infringing; (2) reaffixing a coun terfeit trademark constitutes a separate act of
infringement; and (3) US authorities may publicly auction merchandise after obliteration of the
trademark.
6.21 The United States opposes this request, and resp onds to China's three reasons as follows:
(1) this is just a variant of an argument that the interim report already disposes of in paragraphs 7.381-
7.382; (2) this is irrelevant as the obligation in th e fourth sentence of Article 46 refers to a procedure
not the substantive legal effect of affixing a counterfeit trademark; (3) the United States has
previously demonstrated that China's arguments re garding this aspect of US law are irrelevant and
without merit.
6.22 The Panel has not made the requested modificati on for the reasons already given in paragraph
7.235 regarding the temporal scope of the obligati ons in Article 46, paragraph 7.264 noting that the
"counterfeit trademark goods" referred to in the four th sentence of Article 46 are a category of the
infringing goods covered by that Article, and para graphs 7.375 and 7.382 regarding the insufficiency
of ceasing infringement. The Panel has modified paragraph 7.382 to emphasize that the fourth
sentence of Article 46 imposes an additional require ment and clarified paragraph 7.388. The third
point raised by China in its interim review comment s concerns US measures which are not part of the
matter before the Panel.

Exceptional cases
6.23 The United States requests a clarification before paragraph 7.396 that the Customs measures
provide that simple removal of the trademark unlawfu lly affixed is sufficient to permit release of the
goods into the channels of commerce in more than just exceptional cases.
6.24 China responds that the text of TRIPS uses th e formulation "other than in exceptional cases"
so that the request that the Panel alter the text of its finding is unwarranted by the record evidence and
the text of TRIPS.
6.25 The Panel has added the requested clarification. The Panel has used the phrase "more than
just exceptional cases" as requested because it i ndicates that the Customs measures do not comply
with the formulation in the fourth sentence of Article 46 of the TRIPS Agreement as regards
exceptional cases.
3. Criminal thresholds
Construction of the measures at issue
6.26 The United States requests that the subheading above paragraph 7.471 be modified.
6.27 China considers that the subheading is neither inaccurate nor misleading.
6.28 The Panel has made the requested modification, for clarity.
"on a commercial scale"
6.29 The United States requests adjustments of the te xt or the insertion of cross-references for
clarity to indicate that certain paragraphs refer to the concept in paragraphs 7.579 and 7.580.
6.30 The Panel has not made the requested adjustments. Paragraph 7.600 states that the
interpretation of "on a commercial scale" is set out in paragraph 7.579 and that the Panel will apply
that interpretation in the following sub-section. Para graphs 7.605 and 7.607 re late that interpretation
to China's marketplace. The Panel has modified one aspect of paragraph 7.580 and added a new
paragraph introducing the remainder of the Panel's assessment.
Article 63.3 of the TRIPS Agreement
6.31 The United States requests that paragraph 7.631 be modified to delete a reference to
Article 63.3 of the TRIPS Agreement as it could be misunderstood.
6.32 China objects to this request because it understands that the Panel included this statement as
part of the explanation of its treatment of the ev idence on the record. The US concern is misplaced
because Article 63.3 of the TRIPS Agreement is not part of the matter before the Panel and the Panel's
use of the word "notwithstanding" indicated that th e conclusions in this section are made setting aside
any issues relating to Article 63.3.
6.33 The Panel has made the requested modification to avoid any possible misunderstanding as to
the meaning of Article 63.3 of the TRIPS Agreement.

Physical evidence
6.34 The United States requests that paragraph 7.642 be modified as regards the anti-counterfeiting
efforts of Nintendo of America.
6.35 China responds that paragraph 7.642 requires no change. Only three criminal cases were
analysed in the Nintendo report and the record of this dispute does not disclose the status of two of
them.
6.36 The Panel has made the requested modification, in part, but drawn no conclusion as to the
status of two of the cases analysed in the Nintendo report.
VII. FINDINGS
A. COPYRIGHT LAW
1. Description of the measure at issue
7.1 This Section of the Panel's findings concerns China's Copyright Law. The Copyright Law
was adopted by the Standing Committee of the Na tional People's Congress and promulgated in 1990
then amended by a Decision of the Standing Co mmittee of the National People's Congress in 2001.
The claims concerning the Copyright Law address, in particular, the first sentence of Article 4. The
parties agreed to translate that sentence as follows:
"Works the publication and/or dissemination of which are prohibited by law shall not
be protected by this Law."7
7.2 This Report refers to the first sentence of Ar ticle 4 as "Article 4(1)" for ease of reference,
although the original version does not use paragraph numbers within that Article.
2. Claim under Article 2(6) of the Berne Convention (1971), as incorporated by Article 9.1
of the TRIPS Agreement
7.3 The United States informed the Panel in its co mments on the draft descriptive part of this
Report that it makes a claim under Article 2(6) of the Berne Convention (1971), as incorporated by
Article 9.1 of the TRIPS Agreement. In this rega rd, it refers the Panel to arguments in its written
submissions. It also notes that its request for estab lishment of a panel referred to "Articles 1 through
21 of the Berne Convention".8
7.4 The Panel recalls that its terms of referenc e are limited to the matter set out in the
United States' request for establishment of a panel.9 The Panel also recalls that Article 6.2 of the DSU
provides that a request for establishment of a panel shall, inter alia "provide a brief summary of the
legal basis of the complaint sufficient to present the problem clearly".
7.5 In the present dispute, the request for establishmen t of a panel refers to Article 5(1) and 5(2)
of the Berne Convention (1971), followed by the inco rporation provision in Article 9.1 of the TRIPS
Agreement. The request sets out three sentences on the measure at issue, then one sentence reciting
terms used in Article 5(1) of the Berne Convention (1971), followed by a conclusion under Article 9.1
of the TRIPS Agreement, then another sentence re citing terms used in Article 5(2) of the Berne

7 Mutually agreed translation no. 11.
8 United States' comments on the draft descriptive part of the report dated 4 September 2008.
9 See the Notice of Constitution of the Panel in document WT/DS362/8.

Convention (1971), followed by a conclusion under Article 9.1 of the TRIPS Agreement. The request
makes no specific reference to Article 2 of the Berne Convention (1971) at all.
7.6 It was in this context that the request for estab lishment of a panel recited part of the terms of
Article 9.1 of the TRIPS Agreement, insofar as it requires all WTO Members to comply with
"Articles 1 through 21" of the Berne Convention. There is no indication that the reference to the
terms of the Berne Convention (1971) incorporat ed by Article 9.1 of the TRIPS Agreement was
intended to refer to any particular provision of that Convention besides Article 5(1) and 5(2).
7.7 The Panel notes that Articles 2 and 5 of the Bern e Convention (1971) are incorporated in the
TRIPS Agreement by the same provision, i.e. Article 9.1 of the Agreement. However, a reference to
Article 9.1 of the TRIPS Agreement and a broad refe rence to 28 incorporated provisions of the Berne
Convention (1971) are not sufficient to "provide a brief summary of the legal basis of a complaint
sufficient to present a problem clearly". In such circumstances, the respondent, third parties and the
Panel cannot know which particular obligations under the Berne Convention (1971) are at issue.
7.8 The Panel notes that its approach to the prope r way to summarize the legal basis of a claim
under the provisions of an intellectual property convention incorporated in the TRIPS Agreement is
consistent with the approach followed in the Panel Report in EC – Trademarks and Geographical
Indications (Australia) which ruled that a claim regarding a provision of the Paris Convention (1967)
that had not been specifically mentioned in the re quest for establishment of a panel was outside its
terms of reference.
10
7.9 For the above reasons, the Panel finds that the request for establishment of a panel discloses
no claim under Article 2(6) of the Berne Conventio n (1971), as incorporated by Article 9.1 of the
TRIPS Agreement.
7.10 Even if the Panel were to accept arguendo that the request for establishment of a panel had
been unclear in its broad reference to the incor porated provisions of the Berne Convention (1971) and
its specific reference to the "protection" of "works " (terms used in Article 2(6), as in many other
provisions of the Berne Convention (1971)), the United States' first written submission did not
explicitly make any claim regardi ng Article 2(6) of the Berne Convention (1971) either. The United
States argued in its first written submission that sev eral of the Berne Convention Articles with which
China must comply pursuant to TRIPS Article 9.1 "are relevant" in this dispute. It quoted Article 5(1)
of the Berne Convention (1971), then mentioned ten ot her provisions of that Convention in order to
elaborate on the meaning of certain phrases used in Article 5(1), regarding "works" and "the rights
specially granted". 11 Article 2(6) was one of those ten othe r provisions. None of those references
hinted at a claim under any provision besides Ar ticle 5(1). The United States also argued that
Article 4 of the Copyright Law excludes from copyright protection an entire category of works, but
that exclusion from protection is not permitted or ev en contemplated by the Berne Convention. It
mentioned six provisions of Articles 2 and 2 bis of the Berne Convention (1971) in support of that
argument.
12 Article 2(6) was one of those six provisions . However, there was no explicit statement
that a separate claim was being made under Article 2(6).
7.11 China understood that the United States' cl aims under the Berne Convention (1971), as
incorporated by Article 9.1 of the TRIPS Agreement, were made under Article 5(1) and 5(2).13

10 Panel Report in EC – Trademarks and Geographical Indications (Australia), paras 7.37-7.43.
11 United States' first written submission, paras 210-214.
12 United States' first written submission, paras 215-216.

7.12 None of the third parties referred to a clai m under Article 2(6) of the Berne Convention
(1971), as incorporated by Article 9.1 of the TRIPS Agreement.
7.13 Even in its rebuttal submission, the United Stat es did not clarify explicitly that it wished to
make a claim under Article 2(6) of the Berne Conven tion (1971), as incorporated by Article 9.1 of the
TRIPS Agreement. Rather, it presented only two claims regarding the provisions of the Berne
Convention. In the first, it argued that Article 4 of the Copyright Law denies copyright to works
contrary to China's obligations under Article 9.1 of the TRIPS Agreement and "the provisions of the
Berne Convention" referenced in Article 9.1. It s arguments regarding "works" and "rights" supported
a single claim which, in light of the request for estab lishment of a panel, appeared to be the original
claim under Article 5(1), as incorporated by Article 9.1 of the TRIPS Agreement. It referred to two
provisions of Article 2, one of which was Article 2(6), without expressly articulating a claim under
Article 2(6). A subheading asserted an inconsiste ncy with "Articles 2 and 5(1) of the Berne
Convention" but, given that the definition of work s in Article 2 is relevant to the claim under
Article 5(1) (as shown in the Panel's consideration of the claim under Article 5(1) at paragraphs 7.115
and 7.116 below), it was still not clear that the United States wished to assert a separate claim under
Article 2 of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.
7.14 For the above reasons, even if the Panel were to accept arguendo that the request for
establishment of a panel had been unclear, the Panel finds that the United States' submissions to the
substantive meetings with the Panel did not clarify that a claim was being made under Article 2(6) of
the Berne Convention (1971), as incorporated by Ar ticle 9.1 of the TRIPS Agreement, in accordance
with Article 6.2 of the DSU.
7.15 Therefore, in light of the above, the Panel finds that a claim under Article 2(6) of the Berne
Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, lies outside the Panel's
terms of reference.
3. Claim under Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1
of the TRIPS Agreement
(a) Main arguments of the parties
7.16 The United States claims that Article 4(1) of China's Copyright Law denies the protection of
the Copyright Law to certain categories of works, and refers to the text of that sentence. The
United States recalls that China, during a review of its legislation in the Council for TRIPS in 2002,
explained that this sentence referred to works of which the publication or distribution was prohibited
by such laws and regulations as the Criminal Law, the Regulation on the Administration of Publishing
Industry, the Regulation on the Administration of Broadcasting, the Regulation on the Administration
of Audiovisual Products, the Regulation on the Admi nistration of Films and the Regulations on the
Administration of Telecommunication. The United States gives examples of four regulations that
prohibit the publication or distribution of works under various circumstances. 14 The United States
claims that Article 4(1) of China's Copyright Law denies to the authors of works "the publication or
distribution
15 of which is prohibited by law" the broad set of rights enumerated in Article 10 of the
Copyright Law, which largely encompasses the rights contemplated by the provisions of the Berne
Convention (1971). Nor do authors of works denied protection of the Copyright Law benefit from the
remedies specified in Articles 46 and 47 of the C opyright Law. Consequently, the authors of such
works do not enjoy the minimum rights that are "s pecially granted" by the Berne Convention,

14 United States' first written submission, paras 68-69, referring to Review of Legislation (China) in
document IP/Q/CHN/1, p. 26; and paras 70-85.
15 This translation was taken from China's notifica tion to the Council for TRIPS in IP/N/1/CHN/C/1.
The parties later agreed that it should be translated as "publication and/or dissemination".

inconsistently with Article 5(1) of that Convention. 16 The United States submitted more detailed
arguments with respect to content review in rela tion to Article 5(2) of the Berne Convention (1971)
(see paragraph 7.145 below).
7.17 China responds that copyright vests upon crea tion and is independent of publication.
Article 2 of the Copyright Law grants full copy right protection by expressly incorporating into
Chinese law the rights conferred under internationa l agreements, including the Berne Convention and
the TRIPS Agreement. In contrast, Article 4(1) of the Copyright Law is extremely limited in scope.
China, like many other countries in the world, bans from publication and dissemination such works as
those that consist entirely of unconstitutional or immo ral content. Article 4(1) simply provides that
such a work shall not be protected by the Copyright Law. China argued in its first written submission
that the application of Article 4(1) was not de pendent on content review or any other regulatory
regime related to publication and that the only result of a finding of prohibited content in that process
was a denial of authority to publish, not a denial of copyright. Specifically, China argued that works
that fail content review were not denied copyright protection. 17 Article 17 of the Berne Convention
(1971) subjects to the sovereign power of governme nts all of the rights otherwise granted by that
Convention.18
7.18 At the first substantive meeting with the Panel, the United States stated that China's written
submission appeared simply to concede that Article 4 of its Copyright Law was inconsistent with its
obligations under the TRIPS Agreement because it ad mitted that Article 4(1) denies protection to
works whose contents are prohibited.19
7.19 At the same meeting, China confirmed parts of its first written submission but clarified that,
with respect to a work edited to pass content review, it would protect copyright in the edited version
of the work, including against copies of the unedite d version that infringed copyright in the edited,
approved version. With respect to works that failed content review, China informed the Panel that it
intended to provide additional written comments and clarification of its position later.20
7.20 China provided its additional comments together with its responses to the Panel's questions
after the first substantive meeting and asked the Panel to rely on these a dditional comments to the
extent that they were inconsistent with its firs t written submission. China confirmed that it would
protect copyright where a work was edited to p ass content review. Where no authorized edited
version had been created, it would en force copyright in the legal portio n of the original work against
copies of an unauthorized edited version. However, it would not enforce copy right against unedited,
prohibited copies of an unedited, prohibited work that failed content review.21
7.21 At the same time, in response to the Panel's questions, China submitted that Article 4(1) of the
Copyright Law did not affect the vesting of copyright under Article 2 of that Law. China asked the
Panel to note that under the Chinese system of copy right, "copyright" and "copyright protection" are
distinguishable. To the extent that Article 4(1) of the Copyright Law would come into play with
respect to a work, it would operate not to remove co pyright, but to deny the particularized rights of
private copyright enforcement.
22

16 United States' first written submission, paras 217-219.
17 China's first written submission, paras 228-230 an d 234-254. Paras 243-252 were later revised by
China's response to Question No. 52.
18 China's first written submission, paras 255-263.
19 United States' first oral statement, para. 79.
20 China's first oral statement, paras 81-86.
21 China's response to Question No. 52. See also responses to Question No. 51 and US Question No. 2.
22 China's response to Question No. 44; reiterated in its rebuttal submission, para. 281.

7.22 The United States notes that China admits that it denies copyright protection to certain works
whose contents Chinese authorities determine are prohibited by law and submits that, therefore, China
has confirmed that it is acting inconsistently w ith its obligations under Article 9.1 of the TRIPS
Agreement. The United States rebuts China's arguments as follows: first, even if Article 2(2) of the
Copyright Law grants protection to foreigners' wo rks, Article 4(1) denies protection to those for
which publication or distribution is prohibited by la w. Article 2 cannot, by the terms of Article 4,
apply to such works. Second, as Article 4 denies th e exclusive rights enumerated in Article 10 of the
Copyright Law, the minimum set of exclusive rights guaranteed by Article 5(1) of the Berne
Convention (1971) is denied to such works. Th e distinction between "copyright" and "copyright
protection" is not found in the text of the Berne C onvention and is irrelevant. Third, Article 4(1)
creates significant commercial uncertainty and, where it is clear that a work has been denied copyright
protection, allows pirates to profit at the expense of the legitimate right holder, including by
exporting.
23 Article 17 of the Berne Convention (1971) does not permit Members to deny copyright
protection to authors in their respective works.24
7.23 China responds that the United States has failed to make a prima facie case with respect to its
view that copyright protection is contingent upon content review (see paragraph 7.145 below). The
whole claim with respect to Article 4(1) of the Copy right Law must therefore fail. With respect to the
claim of a facial violation, there is a strong pr esumption that a Member's law is WTO-compliant and
the United States has offered no evidence in support but the text of Article 4(1) of the Copyright Law
itself. Article 2 of the Copyright Law directly implements an author's rights under the Berne
Convention into Chinese law. The scope and opera tion of Article 4(1) of the Copyright Law are
extremely limited.
25 The sovereign power to prohibit works, recognized in Article 17 of the Berne
Convention (1971), permits Members to maintain a provision of law such as Article 4(1) of the
Copyright Law.26
(b) Main arguments of third parties
7.24 Argentina considers that Article 4(1) of the C opyright Law appears to deny to works that are
prohibited or not permitted the protection establishe d in Article 10 of the Copyright Law, which
contains the rights enumerated in the Berne Convention (1971). This does not imply that China has
no right to prohibit the publication or distribution of certain kinds of works. In fact, Article 17 of the
Berne Convention (1971) contemplates such a possibility.
27
7.25 Canada notes that China has admitted that Article 4(1) of its Copyright Law refers to works,
including those of the Berne Union, that the Ch inese authorities find unconstitutional or immoral, and
that these works are not protected in China. Cana da does not see how this conclusion is affected by
the second sentence of Article 2 of the Copyright La w as Article 4 seems to take precedence. Canada
agrees that Members can prohibit the publication and distribution of work but considers that Members
do not have a right to deny copyright protection to them.28
7.26 The European Communities notes that China acknow ledges that Article 4(1) of its Copyright
Law denies copyright protection for works "the publi cation or distribution of which is prohibited"
because of "unconstitutional or immoral" or "reac tionary, pornographic or superstitious" content.
Such denial of protection is not covered by the exemptions or limited exceptions permitted under the

23 United States' rebuttal submission, paras 184-194.
25 China's rebuttal submission, paras 225-226, 266-269, 276-277 and 281.
26 China's rebuttal submission, paras 286-306.
27 Argentina's third party written submission, paras 89-91.
28 Canada's third party written submission, paras 22-23; third party oral statement, para. 15.

Berne Convention (1971) and the TRIPS Agreement. Article 17 of the Berne Convention (1971) does
not allow limiting exclusive rights or even exempting works from protection.29
7.27 Chinese Taipei considers that, without a content review, it can never be determined whether a
work is unconstitutional or immoral. Works that have not passed, or that fail to pass, content review
are prohibited from distribution by law, which means that they fall within the scope of Article 4(1) of
the Copyright Law. Clarification is required as to whether China protects works that have not been
submitted for a content review or that are pending authorization. Even if Article 4(1) of the Copyright
Law were limited to works that fail to pass a conten t review, this withdrawal of protection would be
inconsistent with the obligation under Article 9.1 of the TRIPS Ag reement and Article 5(1) of the
Berne Convention (1971). Chinese Taipei shared the vi ew of both parties that China has the right to
conduct content review based on Article 17 of the Berne Convention (1971).30
(c) Consideration by the Panel
(i) Construction of the measure at issue
7.28 The Panel notes that this claim challenges China' s Copyright Law, in particular Article 4(1),
not as it has been applied in any particular instance but "as such". The parties have disagreed on the
proper interpretation of that measure since shortly af ter the first substantive meeting. Therefore, the
Panel is obliged, in accordance with its mandate, to make an objective assessment of the meaning of
the relevant provisions of that measure. In this context, the Panel is mindful that, objectively, a
Member is normally well-placed to explain the meaning of its own law. 31 However, in the context of
a dispute, to the extent that either party advan ces a particular interpretation of a provision of the
measure at issue, it bears the burden of proof that its interpretation is correct. 32 The Panel emphasizes
that it examines the measure solely for the purpo se of determining its conformity with China's
obligations under the TRIPS Agreement.33
7.29 The United States claims that Article 4(1) of the Copyright Law on its face denies immediate,
automatic protection to certain works of creative authorship.34
7.30 China responds that this claim is based on th e "mistaken view" that copyright protection in
China is contingent upon successful completion of content review. 35 In the course of addressing the
issue of when copyright vests under Chinese law, China acknowledged that Article 4(1) of the
Copyright Law denies protection to certain works due to their content.36
7.31 The United States stated at the first subs tantive meeting that, in view of that
acknowledgement, China appeared simply to con cede that Article 4 of the Copyright Law was
inconsistent with China's oblig ations under the TRIPS Agreement. 37 Canada and the European

29 European Communities' third party written submission, paras 22-27; oral statement, para. 21.
30 Chinese Taipei's third party written submission, paras 33-40.
31 China stresses that part of this claim involves "an arcane area of Chinese law, with little practical
application, and with respect to wh ich there is little or no practical experience on which to base legal
judgments": see China's response to Question No. 52.
32 See the Panel Reports in EC – Trademarks and Geographical Indications (US) , at para. 7.55, and
EC – Trademarks and Geographical Indications (Australia), at para. 7.106.
33 See Appellate Body Report in India – Patents (US), paras 65-68.
34 United States' first written submission, para. 196.
35 China's first written submission, para. 8.
36 China's first written submission, paras 229 and 243
37 United States' first oral statement, para. 79.

Communities, as third parties, took the same view. 38 Argentina considered that the text of Article 4
was straightforward.39
7.32 After that meeting, China clarified the terms of its earlier acknowledgement . It clarified that
Article 4(1) denies "copyright protection" in the sense of enforcement but does not disturb
"copyright".40
7.33 The United States dismissed China's clarification as an "artificial distinction".41
7.34 The Panel begins its assessment by observing that Chapter I of the Copyright Law comprises
eight articles. Article 1 sets out the purpose of the law, which includes th e purpose of protecting the
copyright of authors in their literary, artistic and scientific works and the rights and interests related to
copyright.
7.35 Article 2 sets out criteria of eligibility for protec tion. The first paragraph (to which the Panel
will refer as "Article 2(1)") may be translated as follows:
"Chinese citizens, legal entities or other orga nizations shall enjoy copyright in their
works in accordance with this Law, whether published or not."42
7.36 The second (to which the Panel will refer as "Article 2(2)") may be translated as follows:
"The copyright enjoyed by foreigners or st ateless persons in any of their works under
an agreement concluded between China and the country to which the author belongs
or in which the author has his habitual resi dence, or under an international treaty to
which both countries are parties, shall be protected by this Law."43
The Berne Convention (1971) is defined as an "inter national copyright treaty" for the purposes of the
Provisions on the Implementation of International Copyright Treaties.44

7.37 Article 3 sets out a non-exhaustive list of "w orks" for the purposes of this Law, including
works of literature, art, natura l sciences, social sciences, engineering and technology which are
created in the form of any of a series of enumerated works.
7.38 Article 4 provides inter alia that certain "works" shall not be protected by this Law.
7.39 Article 5 sets out subject matter to which this Law does not apply (that appears to concern
subject matter that falls into the public domain or is considered to lack originality).
7.40 Article 6 provides that certain works will be dealt with in other measures.45

38 Canada's third party written submission, para . 22; European Communities' third party written
39 Argentina's third party written submission, para. 82.
40 China's response to Question No. 44; rebuttal submission, paras 280-281.
41 United States' second oral statement (closing statement), para. 25.
42 Mutually agreed translation no. 11.
43 Mutually agreed translation no. 11.
44 Provisions on the Implementation of International Copyright Treaties, promulgated by decree of the
State Council in 1992 and effective from 1992, Article 3, reproduced in Exhibit CHN-117. These Provisions,
which predate the TRIPS Agreement, do not refer to th e TRIPS Agreement in the definition of "international
copyright treaties", although other legal provisions might. The United States has not challenged this aspect of
the measure.

7.41 A link can be observed between Article 2(2) and 4(1). Article 2(2) provides that the
copyright enjoyed by certain foreigners in any of their works "shall be protected by this Law" ( 受本法
保护) whilst Article 4(1) uses identical langua ge with the addition of a negative ( 不) to provide that
certain works "shall not be protected by this Law" ( 不受本法保护). This suggests that Article 4(1)
denies what Article 2(2) grants.
7.42 Turning to Article 4(1), the text of this provision is quoted at paragraph 7.1 above.
7.43 The term "works" (作品) is defined in the previous article, Article 3.
7.44 The term "publication and/or dissemination" ( 出版、传播) was agreed between the parties as
an appropriate translation. The parties had earlie r used the phrases "publication or distribution" and
"publication and dissemination". China alleges th at the word translated as "dissemination" ( 传播) has
a distinct, and wider, meaning than a word common ly used in its content review regulations, which
may be translated as "distribution" (发行).46
7.45 The term "prohibited by law" ( 依法禁止), on its face, is not limited to any particular piece of
legislation but could apply to any law that prohib its the publication and/or dissemination of a work.
The United States alleges that it refers to "other laws and regulations". 47 In any event, it is clear from
its wording that the provision applies to a class of "works", the class be ing defined as those the
publication and/or dissemination of which are, in some way, prohibited by law. (This phrase is
examined in greater detail at paragraphs 7.72 to 7.82 below.)
7.46 The phrase translated as "shall not be protected by this Law" (
不受本法保护) does not include
the word "shall" in the original, as it uses no modal verb . However, it is not disputed that Article 4(1)
of the Copyright Law is mandatory. The reference to "this Law" (本法) is evidently a reference to the
Copyright Law. On its face, it refers to the protec tion of the Copyright Law and not to any subset of
its protection.
7.47 The United States explained that this phrase provided for the denial of the rights enumerated
in Article 10 of the Copyright Law and the remedies in Articles 46 and 47 of the Copyright Law. 48
China agreed that it included all the rights listed in Article 10.49
7.48 The Panel observes that the protection provi ded by the Copyright Law is addressed inter alia
in Chapter II, Section 1 titled "Copyright Owners and Their Rights". That Section includes
Article 10, which provides that "copyright" includes a list of four moral rights and 13 economic rights
set out in the first paragraph of that Article. The economic rights include, for example, (5) the right of
reproduction; (11) the right of broadcasting; (14) the right of adaptation; and (15) the right of
translation. Every specific right in that list relates to "a work" (
作品). The second paragraph of
Article 10 provides that copyright owners may "authorize" others' exercise of the economic rights set
out in subparagraphs (5) through (17). Chapter II, Section 3, titled "Term of Protection for the
Rights" provides in Article 21 for the term of "protection" for the economic rights set out in
subparagraphs (5) through (17) of the first paragraph of Article 10.
7.49 The economic rights appear to be exclusive rights in light of, inter alia , Article 11, which
provides that the copyright in a work shall belong to its author, and Article 24, which provides that

45 The remaining provisions of Chapter I concern the departments responsible for administration
(Article 7); and collective copyright administration (Article 8).
46 China's first written submission, fn. 261.
48 United States' first written submission, paras 217-218.
49 China's response to Question No. 89.

anyone who exploits another person's work shall c onclude a copyright licensing contract with the
copyright owner, subject to exceptions.
7.50 The Panel finds that the Copyright Law is su fficiently clear, on its face, to show that
Article 4(1) denies the protection of Article 10 to certain works, including those of WTO Member
nationals, as the United States claims.
7.51 This interpretation is consiste nt with, and clarified by, the view expressed by the Supreme
People's Court of China in the course of domestic litig ation in 1998, to which the Panel will refer as
"the Inside Story case".50 The United States submitted a letter sent from the Supreme People's Court
to a provincial Higher People's Court during that c ase, which the Supreme People's Court reissued in
2000. 51 This letter, from China's highest judicial body, is instructive in the interpretation of
Article 4(1) of the Copyright Law. 52 That case concerned a book, the publication of which violated
administrative regulations but the content of which di d not violate any laws. In the letter, the Court
ruled that it was correct for the courts of the fi rst and second instances to provide protection under the
Copyright Law to the book at issue for the following reason:
"The Inside Story was originally published in the magazine 'Yanhuang Chunqiu'
(1994, No. 2). In May of the same year, the United Front Department of the Sichuan
Provincial Communist Party Committ ee reviewed the book and approved its
publication. Nothing was found in the text of the Inside Story to violate any laws.
Therefore, it is correct for the courts of the first and second instances to provide it
protection under the Copyright Law."53
7.52 The Panel finds that the Suprem e People's Court letter confirms that Article 4(1) of the
Copyright Law denies copyright protection and cl arifies that Article 4(1) applies where the
publication and/or dissemination of a work is prohibited due to its content.
7.53 The Panel notes that China's own submissions support this view. In the course of its
submission that the application of Article 4(1) of the Copyright Law does not depend on content
review or any other regulatory regime related to publication (in defence of the claim that content
review constituted a "formality" unde r Article 5(2) of the Berne Convention (1971)), China made the
following statements:
"China, like many countries in the worl d, bans from publication and dissemination
such works as those that c onsist entirely of unconstitutional or immoral content.
Art. 4.1 simply provides that such a work also shall not be protected by the Copyright
Law. …" 54
"As a matter of law, Article 4.1 of the Copyright Law only denies protection to works
whose contents are completely unconstitutional or immoral."55

50 The title of the book that was the subject of the dispute begins with the words "Inside Story".
51 Letter from the Supreme People's Court to the Hunan Province Higher People's Court in Zheng
Haijin v Xu Zheng Xiong and Tianjin People's Publishing House (知监字 [1998] Letter no. 33). The letter was
redistributed by the Supreme People's Court on 9 March 2000 in an intellectual property document series. It is
now listed on the website of the State Intellectual Property Office under the heading "judicial interpretation" (司
法解释). The original version is reproduced in Exhibit US-60.
52 The Panel notes that judicial decisions in China do not have a binding effect for other courts but
serve as a reference only.
53 Exhibit US-60.
54 China's first written submission, para. 229.
55 China's first written submission, para. 243.

"China also notes that to the extent that Ar t. 4.1 independently of the content review
process might act to deny copyright protec tion to a work independently found by a
court to be prohibited by law, this act of prohibition is protected by Berne Convention
Art. 17 …" 56
7.54 China submitted a written reply from the Na tional Copyright Administration of China
("NCAC") to the Supreme People's Court in the Inside Story case, in response to a request from the
Supreme People's Court prior to sending the letter quoted at paragraph 7.51 above. China quoted the
NCAC reply in its first written submission which stated, in part, as follows:
"Under the Copyright Law, the copyright is created upon the composition of the
work. In general, the author is entitled to the copyright, and is protected by the
Copyright Law. Only works the publicati on or dissemination of which are prohibited
by law are not protected by the Copyright Law. Yet the '[w]orks the publication and
dissemination of which are prohibited by law' in Article 4 of the Copyright Law refer
only to works whose contents are illegal (reactionary, pornographic, or superstitious
contents). If the contents of Inside are illegal, it will not be protected by Copyright
Law, and all the presses shall neither publish nor disseminate it. …" 57
7.55 From the above, China concluded in its first written submission as follows:
"Thus, the NCAC had clarified that only when the contents of the work are found to
be illegal will Article 4.1 come into play ; violation of publishing rules does not
deprive the right-holder the right to have its copyright protected and enforced by
law."
58
7.56 In its first oral statement, China stated as follows:
"China also notes that while Article 4.1, on its face, could operate to deny protection
to works whose contents are illegal or im moral, the content review process operates
independently of Article 4."59
7.57 The above evidence confirms the Panel's finding at paragraph 7.50 above, as confirmed and
clarified at paragraph 7.52. Later, China con tinued to confirm the same point (subject to a
clarification, discussed at paragraph 7.61 below) but explained that deni al of protection under
Article 4(1) of the Copyright Law was subject to a determination by a court or the NCAC. In
response to questions after the first substantive meeting, China stated that:
"Article 4.1 of China's Copyright Law em powered China's courts and the National
Copyright Administration of China to deny copyright protection to works that are
prohibited by law."60
7.58 In its rebuttal submission, China reiterated the point as follows:
"Nor does Art. 4.1 function in any other way as a condition precedent to copyright. …
Art. 4.1 is envisaged by China's authoriti es to operate as a condition subsequent in

56 China's first written submission, para. 280.
57 China's first written submission, para. 243, quo ting a reply from the Copyright Administration
Department of the NCAC ( 权司 [1998] No. 39) to the Intellectual Property Rights Tribunal of the Supreme
People's Court, reproduced in Exhibit CHN-118.
58 China's first written submission, para. 243.
59 China's first oral statement, para. 83.
60 China's response to Question No. 44.

one narrow judicial context, and to the ex tent that it so operates, it is entirely
consistent with the requirements of the Berne Convention."61 (footnote omitted)
7.59 China specifically acknowledged that it would not protect the copyright in the unedited,
prohibited version of a work that failed conten t review where enforcement action was requested
against unedited, prohibited infringing versions.62
7.60 All of the above statements confirm the Panel' s view, based on the ev idence submitted by the
United States including, in particular, the wording of the Copyright Law on its face, that Article 4(1)
of that Law provides for the denial of copyright protection to certain works based on their content.
7.61 However, after the first substantive meeting, China provided a clarification of its earlier
statements. China submits that Article 4(1) of the Copyright Law does not lead to a denial of
"copyright" but only of "copyright protection". China argues that Article 4(1) of the Copyright Law
does not affect the vesting of copyright afforded by Article 2. The core principle is that Chinese law
will not enforce the protection of the Copyright La w for works the contents of which are already
illegal. China explained as follows:
"To the extent that Art. 4.1 would come in to play with respect to a work, it would
operate not to remove copyright, but to deny the particularized rights of private
copyright enforcement. Art. 4.1 thus does not operate in any manner that would
violate Berne Art. 5(1): it does not destroy the residual Art. 2 copyright. If applied,
its effect would be to deny to the right- holder the power of private censorship that
would generally be available to non-prohibited works."
63
7.62 In response to questions after the second subs tantive meeting, China argued that, after
"protection" is denied under Article 4(1), th e underlying recognition – the "enjoyment" of, or
"entitlement" to, copyright – would continue. 64 As noted earlier, the United States submits that this
distinction is artificial.65
7.63 The Panel notes that China equates the "prot ection" of the Copyright Law referred to in
Article 4(1) with enforcement rights. However, Chin a does not show any suitable basis in the text of
Article 4(1) that would limit its effect to a subset of the protection under the Copyright Law. China
contrasts the "protection" of the Copyright Law refe rred to in Article 4(1) with the "enjoyment" of
copyright in accordance with Article 2 of the Copyri ght Law. However, the concepts referred to in
Articles 2(2) and 4(1), on their face, are identical. China points out that Article 4(1) does not state
that certain works "shall not enjoy copyright". 66 That is true, but the protection of the Law is
copyright.
7.64 China's argument distinguishing "copyright" from "copyright protection" also contrasts the
vesting of copyright under Article 2 of the Copyri ght Law, which allegedly occurs upon creation of a
work automatically without formality, on the one ha nd, with the procedure for denial of copyright
under Article 4(1) of the same Law, which allegedl y occurs only after a determination by a court or
the NCAC during an enforcement proceeding, on the other hand.

62 China's response to Question No. 52.
63 China's response to Question No. 44; see also its response to Question No. 45; rebuttal submission,
paras 280-281.
64 China's response to Question No. 92.
65 United States' second oral statement (closing statement), para. 25.
66 China's response to Question No. 88.

7.65 The United States submits that the fact that an author may not be on official notice of the
operation of Article 4 until the denial of protection is stated by an authoritative content review agency
or court does not appear to alter the way in which the law operates.67
7.66 The Panel considers that the distinction drawn by China is inapposite. It appears to be a
consequence of the rule that the enjo yment and exercise of copyright shall not be subject to any
formality whilst the denial of protection, in China's view, is subject to a formal determination. Even
accepting the distinction at face value, it does not properly ad dress the situation after a court or the
NCAC has denied protection to a work under Article 4(1) of the Copyright Law. It is difficult to
conceive that copyright would continue to exist, undisturbed, after the competent authorities had
denied copyright protection to a work on the basis of the nature of the work and the prohibition in the
Copyright Law itself.
7.67 After a denial of copyright protection under Artic le 4(1) of the Copyright Law, China has not
explained in what sense authors would enjoy copyright, or copyright would exist, in their works. For
example, it has not explained how authors would be able to assert ownership of, license, or transfer
copyright in their works. To the extent that any co pyright exists under Article 2 in this situation, it
would seem to be no more than a phantom right, the existence of which could not be demonstrated.
Therefore, on the basis of the evidence submitted, the Panel is unable to conclude that, after a work is
denied protection under Article 4(1) of the Copyright Law, the author could enjoy "copyright" in that
work.
7.68 In any event, the scheme of the TRIPS Agreem ent is one which provides for certain subject
matter to enjoy protection under Part II, and Member s must ensure that pro cedures to enforce that
protection are available as specified in Part III. Wh ere a Member's law provides that eligible subject
matter shall not be protected by an intellectual prope rty law, this is not simply a provision that the
enforcement procedures shall not be available, incons istent with Part III. Rather, it is inconsistent
with Part II as well. Whilst China's judicial authorities may decide that they will not provide
particular remedies in particular circumstances in th e exercise of their own discretion, Article 4(1) of
China's Copyright Law goes further by denying protection of eligible subject matter altogether.
7.69 China refers to the letter of the Supreme Peopl e's Court and to the written reply of the NCAC
in the Inside Story case, both quoted above, in support of a distinction between "copyright" and
"copyright protection".68 The Panel observes that those distingu ished authorities used the language of
Article 4(1) of the Copyright Law and that the NCAC related Article 4(1) both to copyright protection
and to the enjoyment of copyright. 69 Therefore, the Panel sees no reason why this evidence would
lead to a different conclusion from that reached based on the wording of the Copyright Law on its
face.
7.70 China asserts that Article 2 of the Copyright La w directly implements an author's rights under
the Berne Convention (1971) into Chinese law and th at, so long as copyright is granted under the
Berne Convention, that right is protected by Chinese law. 70 China does not argue that any
international treaty prevails over the terms of the Co pyright Law with respect to foreign works in case

68 China's responses to Questions Nos. 88 and 92.
69 The NCAC reply referred to in note 57 above explained as follows:
"However if the contents do not violate the law … the work does not fall within the scope of
the '[w]orks the publication and dissemination of which are prohibited by law' in Article 4 of
the Copyright Law. … [T]he contents of the book were not illegal, thus it is proper to affirm
that Zheng Haijin enjoys the copyright in Inside." (emphasis added)
70 China's first written submission, para. 240; re buttal submission, paras 276-277. China does not
argue that it directly implements the TRIPS Agreement.

of any deviation from the obligations in an international treaty. 71 Rather, China specifically confirms
that Article 4(1) is envisaged as a limited excep tion to this general principle in Article 2. 72 Therefore,
the Panel sees no reason to consider the possible direct effect of the rights specially granted by the
Berne Convention (1971), as incorporated by the TRIPS Agreement.
7.71 For the above reasons, the Panel does not consid er that China has provided any evidence that
would disturb its finding at paragraph 7.50 above.
(ii) Criteria for prohibited works
7.72 The Panel will now consider the range of work s that are subject to Article 4(1) of the
Copyright Law. This depends in large part on the meaning of the phrase "the publication and/or
dissemination of which are prohibited by law" as used in Article 4(1). The Panel recalls its finding at
paragraph 7.45 above that that term, on its face, is not limited to any particular law.
7.73 The United States submits an illustrative list of laws and regulations prohibiting publication
or distribution that, in its view, lead to the denial of copyright protection under Article 4(1) of the
Copyright Law. The list was provided by China during the Council for TRIPS review of its
legislation in 2002 in a response to a question regarding the laws and regulations to which Article 4(1)
of the Copyright Law refers. The laws and re gulations mentioned are the Criminal Law, the
Regulations on the Administration of Publishing In dustry, the Regulations on the Administration of
Broadcasting, the Regulations on the Administrati on of Audiovisual Products , the Regulations on the
Administration of Films, and the Regulations on the Administration of Telecommunication.73
7.74 China confirms that the listed laws reference a legal standard defining what kind of works, or
contents, are prohibited. 74 In response to a question from the Panel, China confirmed that the term
"prohibited by law" has a broad meaning, and may re fer to the criteria set forth in various provisions
of some of the laws and regulations in this list, so that a work that contains contents prohibited by
such laws is a prohibited work within the meaning of Article 4(1) of the Copyright Law.75
7.75 The Panel notes the parties' eventual agreement regarding criteria for prohibited works but, in
view of the evolution of this issue during this proceeding, the Panel will review the evidence.
7.76 The letter from the Supreme People's Court of China in the Inside Story case shows that
Article 4(1) of the Copyright Law was considered inapplicable in that case because nothing was found
in the text of the work at issue to violate "any laws".76 The terms of the letter were not limited to any
particular laws but appear to include any law that determines the legality of content.
7.77 The written reply of the NCAC to the Supreme People's Court of China in the same case was
translated as follows:

71 For example, under a specific provision such as Ar ticle 19 of the Provisions on the Implementation
of International Copyright Treaties, set out in Exhibit CHN-117, or general principles of law.
72 China's response to Questions Nos. 45 and 89; rebuttal submission, para. 280.
73 United States' first written submission, para. 69, refe rring to document IP/Q/CHN/1, p. 26. This list
was also reproduced in the request for establishment of a panel but the United States, in its submissions to the
Panel, does not request relief in respect of these measures in conjunction with Article 4 of the Copyright Law:
see paragraph 2.4, note 3 above. China confirmed that the referenced "Regulations on the Administration of
Telecommunication" are the Regulations on Telecommunica tions cited in note 82 below: see China's first
written submission, fn. 261.
74 China's first written submission, fn. 261.
75 China's response to Question No. 90.
76 See paragraph 7.51 above, referring to letter from the Supreme People's Court reproduced in Exhibit
US-60.

"Yet the '[w]orks the publication and dissemination of which are prohibited by law' in
Article 4 of the Copyright Law refer onl y to works whose contents are illegal
(reactionary, pornographic, or superstitious contents)."77
7.78 China, in its first written submission to the Panel, interpreted this as follows:
"As a matter of law, Article 4.1 of the Copyright Law only denies protection to works
whose contents are completely unconstitutional or immoral."78
7.79 The broad criteria quoted in China's submission a ppeared to the Panel to be subsets of the
criteria applied under the content review regulations . For example, Article 25 of the Regulations on
the Administration of Films, Article 3 of the Regulations on the Administration of Audiovisual
Products and Article 26 of the Regulations on the Ad ministration of Publications contain identical
lists of ten categories of prohibited content in fi lms, audiovisual products and publications, including
those that:
"(1) are against the fundamental principles established in the Constitution;
(2) jeopardize the unification, sovereignty and territorial integrity of the State;
(3) divulge State secrets, jeopardize security of the State, or impair the prestige
and interests of the State;
(4) incite hatred and discrimination among ethnic groups, harm their unity, or
violate their customs and habits;
(5) propagate cults and superstition;
(6) disrupt public order and undermine social stability;
(7) propagate obscenity, gambling, or violence, or abet to commit crimes;
(8) insult or slander others, or infringe upon legitimate rights and interests of
others;
(9) jeopardize social ethics or fine national cultural traditions;
(10) other contents banned by laws, ad ministrative regulations and provisions of
the State."
79
7.80 China confirmed that content falling within categories (1), (2) and (7) were "clearly
unconstitutional".80 Categories (5) and (7) on their face re fer to "superstitious" and "pornographic"
content, or "immoral" content, which is mentioned in paragraphs 7.77 and 7.78 above. In response to
a question from the Panel, China submitted that the phrase "prohibited by law" may refer to the above

77 See paragraph 7.54 above. The NCAC is a comp etent administrative agen cy under the Copyright
Law in accordance with Article 7 of the Law.
78 China's first written submission, para. 243.
79 Mutually agreed translation no. 12.
80 China's first written submission, fn. 255, refe rring to the 1982 Constitution, Articles 52-54,
reproduced in Exhibit CHN-122.

substantive criteria81 and to provisions such as Article 57 of the Regulations on Telecommunications82
and Article 364 of the Criminal Law.83
7.81 The Panel notes that the list of prohibited conten t in the three content review Regulations set
out at paragraph 7.79 includes six other categories of content that were not mentioned by the NCAC.
However, the Panel does not infer that the NCAC meant that the criteria to determine whether the
publication and/or dissemination of a work are prohibited by law for the purposes of Article 4(1) of
the Copyright Law are narrower than the complete list of criteria in the content review regulations.
The written reply of the NCAC listed three broad criteria, followed in the original version by 等,
meaning "etcetera", indicating that they were not exhaustive, and the written reply was provided in the
context of a case where the issue was whether a prohi bition of publication for administrative reasons
unrelated to content fell foul of Article 4(1) of the Co pyright Law. China's submissions referred to at
paragraph 7.74 above appear to confirm this view.
7.82 For the above reasons, the Panel accepts that prohibited works for the purposes of Article 4(1)
of the Copyright Law include works that contain content considered illegal under the criteria set out in
the law and regulations listed at paragraph 7.73 above, including the content review regulations.
(iii) Procedure for determination that a work is prohibited for the purposes of Article 4(1)
7.83 The Panel notes that the range of works "pr ohibited by law" may depend not only on the
criteria by which content is considered illegal but al so on the procedure for determination that a work
contains illegal content for the purposes of Article 4(1) of the Copyright Law.
7.84 The United States claims that Article 4(1) of the Copyright Law applies to (a) works never
submitted for content review in China; (b) works aw aiting the results of content review in China;
(c) the unauthorized versions of works edited for dist ribution in China; and (d) works that have failed
content review.84
7.85 China, in its first written submission, subm itted that the content review process operates
independently of Article 4(1) of the Copyright La w and that the only result of a finding of prohibited
content is a denial of authority to publish. Nothing in that finding leads to a denial of copyright. 85
However, after the first substantive meeting, Ch ina revised lengthy sections of its first written
submission with respect to the relationship between copyright and content review.86
7.86 China maintains that "[t]he process of content review remains, as an administrative matter,
separate from copyright." 87 The only authorities competent to make a decision under Article 4(1) of
the Copyright Law are the courts and the NCAC. However, a court or the NCAC, when making a
decision on copyright protection under Article 4(1) of the Copyright Law, would be "deferential" to a
content review finding. When a content review aut hority makes a determination that a work contains
prohibited content, that finding will "guide" a determ ination by the NCAC or the courts that the work

81 China's response to Question No. 90, listing in fn. 3 the ten criteria set forth in Article 25 of the
Regulation on the Administration of Films.
82 Article 57 of the Regulations on Telecommunica tions adopted by the Standing Committee of the
State Council on 20 September 2000, and promulgated by Decree No. 291 of the State Council on
25 September 2000, contains many of the same criteria as Article 25 of the Regulation on the Administration of
Films. The Regulations on Telecommunications are reproduced in Exhibit CHN-124.
83 Article 364 of the Criminal Law prohibits inter alia the dissemination of pornographic materials.
Article 364 is reproduced in Exhibit CHN-1.
84 United States' first written submission, para. 198.
85 China's first written submission, paras 246.
86 See China's response to Question No. 52.

would be considered "prohibited by law". Chin a specifically acknowledges that when a work has
failed content review it will not protect the copyri ght in the unedited, prohibited version of a work
against infringing versions that also are unedited an d prohibited. Nor will it protect copyright in the
deleted portion of a work edited in order to pass content review.88
7.87 The Panel will first consider works that have failed content review as a whole. 89 The parties
agree that such works are prohibited works under Article 4(1) of the Copyright Law. The Panel
recalls that Article 4(1) denies prohibited works th e protection of the Copyright Law, not just a sub-
set of the protection of that Law. China asserts th at works that have failed content review can receive
protection under the Copyright Law in a situation where the illegal content has been deleted. The
Panel observes that this situation does not apply where the work that failed content review is
considered illegal in its entirety. If a prohibited work includes some legal content, and an edited
version has been produced without ap proval, China asserts that it "will enforce the copyright in the
legal portion of the original work, even though that work itself – as a whole – is prohibited by law." 90
However, China did not explain how this was possibl e under its law. Therefore, the Panel finds that
the class of prohibited works under Article 4(1) of the Copyright Law includes works that have failed
content review.
7.88 The Panel now considers works that have passed content review subject to a requirement to
delete specific illegal content.91 China protects the approved version but acknowledges that it will not
protect the deleted illegal content. 92 It is not clear on the face of the Copyright Law if or how
Article 4(1) applies where enforcement is sought against infringing copies of the unedited version.
The Panel notes China's position in this proceeding that:
"China notes that it also will enforce the ri ght-holder's copyright in [a situation]
where there is an authorized edited versi on. In that case, the copyright will be
protected irrespective of whether the infringi ng copy is of the ed ited or the unedited
version."93
7.89 The Panel now turns to works never submitte d for content review in China and works
awaiting the results of content review in China. The United States provides no specific examples
where such works have been denied copyright protection. 94 The claim, with respect to these
categories of works, is based on the response given by China in the Council for TRIPS' review of its
legislation referred to at para graph 7.73 above, and the United States' own construction of the
relationship between these other measures and the Copyright Law.

88 China's responses to Questions Nos. 45 and 52 posed by the Panel and to Question No. 2 posed by
the United States; rebuttal submission, para. 249.
89 For example, the evidence shows that when appr oval was declined for certain audiovisual products,
the content review notices stated that the films as a wh ole violated relevant criteria, without listing the illegal
content: see Exhibits CHN-142, CHN-143, CHN-144 , CHN-145 and CHN-146.
90 China's response to Question No. 52.
91 For example, the evidence shows that when appr oval was granted for certain audiovisual products,
the licence was accompanied by a list of specific scenes to be deleted from some of them: see Exhibit CHN-
147.
92 China's response to Question No. 2 posed by the United States.
93 China's response to Question No. 52.
94 China submits that this is because no such examples exist: see Ch ina's response to Question No. 52;
rebuttal submission, para. 234. However, China also subm itted that the Supreme People's Court is not aware of
a single instance in which a defendant in a copyright infringement action successfully asserted a defence that the
work did not enjoy copyright because it failed a content re view process (first written submission, para. 277) but
later acknowledged that it would not protect copyright in such a work under certain conditions (response to
Question No. 52).

7.90 The Panel will first consider the content re view regulations. The Regulations on the
Administration of Films, in Article 24, provide as follows:
"Article 24. Films which have not been reviewed and approved by the film review
institutions under the administrative depart ment of radio, film and television under
the State Council … shall not be distributed, projected, imported or exported." 95
7.91 The Regulations on the Administration of Audi ovisual Products, in Article 36, provide for
mandatory content review prior to wholesaling, retailing or rental of audiovisual products.96
7.92 It is not disputed that films and audiovisual products that have not yet been approved under
the Regulations on the Administration of Films or the Regulations on the Administration of
Audiovisual Products, as the case may be, may not be pub lished and/or distributed. Although none of
the content review regulations submitted in evid ence makes any express provision for the denial of
copyright protection, they do provide for the pr ohibition of publication of films and audiovisual
products. Whilst it seems plausible that films and audiovisual products in this situation might be
considered ipso facto works the publication of which is prohi bited for the purposes of Article 4(1) of
the Copyright Law, it is not clear if another determination is required that their content violates these
Regulations before the works are considered prohibited works within the scope of Article 4(1).
7.93 The Regulations on the Administration of Publications do not provide for mandatory
government content review prior to publication. However, in Articles 40 and 44, they do prohibit the
distribution by a "distribution entity", or the im portation by a "publication importation entity", of
publications containing prohibited content. 97 A determination would appear to be required that their
content violates these Regulations before such wo rks are considered prohibited works within the
scope of Article 4(1) of the Copyright Law.
7.94 Two of the measures listed by the Unite d States prohibit certain content without providing a
procedure for content review.98 These are the Regulations on Telecommunications 99 and the Criminal
Law.100 Accordingly, with respect to these two meas ures, a determination is required that works
violate these measures for the purposes of Article 4(1) of the Copyright Law.
7.95 Where no content review has taken place, it is not clear on the face of any of these measures
how a determination is made that a work is proh ibited within the meaning of Article 4(1) of the
Copyright Law. China submits that if no prior re view has taken place, a court or the NCAC must
determine legality or illegality de novo and that this would normally be the case for most books,
periodicals and newspapers, foreign works not rele ased in China, works pending review and other
unpublished books and works that may have illega lly bypassed the reviewing process and are in
unlicensed circulation.101 China also submits that the court or the NCAC could be expected to solicit
opinions from the content reviewing authorities.102
7.96 The question arises as to the status of co pyright in such work s in the absence of a
determination for the purposes of Article 4(1) of the Copyright Law. The Panel notes that Article 2 of
the Copyright Law, on its face, provides that copyri ght in certain works shall be protected by the

95 Mutually agreed translation no. 12. Article 31 also provides that films to be imported for public
show shall be submitted to the film review institution for review before importation.
96 Mutually agreed translation no. 13.
97 Mutually agreed translation no. 14, where the word "distribute" translates the word "发行".
98 China's first written submission, fn. 261.
99 See note 82 above.
100 See note 83 above.
102 China's response to Question No. 45.

Copyright Law. Article 6 of the Regulations for the Implementation of the Copyright Law of 2002
(the "Copyright Implementing Regulations") provides that "[a] copyright shall subsist on the date
when a work is created."103
7.97 Whilst it is clear on the face of the measure th at Article 4(1) of the Copyright Law denies
copyright protection to certain works, it does not necessarily follow that this pre-empts the subsistence
of copyright protection under Article 2, as implem ented by Article 6 of the Copyright Implementing
Regulations, from the time of creation of the work up until the time that a competent authority makes
a decision under Article 4(1) of the Copyright Law. Consequently, it is not clear to the Panel whether
works not submitted for mandatory content review and works awaiting the results of content review
would fall within the scope of Article 4(1) of the Copyright Law. 104
7.98 The Panel has also reviewed evidence of sp ecific instances of admi nistrative enforcement
submitted by China. With respect to works neve r submitted for content review, the evidence includes
examples of pirated versions of foreign text books. The Panel notes that Decision notices for
administrative penalties were issued by the NCAC a nd two subsidiary copyright bureaux in June and
October 2006 under Article 47 of the Copyright Law to three universities for unauthorized
reproduction and distribution of textbooks. 105 However, the Panel does not find these instances
instructive as (1) there is no mandatory pre-pub lication content review procedure for university
textbooks; and (2) the textbooks concerned subjects such as bridge design, social welfare, physics and
economics that do not have any obvious relationshi p to the content prohibited under the relevant
Regulations.
7.99 With respect to works awaiting the results of content review, th e evidence includes an
example of a "special" administrative enforcement action with respect to pirated audio-visual products
of one foreign animated film, Shrek 2, before the genuine version was approved for marketing.106 The
Panel notes that administrative penalty documents citing Article 47 of the Copyright Law and
Article 36 of the Copyright Implementing Regulations were issued in September 2004 to one audio-
visual shop in Xiamen relating to the distribution of unauthorized DVD copies of Shrek 2.107
7.100 The evidence also includes a Ci rcular of the NCAC issued in November 2001 to subsidiary
copyright bureaux in order to enhance enforc ement actions against a list of 788 foreign
cinematographic works in response to a request from the Motion Picture Association of America. The
introductory paragraph of the Circular indicates that this was also a special action. The Circular
included works without enquiry as to whether they ha d all been edited to pass content review and, in
accordance with paragraph 2, it applied inter alia to pirated DVDs coded for zones outside China,
which may include unedited versions not approved during content review.108
7.101 The United States responds that the NCAC a nd local copyright bureaux are administrative
agencies with no authority to interpret the Copyri ght Law in cases that are before the courts. 109 China
replies that Articles 46 and 47 of the Copyright Law and Articles 217 and 21 8 of the Criminal Law
provide three means of enforcement of copyright: civil procedures, administrative procedures and

103 Exhibit CHN-19.
104 China's response to Question No. 52.
105 Exhibits CHN-136, CHN-137, CHN-138 and CHN-139. An investigation report by a provincial
copyright bureau against university textbooks in Exhibit CHN-140 did not cite the Copyright Act.
106 United States' first written submission, paras 239-241, citing a statement of China in the minutes of
a meeting of Council for TRIPS in IP/C/M/46 at para. 203 in Exhibit US-57; cf. China's first written
submission, paras 268-270.
107 China's first written submission, para. 270, referrin g to Exhibits CHN-132; CHN-133; CHN-134;
response to Question No. 95.
108 Circular No. 55 of the National Copyright Administration 权司 [2001] No. 55 in Exhibit CHN-141.
109 United States' first oral statement, paras 85-86.

criminal procedures, and that the courts have ju risdiction over civil and criminal matters while the
NCAC has jurisdiction over administrative matters.110
7.102 The Panel notes that the NCAC is a competen t administrative agency under the Copyright
Law111 and that the Supreme People's Court of China sought its view in the Inside Story case on the
issue under examination in this claim. Therefore, the Panel considers that it may take this evidence
into account. However, the Panel notes that both instances discussed in paragraphs 7.99 and 7.100
above occurred in special circumstances and ther e is no indication in the second instance that any
enforcement procedures actually took place. Therefore, the Panel gi ves this evidence little weight in
its assessment of the Copyright Law as such. Acco rdingly, the Panel reiterates its comments at
paragraph 7.88 and 7.97 above.
7.103 For the reasons set out above, the Panel finds th at the class of works denied protection under
Article 4(1) of the Copyright Law includes works that have failed content review and, to the extent
that they constitute copyright works, the deleted por tions of works edited to satisfy content review.
The Panel considers that the United States has not made a prima facie case with respect to works
never submitted for content review in China, work s awaiting the results of content review in China
and the unedited versions of works for which an ed ited version has been approved for distribution in
China.
(iv) Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS
Agreement
7.104 This claim is made under Article 9.1 of the TRIPS Agreement, insofar as it incorporates
Article 5(1) of the Berne Convention (1971). Ar ticle 9.1 of the TRIPS Agreement provides as
follows:
"Members shall comply with Articles 1 through 21 of the Berne Convention (1971)
and the Appendix thereto. However, Members shall not have rights or obligations
under this Agreement in respect of the rights conferred under Article 6 bis of that
Convention or of the rights derived therefrom."
7.105 The United States and China are both WTO Members and, accordingly, both are bound by the
TRIPS Agreement, including the incorporated provisions of the Berne Convention (1971). The
provisions of the Berne Convention (1971) incorpor ated by Article 9.1 of the TRIPS Agreement
include Article 5(1) of that Convention, which provides as follows:
"(1) Authors shall enjoy, in respect of wo rks for which they are protected under this
Convention, in countries of the Union othe r than the country of origin, the rights
which their respective laws do now or may he reafter grant to their nationals, as well
as the rights specially granted by this Convention."
7.106 Article 5(1) of the Berne Convention (1971) pr ovides for the enjoyment of two overlapping
sets of rights that have been described as "the twin pillars on which protection under the Convention
rests".112 First, there are "the rights which their respective laws do now or may hereafter grant to their

110 China's response to Question No. 46.
111 Article 7 of the Copyright Law.
112 Ricketson, S., The Berne Convention for the Protection of Literary and Artistic Works: 1886-1986
(Queen Mary College, 1987) ("Ricketson"), p. 543, para . 5.66; and also Ricketso n, S. and Ginsburg, J.C.,
International Copyright and Neighbouring Rights – The Berne Convention and Beyond (Oxford University
Press, 2006), p. 310, para. 6.90.

nationals".113 This is a national treatment obligation. The request for establishment of a panel
included a claim under this part of Article 5(1) with respect to the Copyright Law in conjunction with
certain other measures listed at paragraph 7.186 below, but this claim was not pursued.
7.107 Second, there are "the rights specially granted by this Convention". This term is not defined.
However, Article 5(1) refers to rights that aut hors shall enjoy in respect of works. Articles 6 bis, 8, 9,
11, 11bis, 11ter, 12, 14, 14bis and 14ter all provide for such rights.114 Nevertheless, the incorporation
of provisions of the Berne Convention (1971), incl uding Article 5, is subject to the terms of
Article 9.1 of the TRIPS Agreement (quoted at pa ragraph 7.104 above). Therefore, "the rights
specially granted by this Convention" as used in Ar ticle 5(1) of that Convention, as incorporated by
Article 9.1 of the TRIPS Agreement, do not include the rights referred to in Article 6 bis of the Berne
Convention (1971). This Report refers to these rights in that sense.
7.108 The United States' claim relates to these rights, as a group. It makes a separate claim with
respect to Article 5(2) of the Berne Convention (1 971), which the Panel does not consider in this sub-
section of this Report.
7.109 China submits that it has implemented Artic le 5(1) of the Berne Convention (1971). 115 It
offers no defence based on the term s of that Article but rather refers to Article 17 of the Berne
Convention (1971), which the Panel addresses at paragraphs 7.120 to 7.137 below.
7.110 The Panel notes that the "rights specially granted" by the Berne Convention (1971), as
incorporated by the TRIPS Agreem ent, include the exclusive right of making and of authorizing
translation of works (in Article 8) and the exclus ive right of authorizing reproduction of works (in
Article 9), to name but the first two substantive rights.
7.111 As regards China's implementation of the "right s specially granted" by the Berne Convention
(1971), the United States refers to the rights enumerat ed in Article 10 of the Copyright Law, as well
as Articles 46 and 47 of the same Law. It does not challenge any of these particular Articles of the
Copyright Law.116
7.112 China agrees that it grants to authors all the substantive protections of the Berne Convention,
in addition to others, through Article 10 of the Copyright Law. 117 It submits that Article 10 of the
Copyright Law fully complies with all Berne Convention requirements.118
7.113 The Panel notes that many of the rights listed in subparagraphs (5) to (17) of the first
paragraph of Article 10 of the Copyright Law prov ide for rights specially granted by the Berne
Convention (1971), that the second paragraph of Ar ticle 10 provides that copyright owners may
authorize others' exercise of these economic rights, and that these rights appear to be exclusive (as
reviewed at paragraphs 7.48 and 7.49 above). Ther efore, the Panel finds that it is Article 10 of the
Copyright Law that implements rights specially granted by the Berne Convention (1971).119

113 The Panel notes that this provision, as incorpor ated by Article 9.1 of the TRIPS Agreement, is
distinct from Article 3.1 of that Agreement.
114 This enumeration is without prejudice to other such rights.
115 China submits that its obligations under Article 5 of the Berne Convention are implemented by
Article 2(1) of the Copyright Law and Article 6 of th e Copyright Implementing Regulations: see China's first
written submission, paras 239-241.
116 United States' first written submission, paras 64-66.
119 This is without prejudice to the consistency of Article 10 of the Copyright Law with the Berne
Convention (1971), as incorporated in the TRIPS Agreement.

7.114 The Panel recalls its finding at paragraph 7.50 above that Article 4(1) of the Copyright Law
denies the protection of Article 10 to certain works, including those of WTO Member nationals, as the
United States claims. The Panel observes that no party alleges that the denial of protection under
Article 4(1) of the Copyright Law is permitted by any of the exceptions available with respect to
certain specific rights under Articles 9(2), 10 or 10 bis of the Berne Convention (1971). Nor does any
party allege that the denial of protection under Artic le 4(1) of the Copyright Law is permitted by the
exceptions provision in Article 13 of the TRIPS Agreement.
7.115 The Panel notes that both sets of rights under Article 5(1) of the Berne Convention (1971)
relate to "works" for which authors are protected under that Convention. The categories of "works" in
respect of which authors shall enjoy the rights speci ally granted by the Convention vary according to
the terms of each Article granting the relevant right. For example, the rights of reproduction
(Article 9) and of broadcasting (Article 11 bis) are granted to authors of "literary and artistic works".
That expression is defined, in a non-exhaustive ma nner, in Article 2(1) of the Berne Convention
(1971).
7.116 The Panel recalls its finding at paragraph 7. 103 above that the class of works denied
protection under Article 4(1) of the Copyright La w includes works that have failed content review
and, to the extent that they constitute copyright wo rks, the deleted portions of works edited to satisfy
content review. The Panel also recalls its findings at paragraphs 7.37 and 7.43 regarding the meaning
of the word "works" as used in the Copyright Law, in particular in Article 4(1). No party has disputed
that the "works" to which the Copyri ght Law, in particular Article 4(1), applies include at least some,
if not all, the categories of works falling within the definition of "literary and artistic works" in
Article 2(1) of the Berne Convention (1971). It is no t disputed that the "works" to which Article 4(1)
of China's Copyright Law applies are more extensiv e than those for which protection may be refused
or limited under other provisions of Article 2, and under Article 2bis, of the Berne Convention (1971).
7.117 For the above reasons, the Panel finds that the Copyright Law is sufficiently clear on its face
for the United States to have established that th e Copyright Law, specifically Article 4(1), is
inconsistent with Article 5(1) of the Berne Convent ion (1971), as incorporated by Article 9.1 of the
TRIPS Agreement. This finding is subject to th e Panel's consideration of Article 17 of the Berne
Convention (1971), set out below.
7.118 The Panel recalls its finding at paragraph 7.103 above and confirms that this conclusion does
not apply to works never submitted for content review in China, works awaiting the results of content
review in China and the unedited versions of works for which an edited version has been approved for
distribution in China. However, the Panel recognizes that the potential denial of copyright protection,
in the absence of a determination by the content review authorities, implies uncertainty with respect to
works that do not satisfy the content criteria prio r to a determination under Article 4(1) of the
Copyright Law, with the consequent impact on enjo yment of rights described above. Therefore, the
Panel reiterates for the record the firm position of China taken in these proceedings that:
"Copyright vests at the time that a work is created, and is not contingent on
publication. Unpublished works are protected, foreign works not yet released in the
Chinese market are protected, and works ne ver released in the Chinese market are
protected."
120; and
"Works that are unreviewed are decidedly not 'prohibited by law'."121

7.119 China has an international obligation to protect copyright in such works in accordance with
Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement.
(v) Article 17 of the Berne Convention (1971) as incorporated by Article 9.1 of the TRIPS
Agreement
7.120 China raises a defence under Article 17 of th e Berne Convention (1971), as incorporated by
Article 9.1 of the TRIPS Agreement. China submits that all rights granted to authors under the Berne
Convention (1971) are limited by Article 17 of that Convention, that Article 17 is not an exhaustive
codification of the sovereign right to censor 122 and that Article 17 is dr afted using very expansive
language "that effectively denies WTO jurisdiction in this area".123
7.121 The United States responds that Article 17 of the Berne Convention (1971) does not authorize
a content review system that denies all enforceable copyright protection to all works that have not
been approved for publication or distribution.124
7.122 The Panel recalls that Article 9.1 of the TRI PS Agreement, quoted at paragraph 7.104 above,
incorporates Article 17 of the Berne Convention (19 71). Article 17 of the Berne Convention (1971)
provides as follows:
"The provisions of this Convention cannot in any way affect the right of the
Government of each country of the Union to permit, to control, or to prohibit, by
legislation or regulation, th e circulation, presentation, or exhibition of any work or
production in regard to which the comp etent authority may find it necessary to
exercise that right."
7.123 "The provisions of this Convention" as referred to in Article 17 include Article 5(1) of the
Berne Convention (1971).125
7.124 The parties agree that Article 17 confirms that governments have certain rights to control the
exploitation of works. They do not agree as to wh ether those rights include a denial of all copyright
protection with respect to particular works.
7.125 The Panel observes that the terms of Article 17 include certain broad phrases, notably "cannot
in any way affect" and "any work or production". The use of the words "any work" (although it is
slightly different in the French text) confirms that the subject-matter dealt with by Article 17 is the
same as that addressed by the other substantive provisions of the Convention. However, these phrases
are not used in isolation but refer to the right of a government to "permit, to control, or to prohibit …
the circulation, presentation, or exhibition" of any work or production.
7.126 The right of a government "to control, or to prohibit" the "circulation, presentation, or
exhibition" of any work or production clearly includes censorship for reasons of public order. 126 Both

122 China's first written submission, paras 258-259.
123 China's rebuttal submission, paras 286-287.
124 United States' rebuttal submission, para. 221; see also first written submission, fn. 129.
125 It is not contested that China's laws prohibiting the publication and/or dissemination of works,
including determinations made with respect to particular works, constitute "legislation or regulation" within the
meaning of Article 17.
126 Even the right of a government "to permit" the circulation, presentation, or exhibition of a work
could be exercised for reasons of public order, such as the publication or broadcast by the police of a photograph
of a wanted criminal: see Masouyé, C., Guide to the Berne Convention , (World Intellectual Property
Organization, 1978) ("WIPO Guide to the Berne Convention"), para. 17.3. The Panel notes that, as stated in its

China and the United States referred to the record s of the diplomatic conferences of the Berne
Convention127, opinions in the academic literature 128 and (in the case of China) to the WIPO Guide to
the Berne Convention129, that explained that Article 17 relates mainly to censorship and public order.
7.127 The Panel accepts that the three terms "circu lation, presentation, or exhibition" are not
necessarily an exhaustive list of the forms of exploitation of works covered by Article 17. However, a
noticeable feature of these three term s is that they do not correspond to the terms used to define the
substantive rights granted by the Berne Conventio n (1971), although they may be included within
some of those rights 130 or they may refer to acts incidental to the exercise of some of those rights. 131
The word "exhibition" is not even used in the provisions setting out the substantive rights granted by
the Convention. 132 Therefore, it cannot be inferred that Article 17 authorizes the denial of all
copyright protection in any work.
7.128 The Panel appreciates that the position may be somewhat different under Article 10 of China's
Copyright Law. Article 10 of the Copyright Law grants in subparagraph (6) "the right of distribution",
in subparagraph (8) "the right of exhibition", and in subparagraph (10) "the right of presentation",
which may correspond to the "circulation, presentation, or exhibition" of any work in Article 17 of the
Berne Convention (1971). Article 10 of the Copyri ght Law also grants in subparagraph (1) "the right
of publication", as well as the "right of distribution", both of which appear to be directly contrary to a
prohibition of the publication and/or dissemination of a work due to illegal content, as referenced in
Article 4(1) of the Copyright Law. To the extent that Article 10 of the Copyright Law might provide
rights additional to, or broader than, those speci ally granted by the Berne Convention (1971), as
incorporated in the TRIPS Agreement and, hence, that Article 4(1) of that Law might deny such
rights, the Panel makes no finding.
7.129 The Panel does note that the second sentence of Article 4 of the Copyright Law (that is not
the subject of the claim in this dispute) may already address China's public policy concerns with
respect to some of these rights. The second sentence of Article 4 provides as follows:

preface, this Guide is not intended to be an authentic interpretation of the provisions of th e Berne Convention
since such an interpretation is not within the competence of the International Bureau of WIPO.
127 Main Committee I Report, p.1174 in Records of the Stockholm Conference 1967 , quoted in
Ricketson, see note 112 above, reproduced in Exhibit CHN-128; referred to in the United States' comments
dated 7 July 2008 on the material provided to the Pane l by the International Bureau of WIPO; referred to in
China's first written submission, para. 262; and China's responses dated 21 July 2008 to the United States'
comments on the material provided to the Panel by the International Bureau of WIPO.
128 Ricketson, see note 112 above, loc. cit.; Patry, W.F., Patry on Copyright (Thomas West, 2007),
§23:39 (see Exhibit CHN-129); Goldstein, P., International Copyright: Principles, Law & Practice (Oxford
University Press, 2001), p. 27, reproduced in Exhi bit CHN-126; referred to by China in its first written
submission, fns. 264, 266-268 and in its rebuttal submission, paras 296-297.
129 WIPO Guide to the Berne Convention, see note 126 above, at para. 17.2 in Exhibit CHN-125. Cited
in China's first written submission, pa ra. 260; rebuttal submission, para. 293; see also rebuttal submission
para. 290 and response to Question No. 93.
130 For example, the term "la représentation" is expressly included in the French text in Article 17 as
well as in Articles 11(1)(i) (ii), 14(1)(ii) and 14bis(2)(b) in the phrase "la représentation et l'exécution", rendered
as "performance" in the English text.
131 For example, the word "la circulation" used in Article 17 of the French text is also used in
provisions on possible limitations on the rights of translation and reproduction in Articles I(4), II(6), II(8),
III(2)(b), III(4)(d), III(6) and IV(5) of the Appendix, rendered as "circulation" in the English text in
Articles II(8) and III(4)(d) of the Appendix and "distributed" or "distribution" elsewhere.
132 The word "exhibition" in Article 17 is also used in the definition of "published works" in
Article 3(3) which provides inter alia that "the exhibition of a work of art … shall not constitute publication".
Article 3(3) of the French text also uses the word "la représentation" of certain categories of works for the same
purpose.

"Copyright owners, in exercising their copyright, shall not violate the Constitution or
laws or prejudice the public interests."
7.130 This provision does not deny copyright protection but, as China acknowledges, obliges
copyright owners and authorized parties to re spect the law in the exercise of their rights. 133 In
contrast, the first sentence of Article 4 of the Copyright Law denies all copyright protection with
respect to particular works.
7.131 China draws the Panel's attention to the WIPO Guide to the Berne Convention, which states
as follows regarding Article 17 of the Berne Convention (1971):
"It covers the right of governments to ta ke the necessary steps to maintain public
order. On this point, the sovereignty of member countries is not affected by the rights
given by the Convention. Authors may exercise their rights only if that exercise does
not conflict with public order. The former must give way to the latter. The Article
therefore gives Union countries certain powers to control."
134
7.132 The Panel agrees with this interpretation. A gove rnment's right to permit, to control, or to
prohibit the circulation, presentation, or exhibition of a work may interfere with the exercise of certain
rights with respect to a protected work by the copyright owner or a third party authorized by the
copyright owner. However, there is no reason to suppose that censorship will eliminate those rights
entirely with respect to a particular work.
7.133 With respect to those rights that are granted by the Berne Convention (1971), China is unable
to explain why Article 4(1) of its Copyright Law pr ovides for the complete denial of their protection
with respect to particular works. Without prejud ice to the range of rights that are granted by the
Berne Convention (1971), it suffices to note that th ey are mostly exclusive rights of authorizing
certain acts with respect to protected works. An exclusive right of authorizing necessarily entails the
right to prevent others from carrying out the relevant acts with respect to prot ected works. China is
unable to explain why censorship interferes with copyright owners' rights to prevent third parties from
exploiting prohibited works.
7.134 China argues that such copyright protection is a "legal and material nullity", as economic
rights are pre-empted by public prohibition. It al so argues that copyright enforcement is meaningless
in this context. 135 China asks the Panel to note that Article 4(1) of the Copyright Law is an
exceedingly narrow provision of law with negligible implications in the marketplace and in terms of
any nullification or impairment of benefits to Members.136
7.135 The Panel notes that copyright and government censorship address different rights and
interests. Copyright protects private rights, as reflec ted in the fourth recital of the preamble to the
TRIPS Agreement, whilst government censorship addresses public interests.
7.136 In response to a question from the Panel, Ch ina indicated that it "will always enforce
copyrights against infringing edited versions, even when there is no edited version authorized by the
author".137 It did not explain how this was possible un der its law. In response to another question
from the Panel, China indicated that if an unprotect ed, prohibited work later becomes legal, it will
protect copyright in the work going forward. 138 This might require a new court or NCAC

133 China's response to Question No. 93.
134 WIPO Guide to the Berne Convention, see note 126 above, at para. 17.2.
136 China's rebuttal submission, para. 273; and response to Question No. 44.
137 China's response to Question No. 51.
138 China's response to Question No. 53; rebuttal submission, paras 285 and 324.

determination but, in China's view, such a re quirement does not constitu te a formality under
Article 5(2) of the Berne Convention (1971). In any event, the Panel recalls that Article 4(1) of the
Copyright Law produces commercial uncertainty prior to a determination that a work is prohibited.139
7.137 China maintains that public censorship renders private enforcement unnecessary, that it
enforces prohibitions on content seriously, and th at this removes banned content from the public
domain more securely than would be possible through copyright enforcement. 140 The Panel notes that
these assertions, even if they were relevant, are not substantiated.
7.138 The Panel also recalls that if a measure infringes China's obligations under a covered
agreement, in accordance with Article 3.8 of the DSU, this is consid ered prima facie to constitute a
case of nullification or impairment. Even if the me asure at issue has had no actual impact on foreign
works to date, it has a potential impact on works of WTO Member nationals.
7.139 For the above reasons, the Panel confirms its fi nding at paragraph 7.117 above and concludes
that, notwithstanding China's rights recognized in Article 17 of the Berne Convention (1971), the
Copyright Law, specifically Article 4(1), is incons istent with Article 5(1) of the Berne Convention
(1971), as incorporated by Article 9.1 of the TRIPS Agreement.
(vi) Procedural issue
7.140 China emphasizes that the United States bears th e burden of proof of this "as such" claim. 141
China alleges that the only evidence that the United States has offered is the text of Article 4(1) of the
Copyright Law itself.142
7.141 The Panel notes that the United States provided more evidence than the text of the provision.
In any case, the Panel recalls the following st atement in the Appellate Body Report in US –
Corrosion-Resistant Steel Sunset Review:
"When a measure is challenged 'as such', the starting point for an analysis must be the
measure on its face. If the meaning and content of the measure are clear on its face,
then the consistency of the measure as such can be assessed on that basis alone. If,
however, the meaning or content of the measure is not evident on its face, further
examination is required. …"
143
7.142 In the present case, the Panel's review of the Co pyright Law, in particular Article 4(1), on its
face, shows that the measure is sufficiently clear to conclude that the United States has made a
prima facie case of inconsistency. Article 5( 1) of the Berne Convention (1971) provides that
Members shall ensure that authors shall enjoy in resp ect of their works the righ ts specially granted by
that Convention. Article 4(1) of the Copyright Law provides that certain works shall not receive the
protection of that Law and that Law provides the ri ghts specially granted by that Convention. Whilst
the Panel has not accepted all the United States' alle gations regarding the range of works that fall
within Article 4(1), that does not undermine the basic finding of an inconsistency.
7.143 Therefore, the Panel confirms its conclusion at paragraph 7.139 above that the Copyright
Law, specifically Article 4(1), is inconsistent w ith Article 5(1) of the Berne Convention (1971), as
incorporated by Article 9.1 of the TRIPS Agreement.

139 As noted in the United States' rebuttal submission, paras 193-194.
140 China's rebuttal submission, paras 273 and 318.
141 China's rebuttal submission, paras 227-229.
142 China's rebuttal submission, paras 266-268.
143 Appellate Body Report in US – Corrosion-Resistant Steel Sunset Review, para. 168.

7.144 The Panel wishes to emphasize that the United Stat es' claim did not challenge China's right to
conduct content review.144 The Panel's findings do not affect China's right to conduct content review.
4. Claim under Article 5(2) of the Berne Convention (1971), as incorporated by Article 9.1
of the TRIPS Agreement
(a) Main arguments of the parties
7.145 The United States claims that China subjects th e enjoyment and exercise of copyright to the
formality of successful conclusion of content review , inconsistently with Article 5(2) of the Berne
Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement. Works that have not
successfully completed content review under the Regulation on the Administration of Films, the
Regulation on the Management of Publications, the Regulation on the Management of Audiovisual
Products or the Regulations on the Management of Electronic Publications may not legally be
published or distributed within China. The United States submits that, consequently, works in this
unauthorized status fall within the scope of Article 4(1) of the Copyright Law, and thus they are not
protected by that Law. The United States submit s that the Copyright Law's protection attaches only
after such a work has been submitte d for content review and, if it passes that review unchanged, an
authorization to publish and distribute the work has issued. As a formal matter, therefore, copyright
protection is dependent, in part, on the issuance of the authorization to publish and distribute resulting
from successful conclusion of the content review process.145
7.146 China responds that, under Article 2 of the Copyright Law and Article 6 of the Copyright Law
Implementing Regulations, copyright protection vests upon creation of a work. While such works are
pending review they enjoy the full panoply of copyright. 146 In response to the Panel's questions,
China asked the Panel to note that under the Chinese system of copyright, "copyright" and "copyright
protection" are distinguishable. To the extent that Article 4(1) of the Copyright Law would come into
play with respect to a work, it would operate not to remove copyright, but to deny the particularized
rights of private copyright enforcement. Article 4(1) of the Copyright Law thus does not operate in
any manner that would violate Article 5(2) of the Berne Convention (1971) as it is not a condition
precedent to copyright formation, nor does it destroy the residual copyright granted under Article 2 of
the Copyright Law.147
7.147 The United States responds that China's di stinction between copyright and copyright
enforcement lacks any legal effect under Article 5(2) of the Berne Convention (1971). Article 5(2)
applies both to the enjoyment and "exercise" of rights so that a content review that affects the exercise
of rights would still impose a "formality" within the meaning of that provision.148
7.148 China further submits that the type of "forma lity" referred to in Article 5(2) of the Berne
Convention (1971) is a condition precedent to the vesti ng of copyright. Given that Article 4(1) of the
Copyright Law does not function as a condition pr ecedent to copyright bu t rather as a condition
subsequent, it is consistent with Article 5(2) of the Berne Convention (1971).149

144 United States' first written submission, para. 207; rebuttal submission, paras 221-222; acknowledged
by China in its first written submission, para. 255.
145 United States' first written submission, paras 220-221.
146 China's first written submission, para. 235.
147 China's response to Question No. 44.
148 United States' rebuttal submission, paras 211-214.
149 China's rebuttal submission, paras 261-264.

(b) Main arguments of third parties
7.149 Australia considers that Article 5(2) of the Berne Convention (1971) prohibits the enjoyment
and exercise of rights in a protected work being subj ect to any prior legal or administrative procedure,
such as registration of the work or approval of its content.150
7.150 Brazil does not consider that Article 5(2) of the Berne Convention (1971) requires that
copyright arise "automatically" or "immediately" independently of what national legislation may
dispose. The principle of automatic protection sh ould be understood and limited to the fact that
copyright protection is not conditional upon complia nce with any formality, such as registration,
deposit and the like.151
7.151 Canada considers that the term "formality" ex tends to national laws that make copyright
protection for foreign works contingent on complianc e with administrative obligations. China seems
to have laid down in its national laws the administrative obligation for exporters or importers to obtain
approval to publish and distribute the work in China such that, if not fulfilled, it will lead to the loss of
copyright or copyright–related protection.152
7.152 The European Communities considers that if th e enjoyment and exercise of copyright were
contingent upon the dissemination approval by Ch inese censorship authorities, this would be a
"formality" inconsistent with Article 5(2) of the Berne Convention (1971). The European
Communities does not comment upon the factual ques tion of whether such a nexus exists under
Chinese law but would be reticent to give specific instances of administrative enforcement too much
weight in the assessment of an "as such" claim that appears to be based on the plain wording of the
Chinese law.153
(c) Consideration by the Panel
7.153 The Panel notes that this claim concerns the de nial of copyright protection under Article 4(1)
of the Copyright Law. The Panel has already rule d on that issue in its consideration of the claim
under Article 5(1) of the Berne Convention (1971) , as incorporated by Article 9.1 of the TRIPS
Agreement. Additional findings regarding this claim under Article 5(2) of the Berne Convention
(1971), as incorporated by Article 9.1 of the TRIP S Agreement, would not contribute further to a
positive solution to this dispute. Therefore, it is unnecessary for the Panel to rule on this claim.
5. Submission regarding Article 14 of the TRIPS Agreement
(a) Description of relevant provisions of the Copyright Law
7.154 Article 4 of the Copyright Law uses the term "works". Article 3 provides an inclusive
definition of "works" for the purposes of the Copyright Law that does not expressly mention
performances or phonograms (sound recordings). Mean while, Chapter IV of the Copyright Law sets
out provisions regarding publication, performance, sound recording, video recording and
broadcasting.

150 Australia's third party written submission, para. 34.
151 Brazil's third party oral statement, paras 3-11.
152 Canada's third party written submission, para. 24.
153 European Communities' third party oral statement paras 22-24.

(b) Main arguments of the parties
7.155 The United States submitted to the Panel that " [d]epending on the construction given to
Article 4, its first sentence may also be inconsistent with China's obligations under Article 14 of the
TRIPS Agreement"; that "[i]t is unclear whether Article 4 of the Copyright Law operates to deny the
protection of the Law to performances (or their fi xations) and sound recordings whose publication or
distribution is prohibited"; that " it is not certain that Article 4 is meant to be limited to "works" that
are the subject matter of copyright, as opposed to encompassing as well the subject matter of related
rights (such as performances and sound recordings)"; and that "if Article 4 of the Copyright Law does
deny protection" of certain related rights then in those cases performers and producers will not have
certain rights required by Article 14. 1 and 14.2 of the TRIPS Agreement. 154 (emphasis added in each
instance)
7.156 The United States concludes "[t]herefore, to the extent that Article 4 of the Copyright Law is
interpreted as applying to performances (or their fi xations) and to sound recordings, it is also
inconsistent with China's obligations under Article 14 of the TRIPS Agreement.155
7.157 China responds that the United States has failed to properly state a justiciable claim on this
issue. It argues that the US first written submission fails to allege that Article 4 of the Copyright Law
actually violates Article 14 of the TRIPS Agreemen t, and that the United States fails to make a
prima facie case that it does.156
(c) Main arguments of third parties
7.158 Canada submits that China's Copyright Law is inconsistent with Artic le 14.1 and 14.2 of
TRIPS for the same reasons that it alleges the La w is inconsistent with Article 9.1 of the TRIPS
Agreement.157
(d) Consideration by the Panel
7.159 The Panel has carefully reviewed the United St ates' request for establishment of a panel and
its submissions. The Panel observes that at no point has the United States actually asserted that
Article 4 of China's Copyright Law, in fact, applies to performances and phonograms or sound
recordings and is, in fact, inconsistent with Article 14 of the TRIPS Agreement. Therefore, the Panel
cannot discern a claim on which it may rule.
7.160 In any event, the Panel's findings with respect to Article 4(1) of the Copyright Law under the
claim under Article 5(1) of the Berne Convention (1 971), as incorporated by Article 9.1 of the TRIPS
Agreement, would appear to dispose of the Unite d States' underlying concern as regards Article 14 of
the TRIPS Agreement.
6. Claim under Article 41.1 of the TRIPS Agreement
(a) Main arguments of the parties
7.161 The United States claims that the enforcement provisions of Chapter V of China's Copyright
Law are unavailable with respect to works denied co pyright protection under Article 4 of that Law.

154 United States' first written submission, paras 227, 228 and 230; see also rebuttal submission,
fn. 201.
155 United States' first written submission, para. 231.
156 China's first written submission, paras 282 and 290.
157 Canada's third party written submission, para. 25.

Therefore, China fails to ensure that enforcemen t procedures as specified in Part III of the TRIPS
Agreement are available under its law, as required by Article 41.1 of the TRIPS Agreement.158
7.162 China responds that this claim fails in light of the fact that copyright is not in fact denied
under the Copyright Law as alleged by the United States, for the reasons set out above in relation to
Article 5(1) of the Berne Convention (1971).159
7.163 The United States notes China's defence – that Ar ticle 4(1) of the Copyright Law only denies
"copyright protection" not "copyright" – and argues that, therefore, authors of the works for which
copyright protection is denied do not benefit from the enforcement remedies specified in Chapter V of
the Copyright Law.160
7.164 China submits that Article 41.1 of the TRIPS Agreement only requires enforcement
procedures to be provided for rights covered by the TRIPS Agreement. If a right is not covered by the
Agreement, then there is no obligation to enforce it. China also submits that the standard for
enforcement procedures is that they permit "effectiv e action". Given that China prohibits publication
of the content at issue entirely, and rigorously en forces that prohibition, it has provided a procedure
for "effective action" against any attempt to publish that content. 161 Lastly, China submits that its
copyright enforcement procedures are "available", in the sense in which that term was interpreted in
US – Section 211 Appropriations Act , because the author of any work may go to court and seek
remedies, regardless of what judgement a court eventually reaches.162
(b) Main arguments of third parties
7.165 Canada submits that as a result of Article 4 of the Copyright Law, that Law does not apply to
works that have been banned from publication or di stribution in China and that, as a result, none of
the required enforcement procedures is applicable. Th erefore, Article 4 of the Copyright Law is also
inconsistent with Article 41.1 of the TRIPS Agreement.163
(c) Consideration by the Panel
7.166 The Panel observes that Chapter V of the Copyright Law, titled "Legal Liabilities and
Enforcement Measures", includes Articles 46 and 47. Article 46 provides for civil liability for 11
types of acts of infringement, many of which correspond to the rights set out in Article 10. Article 47
provides for civil and administrative liability and investigation of criminal liability for eight specific
types of action, many of which correspond to rights set out in Article 10.
7.167 It is undisputed that Chapter V of the Copy right Law provides for enforcement procedures
against acts of infringement of copyright, including orders to cease infringement, to pay compensation
for damages and to confiscate the products of infringement, and provisional measures to order
discontinuation of the infringement and to preserve property.
7.168 The Panel recalls its conclusion at paragraph 7.139 above that the Copyright Law, specifically
the first sentence of Article 4, is inconsistent w ith China's obligations (with respect to the rights
specially granted by the Berne Convention) under Artic le 5(1) of that Convention, as incorporated by
Article 9.1 of the TRIPS Agreement. In the absen ce of protection of the rights specially granted by

158 United States' first written submission, paras 232-237.
159 China's first written submission, para. 283.
160 United States' rebuttal submission, paras 216-218.
161 China's rebuttal submission, paras 309-311.
162 China's response to Question No. 94.
163 Canada's third party written submission, para. 26.

the Berne Convention, there can be no enforcemen t procedures against any act of infringement of
such rights with respect to the relevant works.
7.169 The Panel recalls that, in reaching that conc lusion, it dismissed China's argument that
Article 4(1) of the Copyright Law does not remove copyright but only "the particularized rights of
private copyright enforcement". 164 However, the Panel will accept that argument arguendo for the
purposes of the claim under Article 41.1 of the TRIPS Agreement.
7.170 Article 41.1 of the TRIPS Agreement provides as follows:
"1. Members shall ensure that enforcemen t procedures as specified in this Part
are available under their law so as to permit effective action against any act of
infringement of intellectual property rights covered by this Agreement, including
expeditious remedies to prevent infri ngements and remedies which constitute a
deterrent to further infringements. These procedures shall be applied in such a
manner as to avoid the creation of barriers to legitimate trade and to provide for
safeguards against their abuse."
7.171 This claim is made under the first sentence of Ar ticle 41.1. This raises certain interpretative
issues. The first concerns the scope of applicati on of this sentence, as expressed by the phrase "any
act of infringement of intellectual property rights covered by this Agreement".
7.172 The term "intellectual property" is defined in Article 1.2 of the TRIPS Agreement as follows:
"For the purposes of this Agreement, the te rm 'intellectual property' refers to all
categories of intellectual property that are the subject of Sections 1 through 7 of
Part II."
7.173 The subject of Section 1 of Part II is "Copyr ight and Related Rights". Within Section 1,
Article 9.1 incorporates Articles 1 through 21 of the Berne Convention (1971) and the Appendix
thereto, with the exception of rights conferred under, or derived from, Article 6 bis. Those provisions
provide for the grant of various rights to authors in respect of their literary and artistic works. Any act
falling within the scope of those rights carried out with respect to protected works without the
authorization of the right holder or outside the scope of an applicable exception is a priori an act of
infringement. Accordingly, an act of infringement of copyright in a literary or artistic work, as
provided for in those provisions of the Berne Conve ntion (1971) that are incorporated by Article 9.1
of the TRIPS Agreement, is an "act of infringement of intellectual property rights covered by this
Agreement" within the meaning of the first sentence of Article 41.1 of the TRIPS Agreement.165
7.174 China acknowledges that a right holder of a work denied copyright protection under
Article 4(1) of the Copyright Law is denied "t he particularized rights of private copyright
enforcement".166 China has explained Article 4(1) in the following terms:
"Its core principle is that the Copyright Law shall not enforce the protections of the
copyright law for works the contents of which are illegal."167

164 China's response to Question No. 44, discussed at paras 7.61 to 7.71 above.
165 The Panel's approach does not imply any view as to whether the phrase "any act of infringement of
intellectual property rights covered by this Agreement" refers only to acts of infringement of the exclusive rights
provided for in the TRIPS Agreement.
166 See note 164 above.
167 China's response to Question No. 45.

7.175 In the Panel's view, this is an acknowledge ment that, despite the alleged existence of
"copyright" under Article 2 of the Copyright Law, there are no enforcement procedures against any
act of infringement of copyright in the relevant works, as required by Article 41.1 of the TRIPS
Agreement.
7.176 China contested that the rights denied by Artic le 4(1) of the Copyright Law were "covered by
[the TRIPS] Agreement". This defence stems from China's view that it is entitled, under Article 17 of
the Berne Convention (1971), to deny the rights provided for in Article 5(1) of that Convention. The
Panel recalls its findings at paragraphs 7.122 to 7.139 above in which it rejected that view.
Accordingly, that view provides no defence to the cl aim that the rights denied by Article 4(1) of the
Copyright Law include protection against "act[s] of infringement of intellectual property rights
covered by [the TRIPS] Agreement", within the m eaning of the first sentence of Article 41.1 of the
TRIPS Agreement either.
7.177 The second issue concerns the nature of the obligation to ensure that "enforcement procedures
as specified in this Part are available under their law so as to permit effective action". Article 41 is
found in Part III of the TRIPS Agreement. Therefor e, the reference to the enforcement procedures as
specified in "this Part" is a reference to the en forcement procedures as specified in Part III of the
TRIPS Agreement.
7.178 China asserts that the enforcement procedur es in Chapter V of the Copyright Law are
"available" in the sense that the authors of all works have "access" to enforcement process irrespective
of whether they have adequate evid ence or a valid right to enforce. 168 The Panel observes that this
argument, in effect, asserts that a Member may make available the enforcement procedures as
specified in Part III of the TRIPS Agreement simp ly by not preventing right holders from filing and
pursuing claims in vain.
7.179 The Panel notes that, whilst right holders whose works are denied protection under
Article 4(1) of the Copyright Law may or may not have access to process, the enforcement procedures
"as specified in [Part III]" of the TRIPS Agreement are far more extensive. This is clear, among other
things, from the text of Article 41.1 of the TRIPS Agreement which specifies that these procedures
include "remedies". For example, Articles 44, 45, 46 and 50 of the TRIPS Agreement specify that the
judicial authorities shall have the authority to make certain orders, such as injunctions, orders to pay
damages, orders for the disposal or destruction of infringing goods, and provisional measures. Where
copyright protection is denied to a work under Article 4(1) of the Copyright Law, the judicial
authorities have no such authority under Chapter V of the Copyright Law. It is not asserted that they
are available in China under any other law.
169 Therefore, this set of enforcement procedures,
including remedies, is not available to the right holders as required by Article 41.1 of the TRIPS
Agreement.
7.180 China asserts that an entire ban on publication of a work is a form of "effective action" and
that "it is in a sense an alternative fo rm of enforcement against infringement".170 The Panel notes that
the range of exclusive rights recognized under the Berne Convention (1971) that may be infringed is
broader than simply a right to au thorize publication. In any event, the effectiveness of a government
ban on publication is beside the point. Part III of the TRIPS Agreement includes a multilaterally-
agreed minimum set of enforcement procedures that Members must make available to right holders
against any infringement of intellectual property ri ghts covered by the TRIPS Agreement. Where a
Member chooses to make available other procedures – for enforcement of intellectual property rights

168 China's response to Question No. 94.
169 China's response to Question No. 46 refers only to Articles 46 and 47 of the Copyright Law and
Articles 217 and 218 of the Criminal Law.
170 China's rebuttal submission, para. 311; responses to Questions Nos. 52 and 94.

or for enforcement of other policies with respect to certain subject matter – that policy choice does not
diminish the Member's obligation under Article 41.1 of the TRIPS Agreement to ensure that
enforcement procedures as specified in Part III are available.171
7.181 For the above reasons, the Panel concludes that the Copyright Law, specifically the first
sentence of Article 4, is inconsistent with Ch ina's obligations under Article 41.1 of the TRIPS
Agreement.
7. Claims under Article 61 of the TRIPS Agreement
(a) Main arguments of the parties
7.182 The United States claims that the criminal pr ocedures referred to in Article 47 of China's
Copyright Law are unavailable with respect to work s denied copyright protection under Article 4 of
that Law. Therefore, China does not provide for, or make available, criminal procedures and penalties
to be applied in certain cases of wilful copyright piracy on a commercial scale, as required by the first
and second sentences of Article 61 of the TRIPS Agreement.172
7.183 China responds that this claim fails in light of the fact that copyright is not in fact denied
under the Copyright Law as alleged by the United States.173
(b) Main arguments of third parties
7.184 Canada submits that Article 47 of China's Co pyright Law provides for criminal procedures
and penalties to be applied in certain case of copyrigh t piracy. However, by operation of Article 4 of
that Law, such criminal procedures and penalties do not apply to banned foreign works.174
(c) Consideration by the Panel
7.185 The Panel notes that these claims concern th e denial of copyright protection under
Article 4(1) of the Copyright Law and its impact on enforcement. The Panel has already ruled on
those issues in its consideration of the claims under Article 5(1) of the Berne Convention (1971), as
incorporated by Article 9.1 of the TRIPS Agreement, and under Article 41.1 of the TRIPS Agreement,
respectively. Additional findings regarding these claims under Article 61 of the TRIPS Agreement
would not contribute further to a positive solution to this dispute. Therefore, it is unnecessary for the
Panel to rule on these claims.
8. National treatment claims
(a) List of relevant measures at issue
7.186 Section III of the request for establishment of a panel lists the following other measures: the
Criminal Law; the Regulations on the Administratio n of Publishing Industry; the Regulations on the
Administration of Broadcasting; the Regulations on the Administration of Audiovisual Products; the
Regulations on the Administration of Films; an d the Regulations on the Administration of
Telecommunication; the Regulations on Administra tion of the Films Industry; the Administrative
Regulations on Audiovisual Products; the Ad ministrative Regulation on Publishing; the
Administrative Regulations on Electronic Publications; the Measures for the Administration of
Import of Audio and Video Products; the Procedures for Examination and Approval for Publishing

171 China makes no reference to Article 41.5 of the TRIPS Agreement in relation to this claim.
172 United States' first written submission, paras 232-233 and 238.
173 China's first written submission, para. 283.
174 Canada's third party written submission, para. 27.

Finished Electronic Publication Items Licensed by a Foreign Copyright Owner; the Procedures for
Examination and Approval of Impor tation of Finished Electronic Publication Items by Electronic
Publication Importation Entities; the Procedures for Recording of Imported Publications; the Interim
Regulations on Internet Culture Administration; and the Several Opinions on the Development and
Regulation of Network Music; as well as any amendments, related measures, or implementing
measures.175
(b) Arguments of the parties
7.187 The United States claimed in its request for establishment of a panel that these measures
appear to establish different pre-distribution an d pre-authorization review processes for Chinese
nationals' works, performances (or their fixations) and sound recordings than for foreign nationals'
works, performances (or their fixations) and sound re cordings. It claimed that these measures, taken
together with Article 4 of the Copyright Law, appeared to result in earlier and otherwise more
favourable protection and enforcement of copyright rights for Chinese authors' works than for foreign
authors' works, inconsistently with China's oblig ations under Article 3.1 of the TRIPS Agreement and
under Article 9.1 of the TRIPS Agreement with respect "at least" to Articles 5(1) and 5(2) of the
Berne Convention (1971). 176 However, the United States has made no submission to the Panel with
respect to these claims. The United States referred to four of the Regul ations listed above in
connection with its claim under Article 5(2) of the Berne Convention (1971), as incorporated by
Article 9.1 of the TRIPS Agreement.
7.188 China submits that the United States has neglect ed to assert any claim whatsoever and thus
has seemingly abandoned the national treatment arguments.177
7.189 The United States confirms that it is not pur suing a claim under Article 3.1 of the TRIPS
Agreement before this Panel.178
(c) Consideration by the Panel
7.190 The Panel takes note that the United States has not pursued any national treatment claims in
this dispute.
9. Conclusions with respect to the Copyright Law
7.191 The Panel recalls its conclusions at paragra phs 7.139 and 7.181 above that the Copyright
Law, specifically the first sentence of Article 4, is inconsistent with China's obligations under:
(a) Article 5(1) of the Berne Convention (1971) , as incorporated by Article 9.1 of the
TRIPS Agreement; and
(b) Article 41.1 of the TRIPS Agreement.
7.192 The Panel exercises judicial economy with resp ect to the claim under Article 5(2) of the
Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, and the claims
under Article 61 of the TRIPS Agreement (with respect to the Copyright Law).

175 WT/DS362/7, attached as Annex D-1 to this report.
176 Ibid.
177 China's first written submission, para. 291.
178 United States' rebuttal submission, fn. 201.

B. CUSTOMS MEASURES
1. Description of the measures at issue
7.193 This Section of the Panel's findings concerns three of China's Customs measures. The
Regulations on Customs Protection of Intellectual Property Rights (" Customs IPR Regulations ")
were enacted by the Standing Committee of the State Council in November 2003 and entered into
force in March 2004. The Regulations were fo rmulated in accordance w ith the Customs Law and
provide a procedure for Customs to take protec tive measures against goods suspected of infringing
trademark, copyright and related rights and patent rights upon importation or exportation. Article 27
provides for the confiscation of goods determined to have infringed an intell ectual property right and,
in the third paragraph, sets out different options fo r the disposal or destruction of such goods. The
parties agreed to translate the relevant text as follows:
"Where the confiscated goods which infringe on intellectual property rights can be
used for the social public welfare undertak ings, Customs shall hand such goods over
to relevant public welfare bodies for the use in social public welfare undertakings.
Where the holder of the intellectual property rights intends to buy them, Customs can
assign them to the holder of the intellect ual property rights with compensation.
Where the confiscated goods infringing on inte llectual property rights cannot be used
for social public welfare undertakings and the holder of the intellectual property
rights has no intention to buy them, Cust oms can, after eradicating the infringing
features, auction them off according to law. Where the infringing features are
impossible to eradicate, Customs shall destroy the goods."
179
7.194 The Measures for the Implementation of the Customs IPR Regulations (" Implementing
Measures") were adopted by the Standing Committee of the General Administration of Customs in
April 2004 and entered into force in July 2004. The Implementing Measures were formulated in
accordance with the Customs Law and other laws and administrative regulations for the purpose of
effectively implementing the Customs IPR Regulations. 180 The parties agreed to translate Article 30
of the Implementing Measures as follows:
"Article 30 Customs shall dispose of infringing goods it has confiscated according to
the following provisions:
(1). Where the goods concerned may be used directly for the social public welfare or
the holder of the intellectual property rights wishes to purchase the goods, Customs
shall
181 hand the goods over to the relevant social welfare bodies 182 for the use in
social public welfare183 or assign them to the holder of the intellectual property rights
with compensation;
(2). Where the goods concerned cannot be disposed of in accordance with Item (1)
but the infringing features can be eradicated, they shall 184 be auctioned off according
to law after eradicating the infringing features. The proceeds arising from the auction
shall be turned into the state treasury; and

179 Mutually agreed translation no. 6.
180 Implementing Measures, Article 1.
181 The original version does not say "shall" in item (1). See paragraph 7.339 below.
182 In the original versions, the identical word has been translated as "social welfare bodies" in the
Implementing Measures and as "public welfare bodies" in the Customs IPR Regulations.
183 In the original versions, the identical word has b een translated as "social public welfare" in the
Implementing Measures and as "social public welfare undertakings" in the Customs IPR Regulations.
184 The original version does not say "shall" in item (2). See paragraph 7.339 below.

(3). Where the goods concerned cannot be disposed of in accordance with Items (1)
and (2), they shall be destroyed.
When Customs destroys the infringing goods, the holder of the intellectual property
rights shall provide necessary assistance. In cases where relevant social welfare
bodies use the infringing goods confiscated by Customs for the social public welfare,
or the holder of the intellectual property rights assists Customs in destroying the
infringing goods, Customs shall carry out necessary supervision."185
7.195 Public Notice No. 16/2007 was notified by the General Administration of Customs in April
2007. Public Notice No. 16/2007 was notified in order inter alia to regulate the auction of infringing
goods by Customs in accordance with Article 27 of th e Customs IPR Regulations. The parties agreed
to translate the operative paragraphs as follows:
"1. Where the confiscated infringing goods are auctioned by Customs, Customs shall
completely eradicate all infringing features on the goods and the packaging thereof
strictly pursuant to Article 27 of the Regulations, including eradicating the features
infringing trademarks, copyright, patent a nd other intellectual property rights. Any
goods the infringing features of which cannot be completely eradicated shall be
destroyed and shall not be auctioned.
"2. Customs shall solicit comments from the hol der of the intellectual property rights
before the infringing goods are auctioned."
186
7.196 It is not disputed that these three measures are all binding upon the General Administration of
Customs. 187 These three measures are referred to coll ectively in this Report as "the Customs
measures".
2. Claim under Article 59 of the TRIPS Agreement
(a) Main arguments of the parties
7.197 The United States claims that the competent Chin ese authorities lack the scope of authority to
order the destruction or disposal of infringing goods required by Article 59 of the TRIPS Agreement.
The measures at issue create a "compulsory schem e" so that the Chinese customs authorities cannot
exercise their discretion to destroy the goods and must give priority to disposal options that allow
infringing goods to enter the channels of commerc e or otherwise cause harm to the right holder.
188
Donation to social welfare bodies can be harmful to a right holder and nothing appears to prevent
such bodies from selling the infringing goods; sale to the right holder harms the right holder in the
amount that the right holder pays for the infringing goods; and auction does not constitute disposal
outside the channels of commerce and, absent his consent, may harm the right holder. Where any of
these three options is available, the authorities are not authorized to order destruction of the infringing
goods.189
7.198 China responds that its Customs authorities po ssess the authority to order both disposal and
destruction of infringing goods in accordance with Article 59 of the TRIPS Agreement. Donation to
social welfare bodies and sale to the right holder constitute disposal outside the channels of

185 Mutually agreed translation no. 7.
186 Mutually agreed translation no. 8.
187 United States' first written submission, paras 59-6 1 and responses to Questions Nos. 26 and 75;
China's response to Question No. 26.
188 United States' first written submission, paras 56-57 and 172.
189 United States' first written submission, paras 179-192.

commerce in such a way as to a void harm to the right holder. 190 A r t i c l e 5 9 m u s t b e r e a d i n
conjunction with Article 1.1 of the TRIPS Agreement.191 Chinese law sets forth criteria that reflect an
official preference for the use of disposition me thods besides destruction but Customs has the
discretion to determine whether the criteria ar e met and therefore which disposition method is
appropriate. China Customs chose to destroy 58 per cent of the total value of infringing goods
between 2005 and 2007 which proves that the puta tive hierarchy of disposition options does not
hinder Customs' ability to order destruction of infringing goods. 192 The obligation in Article 59 to
grant "authority" to order destruction does not mean that Members must make a grant of unfettered
and unguided discretion and that domestic agencies must have the absolute power to order destruction
of infringing goods in any circumstance whatsoever.193
7.199 The United States responds that Article 59 requires full authority to be granted to dispose of
or destroy confiscated infringing goods in accord ance with the principles of Article 46. The
authorities should have the power to choose among any legitimate options for dealing with these
goods from the outset when the goods are found to be infringing, and thereafter until the goods are
finally dealt with.
194 Article 1.1 of the TRIPS Agreement only offers flexibility in how a Member
implements TRIPS obligations and does not exem pt a Member from full compliance with TRIPS
obligations.195 Statistics provide no response to this cl aim because the United States is not arguing
that the TRIPS Agreement obligations require China to destroy or dispose of all infringing goods in
accordance with the principles in the first senten ce of Article 46. The pertinent issue is what
decisions China Customs is permitted by law to make in particular circumstances.196
7.200 China responds that it does not have an obliga tion under the TRIPS Agreement to ensure that
every infringing good disposed of ou tside the channels of commerce avoi ds harm to the right-holder.
Rather, Customs must have the authority to dispose of seized goods outside the channels of commerce
in such a way as to avoid harm to the right-holder. 197 The determination of what constitutes an
appropriate grant of authority under the TRIPS Agre ement is highly circumstantial. China Customs'
authority is appropriate in light of the level of discretion that it enjoys in making decisions, its
autonomy, that the rules constraining it serve le gitimate government interests and the deterrence of
infringement and the avoidance of harm to the right-holder.198
7.201 The United States claims that the measures at issu e are inconsistent with the principle in the
fourth sentence of Article 46 because nothing suggest s that the auctioning of goods after removal of
the infringing mark is permitted only in "exceptional cases".199
7.202 China responds that, even if the fourth sente nce of Article 46 set forth an independent
obligation on Customs authorities, which it does not admit, China Customs would fulfil the obligation
because they remove "all" infringing features, not ju st the trademarks, and solicit comments from the
right holders.200 China argues that the use of the word "release" envisions a return to the infringer.
Customs uses a reserve price at auction to ensure that infringers do not have the opportunity to
purchase the seized goods at an unreasonably low cost and reaffix counterfeit marks. In China's view,
this complies with the purpose of the fourth senten ce of Article 46, which is to ensure that in the

190 China's first written submission, para. 182.
191 China's first written submission, para. 185.
192 China's first written submission, para. 194.
193 China's first written submission, para. 196.
194 United States' rebuttal submission, para. 128; response to Question No. 38.
198 China's rebuttal submission, paras 181-188.
200 China's first written submission, paras 222-225.

course of dealing with seized goods authorities de prive infringers of economic benefits from the
goods.201 China also argues that the word "sufficient" indicates that release of goods into the channels
of commerce is permitted by the fourth sentence of Article 46, and not only in exceptional cases. It
also raises the possibility that China's use of auction is "exceptional" as it constitutes a mere 2 per cent
of disposition outcomes.202
(b) Main arguments of third parties
7.203 Argentina considers that customs authorities can freely select from a number of alternatives
the most viable method for the situation at issue. Officials could discretionally choose either to
destroy confiscated merchandise or to dispose of it outside the channels of commerce in a manner
harmless to the right holder's interests. Donation to social welfare organizations is a viable alternative
but avoidance of harm to the right holder would n eed to be determined by customs authorities on a
case-by-case basis.203
7.204 Australia considers that "the channels of commerce" comprise any activity relating to the
supply or transfer of goods in pursuit of financia l reward within a Member's territory. Article 59
requires, in effect, that competent authorities be able to order that infringing goods be destroyed or be
disposed of in such a manner that the goods do not enter the channels of commerce within that
Member's territory. Such disposal methods could in clude recycling or donation to a charity within a
Member's territory, provided the infringing goods are not likely to enter the channels of commerce as
a result.204
7.205 Brazil considers that the fourth sentence of Ar ticle 46 suggests that the release of infringing
goods into the channels of commerce is admitted by the TRIPS Agreement. The obligation is to grant
the power to dispose of infringing goods outside the channels of commerce or order their destruction.
The authority to employ one disposal option or another does not need to be unconditional but it should
not be simply theoretical. Article 46 does not require Members to ensure that absolutely no harm ever
happens to the right holder following disposal of infringing goods, rather, the obligation is to avoid,
which is not an obligation of result but one of means.
205
7.206 Brazil considers that the limitation set forth in the fourth sentence of Article 46 applies to
disposal of infringing goods into the channels of commerce. An a contrario reading indicates that
goods other than counterfeit trademark goods may be released into the chan nels of commerce, and
counterfeit trademark goods may be released in to the channels of commerce when additional
measures are adopted besides the simple removal of the trademark.206
7.207 Canada submits that Article 59 of the TRIPS Agreement requires Members to give their
competent authorities the powers set out in Article 46 ab initio , that is, as soon as it is has been
established that the goods infringe intellectual propert y rights. China's competent authority acquires
the requisite powers only after other disposal options have been explored or, in some cases, not at all.
Obvious ways to dispose of goods outside the channels of commerce without harming the right holder
are to give them to the right holder or to recycle them. Donation to social welfare bodies precludes
destruction and the social welfare bodies may sell th e infringing goods. The right holder has a choice
of purchasing the infringing goods, thereby suffering financial harm, or running the risk that the goods

201 China's first oral statement, paras 72-77; rebuttal submission, paras 210-215.
202 China's rebuttal submission, paras 206-209 and fn. 161.
203 Argentina's third party written submission, paras 50 and 70.
204 Australia's third party written submission, paras 26-32.
205 Brazil's third party written submission, paras 43-52.
206 Brazil's third party written submission, paras 45 and 52.

will be auctioned. The competent authorities only th en acquire the power to destroy the goods when
the infringing feature can not easily be removed or nobody has purchased them at auction.207
7.208 Canada submits that China's measures are inc onsistent with Article 59 for an additional
reason. The obligation to dispose of infringing goods in accordance with the principles of Article 46
includes complying with the prohibition on releasing counterfeit goods after simply removing the
infringing features. China's customs authority does not auction counterfeit trademark goods from
which it has removed infringing features "in exceptional cases" only.208
7.209 The European Communities agrees with Chin a that Articles 59 and 46 of the TRIPS
Agreement do not impose an obligation to dispose of infringing goods only through the two options
set out in Article 46, first sentence. The term s of both Article 59 and Article 46 require that
"authorities shall have the authority to order" remedies, not that they must use these remedies under
specified circumstances. However, if customs authorities choose a different way of disposing of
infringing goods, for example by auction, the principl e of Article 46, fourth sentence applies. With
respect to disposal outside the channels of comme rce, this must be in such a manner as to avoid any
harm caused to the right holder. 209 This means that even a slight degree of harm is too much. A core
interpretation question is the extent to which the obligation in Article 59 permits Members to subject
the "authority" to order disposal or destruction to conditions.210
7.210 The European Communities disagrees with China that the fourth sentence of Article 46 is not
incorporated into Article 59. Article 59 refers to "the principles set out in Article 46" in their entirety.
The second sentence of Article 59 is not a lex specialis derogating from the general provision in the
fourth sentence of Article 46 as the two provisions a ddress different ways of dealing with counterfeit
trademark goods that are all relevant for customs authorities.211
7.211 Chinese Taipei submits that a Member should be considered to have met the minimum
standard of Article 46 of the TRIPS Agreement if its judicial authority is provided with power and
authority that includes both destruction and disposal according to the conditions set out in that Article.
A Member is free to determine for itself the ci rcumstances under which infringing goods are to be
disposed of or destroyed and the sequence or priority between the two options.212
(c) Consideration by the Panel
(i) Introduction
7.212 The Panel notes that this claim challenges th e Customs measures "as such". The parties
disagree on the proper interpretation of the measures at issue. The Panel is therefore obliged, in
accordance with its mandate, to make an objectiv e assessment of the meaning of the relevant
provisions of those measures. The Panel recalls its observations at paragraph 7.28 above and
confirms that it examines the Customs measure s solely for the purpose of determining their
conformity with China's obligations under the TRIPS Agreement.
(ii) Border measures
7.213 This claim is made under Article 59 of the TRIPS Agreement, which provides as follows:

207 Canada's third party written submission, paras 14-19; third party oral statement, paras 10-14.
208 Canada's third party written submission, paras 20-21.
209 European Communities' third party written submission, paras 16-20.
210 European Communities' third party oral statement, paras 15-20.
211 European Communities' third party written submission, paras 17 and 19.
212 Chinese Taipei's third party written submission, paras 22-29; oral statement, paras 13-17.

"Remedies
Without prejudice to other rights of action open to the right holder and subject to the
right of the defendant to seek review by a judicial authority, competent authorities
shall have the authority to order the destruction or disposal of infringing goods in
accordance with the principles set out in Article 46. In regard to counterfeit trademark
goods, the authorities shall not allow the re-e xportation of the infringing goods in an
unaltered state or subject them to a different customs procedure, other than in
exceptional circumstances."
7.214 This Article contains a number of key terms, such as "the right holder", "the defendant",
"competent authorities" and "infringing goods" which are not defined in the Article itself but can only
be understood by reading the whole Article in context.
7.215 Article 59 is found in Section 4 of Part III of the TRIPS Agreement on Special Requirements
Related to Border Measures. Section 4 sets out procedures for the suspension at the border by the
customs authorities of the release into free circula tion of goods. Article 59 sets out the step in these
procedures that applies after goods have been found to be infringing. As such, Article 59 forms part
of a set of procedures and its key terms must be understood in that context.
7.216 This reading is confirmed by the opening provi sion of Section 4. The first sentence of
Article 51 provides as follows:
"Members shall, in conformity with the pr ovisions set out below, adopt procedures to
enable a right holder, who has valid grounds for suspecting that the importation of
counterfeit trademark or pirated copyright goods may take place, to lodge an
application in writing with competent authorities, administrative or judicial, for the
suspension by the customs authorities of th e release into free circulation of such
goods." (footnotes omitted)
7.217 This sentence refers to "procedures to enable a right holder … to lodge an application … for
the suspension by the customs authorities of the release into fr ee circulation" of certain goods. These
procedures must conform with "the provisions set out below". The "provisions set out below" are the
provisions of Section 4, which include Article 59.
7.218 The description of the procedure as one for an "application" for "suspension" does not appear
to exclude related aspects of the procedure in the pr ovisions set out below, such as the provisions on
ex officio action in Article 58 or the remedies as a result of application and/or su spension set out in
Article 59. Rather, the procedures in Section 4 form a set that must be read together. This is reflected
in the second sentence of Article 51 (with respect to other goods, set out below) that refers to "such an
application" (i.e. an application such as that referre d to in the first sentence) being subject to "the
requirements of this Section". This tends to conf irm that the "provisions set out below" Article 51
include the whole of Section 4.
7.219 The need to read provisions in th e context of the relevant Section is a feature of Sections 2, 3
and 4 of Part III of the TRIPS Agreement. Whilst some provisions refer expressly to prior provisions,
such as Articles 52, 54 and 56, many others do not, such as Articles 53.1, 55, 57 and 59, but rather
rely on context for clarity. This confirms that th e provisions of Section 4 must be read as a coherent
set of procedures and not in isolation.
7.220 Therefore, the Panel will refer to other provisions of Section 4, in particular to Article 51, in
its interpretation of certain terms used in Article 59.

(iii) "infringing goods"
7.221 The first sentence of Article 59 applies to "in fringing goods". The ordinary meaning of these
words is not limited to goods that infringe any speci fic rights. However, read in context, there are
certain limitations. The first sentence of Article 51 provides for the relevant procedures to apply, as a
minimum, to "the importation" of "counterfeit tradem ark or pirated copyright goods". This applies to
Article 59 for the reasons set out at paragraphs 7.213 to 7.220 above.
7.222 Article 51 expressly allows Members to prov ide for procedures at the border for other
infringing goods as well. The second and third sentences of Article 51 provide as follows:
"Members may enable such an applicati on to be made in respect of goods which
involve other infringements of intellectual property rights, provided that the
requirements of this Section are met. Members may also provide for corresponding
procedures concerning the suspension by th e customs authorities of the release of
infringing goods destined for exportation from their territories."
7.223 Both these sentences use the word "may", indica ting that they are optional provisions. The
second sentence provides for an optional extension to "other infringements of intellectual property
rights". This is a reference both to goods that infringe trademarks and copyright without constituting
counterfeit trademark goods or pi rated copyright goods, as well as to goods that infringe other
categories of intellectual property rights, such as patents. The second sentence includes an express
condition that applies where Members provide border measures for other infringements of intellectual
property rights, namely "provided that the requirements of this Section are met". 213 The requirements
of that "Section" include those found in Article 59. Therefore, to the extent that a Member provides
for such an application to be made in respect of goods involving other infringements of intellectual
property rights, such as patents, the obligation in Article 59 applies.
7.224 The third sentence of Article 51 provides for an optional extension to "infringing goods
destined for exportation" from a Member's territory. The terms of the third sentence do not attach any
express condition to this option. An option with r espect to "corresponding procedures" is not, on its
face, an obligation that procedures shall corres pond. The omission of any express condition in the
third sentence stands in contrast to the proviso in the second sentence, which also serves the purpose
of providing for an optional extension of the bo rder measures. Whilst it would not have been
appropriate to include an identical condition to that found in the second sentence, as the requirements
of Section 4 refer to importation, the third sen tence could nevertheless have included an express
condition that the procedures with respect to infringing goods destined for exportation shall
correspond to those set out in the Section, or shall comply with the principles thereof. 214 However, it
does not. Read in context, this omission is not am biguous. Therefore, the Panel finds that there is no
obligation to apply the requirements of Article 59 to goods destined for exportation.215

213 There are some express differences between the procedures applicable to different goods:
Article 53.2 of the TRIPS Agreement only applies to goods involving industrial designs, patents, layout-designs
or undisclosed information; the second sentence of Article 59 only applies to counterfeit trademark goods.
214 For example, Articles 49 and 50.8 of the TRIPS Agreement provide for optional procedures, subject
to a contingent obligation that they "shall conform to principles equivalent in substance to those set forth" in the
relevant Sections. In contrast, footnote 13 to the TRIPS Agreement sets out an option but contains no
contingent obligation. However, footnote 13 limits the scope of the obligation in the first sentence of Article 51
rather than providing for an optional extension.
215 The text of Article 59 itself provides a confirmation of this point. The second sentence refers to the
"re-exportation" of the infringing goods not "exportation" , which implies that the counterfeit trademark goods
are only presented for importation.

7.225 Turning to the measures at issue, the Pane l notes that the Customs IPR Regulations, in
Article 2, provide that "Customs protection of in tellectual property rights in these Regulations means
the protection provided by the Custom s for the exclusive rights to use a trademark, copyrights and
their related rights, and patent rights (hereinafter referred to as intellectual property rights) …"
(emphasis added). The same is true of the Implementing Measures and Public Notice No. 16/2007,
that both implement the Customs IPR Regulations.216
7.226 It is apparent that the intellectual propert y right infringements covered by the Customs
measures include not only counterfeit trademark goods and pirated copyright goods, but certain other
infringements of intellectual property rights, na mely other trademark-infringing goods, other
copyright-infringing goods, and patent-infringing goods . For the reasons set out in paragraph 7.223
above, the Panel finds that Article 59 applies to the Customs measures as those measures apply to all
these infringements of intellectual property rights.
217
7.227 The Panel notes that the Customs IPR Regulations , in Article 2, also provide that "Customs
protection of intellectual property rights in these Regulations means the protection provided by the
Customs … related to imports or exports …" (emphasis added). The same is true of the
Implementing Measures and Public Notice No. 16/2007, that both implement the Customs IPR
Regulations.218
7.228 In this respect, China's border m easures provide a level of protection higher than the
minimum standard required by Section 4 of Part III of the TRIPS Agreement. The practical effect of
this is that, according to uncontested statistics prep ared by China Customs, 99.85 per cent by value of
infringing goods disposed of or destroyed under th e measures at issue in the years 2005 to 2007 were
destined for exportation.219
7.229 The United States' claim refers to "infringing goods" 220 and specifically notes that the
measures at issue apply to imports and exports. 221 However, in response to a question from the Panel
concerning its claim and the relevance of Article 51, the United States advised that it "takes no
position" with regard to whether the first sentenc e of Article 59 also governs border authorities'
actions with respect to goods destined for exportation.222
7.230 In light of the United States' response, and given the complainant's responsibility to assert and
prove its claim, China submits that its measures are not subject to this claim with respect to goods
destined for exportation.223
7.231 The Panel notes that the United States has not w ithdrawn its claim with respect to any aspect
of the Customs measures. For the reasons set out in paragraph 7.224 above, the Panel concludes that

216 See paragraphs 7.194 and 7.195 above.
217 This finding only applies with regard to imports, in accordance with paragraph 7.231 below.
218 These measures implement the Customs IPR Regula tions. Further, in the Implementing Measures,
Article 4 refers to the intellectual property rights of imports and exports, Chapter III on "Detention upon
application" begins with Article 14 that refers to good s to be imported or exported imminently, Chapter IV on
"Investigation by authority" begins with Article 20 that refers to discovery of any imports or exports by Customs
and is followed by Chapter V on disposal of goods and expenses which begins with Article 30 that refers to
infringing goods that Customs has confiscated. Public Notice No. 16/2007 was notified to regulate the auction
of goods in accordance with Article 27 of the Customs IPR Regulations that applies to both imports and exports.
219 See "Statistics on Disposition of Infringing Goods by China Customs In Years 2005 through 2007
prepared by China Customs" in Exhibits CHN-166 and CHN-167.
220 United States' first written submission, para. 171, 2nd sentence, refers to imports "in particular".
222 United States' response to Question No. 28.
223 China's second oral statement, paras 46-47.

Article 59 of the TRIPS Agreement is not appli cable to the Customs measures insofar as those
measures apply to goods destined for exportation.
7.232 The Panel will continue to assess the claim in sofar as it concerns goods destined for
importation. Imports represented 0.15 per cent by va lue of the goods disposed of or destroyed under
the measures at issue in the years 2005 to 2007. Du ring that period, all confiscated infringing imports
were either donated to the Red Cross Society of China (0.12%) or destroyed (0.02%). 224 The volume
of infringing imports that was sold to the right holder, or auctioned, was zero.
7.233 Nevertheless, the Customs measures on their face apply in the same way to both exports and
imports. China confirms that its evidence, including of specific shipments of exports, is indicative of
how the Customs measures operate with respect to both exports and imports. 225 The statistics
comprising both exports and imports are a much la rger, and therefore more reliable, sample.
Therefore, the Panel considers that it may refer to evidence as it relates to both exports and imports in
its assessment of this claim as it relates only to imports.
(iv) "shall have the authority"
7.234 The obligation in the first sentence of Article 59 is that competent authorities "shall have the
authority" to order certain types of remedies with r espect to infringing goods. It is clear from the
context within Section 4 that the obligations in Article 59 apply where customs authorities have
suspended the release into free circulation of goo ds suspected of infringing intellectual property
rights. The fact that Article 59 applies to "infringing goods" indicates that the obligations in this
Article are triggered when competent authorities fi nd that the goods subject to the suspension are
infringing. The fact that Article 59 addresses th e authority to order remedies implies that the
obligations continue until the time that a remedy ha s been ordered. The text of the Article does not
indicate any other limitation on the temporal scope of the obligations. Therefore, the obligation that
competent authorities "shall have the authority" to make certain orders applies from the time that
competent authorities find that goods subject to su spension at the border are infringing, right up until
the time that a remedy is ordered.
7.235 The United States confirms that it does not claim that the obligation that competent
authorities "shall have the authority" to order cer tain remedies requires Members to make those
orders. Rather, the United States claims that "[t]he pertinent issue is what decisions China Customs is
permitted by law to make in particular circumstances".
226
7.236 The Panel notes that the word "authority" can be defined as "power or right to enforce
obedience; moral or legal supremacy; right to command or give a final decision." 227 The obligation is
to "have" authority not an obligation to "exercise" authority. 228 The phrase "shall have the authority"
is used throughout the enforcement obligations in Sections 2, 3 and 4 of Part III of the TRIPS
Agreement, specifically, in Articles 43.1, 44.1, 45.1, 45.2, 46, 48.1, 50.1, 50.2, 50.3, 50.7, 53.1, 56
and 57. 229 It can be contrasted with terminology us ed in the minimum standards of protection in
Part II of the TRIPS Agreement, such as "Members sh all provide" protection, or that certain material
"shall be" protected. The obligation in Article 46 that certain authorities "shall have the authority" to

224 These figures do not total 0.15% due to rounding. See Customs Statistics in note 219 above.
225 See provisions of the Customs IPR Regulations and Implementing Measures cited at para. 7.227
above, and China's confirmation of this point in its response to Question No. 30.
227 New Shorter Oxford English Dictionary (1993).
228 This is without prejudice to other obligations regarding enforcement.
229 The phrasing in Article 57 is slightly different. The phrase "shall have the authority" is also used in
Articles 31(g), (k) and 34.1 in Part II of the TRIPS Agreement.

make certain orders reflects inter alia that orders with respect to specific infringements are left to
enforcement authorities' discretion.230
7.237 This is confirmed by the context. Article 41.1 of the TRIPS Agreement, quoted at
paragraph 7.170 above, obliges Members to ensure that enforcement procedures as specified in
Part III are "available" under their law so as to "p ermit" effective action against infringement, which
addresses the potential for action.
7.238 Given the potential importance of this interpretation to the operation of much of Part III of the
TRIPS Agreement, the Panel notes that it is further confirmed by the records of the negotiation of the
Agreement.231 Previous drafts of the TRIPS Agreement had provided that the authorities shall
"provide for" certain remedies, but this phrasing w as changed to read shall "have the authority", as
were a number of other draft provisions. 232 Therefore, the obligation that competent authorities "shall
have the authority" to make certain orders is not an obligation that competent authorities shall
exercise that authority in a particular way, unless otherwise specified.
7.239 Moreover, the obligation to have the authority to order certain types of remedies is not an
obligation to have the authority to order those remedies only. Both parties to the dispute, and certain
third parties, expressly recognize that the obligat ion that competent authorities "shall have the
authority" to order certain types of remedies leaves Members free to provide that competent
authorities may have authority to order other remedies not required to be within their authority by
Article 59 of the TRIPS Agreement.233
7.240 The Panel agrees. The terms of Article 59 do not indicate that the authority to order the
specified types of remedies must be exclusive. Th is interpretation is confirmed by Article 46, which
forms part of the context of Article 59, as Article 59 incorporates the principles of Article 46, and
both Articles are phrased as obligations that authori ties "shall have the authority" to order certain
types of remedies. The first sentence of Article 46 provides, basically, that authorities shall have the
authority to order that goods be disposed of outside the channels of commerce or destroyed. At the
same time, the fourth sentence of Article 46 relates to release into the channels of commerce which
does not correspond to either of the remedies require d by the first sentence. This is an express
recognition that the remedies set out in the first sen tence of Article 46 are not exhaustive. The same
position applies under Article 59.
7.241 Given the potential importance of this interpreta tion to the operation of Part III of the TRIPS
Agreement, the Panel notes that it is confirmed by the circumstances of conclusion of the
Agreement.234 One of the most important such circum stances was the fact that the pre-existing

230 Certain obligations guide the exercise of that discretion, for example, the principle of proportionality
and the need to take into account the interests of third parties under the third sentence of Article 46.
231 The Panel has recourse to this supplementary mean s of interpretation in accordance with Article 32
of the Vienna Convention on the Law of Treaties ("Vienna Convention") in order to confirm the meaning
resulting from the application of the general rule of interpretation in Article 31.
232 See, for example, the Composite Draft Text of 12 July 1990, MTN.GNG/NG11/W/76.
233 United States' rebuttal submission, para. 163; re sponse to Question No. 37; China's first written
submission, para. 213; response to Question No. 37; Brazil third party written submission, para. 51; European
Communities' third party written submission, para. 18.
234 The Panel has recourse to this supplementary mean s of interpretation in accordance with Article 32
of the Vienna Convention in order to confirm the interpretation resulting from application of the general rule of
interpretation in Article 31. The Panel recalls th e view of the Appellate Body in its report on EC – Computer
Equipment (at para. 86), quoted in its report on EC – Chicken Cuts (at para. 284), referring to Sinclair, I., The
Vienna Convention on the Law of Treaties , 2nd ed., (Manchester University Press, 1984) (at p. 141), that
recourse to the circumstances of conc lusion of a treaty "permits, in appr opriate cases, the examination of the
historical background against which the treaty was negotiated".

international intellectual property agreements c ontained comparatively fe w minimum standards on
enforcement procedures beyond national tr eatment and certain optional provisions. 235 One of the
major reasons for the conclusion of the TRIPS Agreem ent was the desire to set out a minimum set of
procedures and remedies that judicial, border and ot her competent authorities must have available to
them. This represented a major advance in intellect ual property protection, as reflected in the second
recital of the preamble to the Agreement as follows:
 " Recognizing, to this end, the need for new rules and disciplines concerning:

(c) the provision of effective and appropriate means for the enforcement of trade-
related intellectual property rights, taking into account di fferences in national legal
systems"236
7.242 At the same time, the negotiators appear to ha ve considered it unnecessary to state in either
Article 46 or Article 59 that the authorities could not release goods that had been found infringing into
the channels of commerce. This may have been due inter alia to the fact that such an action itself
could constitute infringement or otherwise expose th e authorities to liability. Such an action would
not constitute infringement if the circumstances of di sposal were non-commercial or if the state of the
goods was altered so that the goods no longer infringe d. The negotiators addressed both these issues:
in the first sentence of Article 46, by providing for disposal outside the channels of commerce (and
destruction) and, in the fourth sentence, in regard to counterfeit trademark goods, by setting a
minimum degree of alteration of the state of goods before release into the channels of commerce.
7.243 The European Communities submitted that all authority to order remedies, including those not
required by Article 59, is subject to an overarchi ng requirement that it be "in such a manner as to
avoid any harm caused to the right holder". 237 China addressed the degree to which auction, even
though it does not satisfy the requirement that dispos al be outside the channels of commerce, might
still avoid any harm caused to the right holder.238 The United States also addressed this issue.239
7.244 In the Panel's view, an interpretation that applies the phrase "in such a manner as to avoid any
harm caused to the right holder" to all authority to order remedies is based on a selective reading of
Article 46. The requirement that authority to order a remedy be "in such a manner as to avoid any
harm caused to the right holder" is linked in the text of Article 46 to one remedy only, namely
disposal outside the channels of commerce.
240 This does not exclude the possibility that other actions,
notably release into the channels of commerce, may be subject to requirements, provided that those
requirements are set out in the terms of Article 46 or Article 59.
7.245 The parties disagree as to the circumstanc es in which competent authorities may be
considered to have "authority" in accordance with Ar ticle 59, in particular, the extent to which the

235 The Panel Report in US – Section 211 Appropriations Act noted that:
"The inclusion of this Part on enforcement in th e TRIPS Agreement was one of the major
accomplishments of the Uruguay Round negotiations as it expanded the scope of enforcement
(…) of intellectual property rights. Prior to the TRIPS Agreement, provisions related to
enforcement were limited to general obligations to provide legal remedies and seizure of
infringing goods." (at para. 8.97)
236 This language was agreed at the Uruguay Round Mid-Term Review meeting in April 1989 before
the drafting of the TRIPS Agreement began: see document MTN.TNC/11, p. 14.
237 European Communities' response to Third Party Question No. 16.
238 China's first written submission, para. 214.
239 United States' first written submission, para. 189; rebuttal submission, para. 161; response to
Question No. 83.
240 The European Communities appeared to acknowledge this initially in its third party written
submission at para. 17.

availability of authority may be subject to conditi ons. China submits examples of other Members'
legislation that, in its view, subject customs' authority to conditions.241
7.246 The Panel observes that the reference to altern atives in Article 59 of the TRIPS Agreement
implies a particular type of condition. Artic le 59 requires authority to order "destruction or disposal"
(emphasis added). It is not disputed that wher e competent authorities have authority in any given
situation within the scope of Article 59 to order either destruction or disposal (in accordance with
applicable principles), this is sufficient to im plement the obligation in the first sentence of
Article 59.242 Therefore, a condition that precludes the authority to order one remedy (e.g. destruction)
could be consistent with Article 59 as long as compet ent authorities still had the authority to order the
other remedy (in this example, disposal).
7.247 The Panel also observes that a common feature of Sections 2, 3 and 4 of Part III of the TRIPS
Agreement is that the initiation of procedures under these Sections is generally the responsibility of
private right holders. This is reflected in the fi rst sentence of Article 42 and the first sentence of
Article 51, the reference to an "applicant" in Artic le 50.3 and 50.5, the reference to "request[s]" in
Articles 46 and 48.1, and the option (not obligation) to make ex officio action available under
Article 58. Viewed in context, the phrase "shall ha ve the authority" does not require Members to take
any action in the absence of an application or request . Therefore, a condition that authority shall only
be available upon application or request seems to be assumed in much of Sections 2, 3 and 4 of
Part III. This is consistent with the nature of intellectual property rights as private rights, as
recognized in the fourth recital of the preamble of the TRIPS Agreement. Acquisition procedures for
substantive rights and civil enforcement procedures ge nerally have to be initiated by the right holder
and not ex officio.
7.248 The above observations do not imply that other types of conditions that do not find such a
reflection in the text may not be attached to th e required authority. However, the Panel does not
consider it necessary, for the purposes of its examination of this claim, to consider what other
conditions, if any, may be attached to "authority" co nsistently with Article 59. Therefore, other than
the two conditions mentioned above, the Panel will accept arguendo that the availability of the
"authority" required by Article 59 may not be subject to conditions in any given situation within the
temporal scope of that Article, as described in paragraph 7.234 above.
7.249 The "authority" required by Article 59 concerns two types of remedies, namely "destruction
or disposal". The meaning of "destruction" is not controversial. As for "disposal", the Panel notes
that the English text of Article 59 does not qualify this word so that it coul d, in accordance with its
ordinary meaning, refer both to disposal outside the channels of commerce as well as to release into
the channels of commerce. 243 However, read in context, the wo rd "disposal" could be a reference to
an order that goods be "disposed of" outside the cha nnels of commerce as set out in Article 46. This
ambiguity is resolved by reference to the French and Spanish texts, which are equally authentic. 244
The French text of Article 59 refers to authority to order "la mise hors circuit" which is a reference to
the authority to order that infringi ng goods be "écartées des circuits commerciaux" in Article 46. The

241 China's first written submission, paras 198-200, referring to Exhibits CHN-102, CHN-106 to
CHN-112.
242 United States' response to Question No. 41; China in fact submits that the minimum standard
permits reasonable conditions and sequencing or struct uring authority "in a conditional and circumstantial
manner": see its first written submission, paras 196 and 202.
243 The ordinary meaning of "disposal" can be defined as "the action of disposing of or getting rid of;
the action of settling or dealing with". "Dispose" in turn can be defined as "get rid of; deal conclusively with,
settle": see the New Shorter Oxford English Dictionary (1993). This would include release to an importer or
third parties, whether or not in exchange for payment.
244 See the final clause of the WTO Agreement. Acco rding to Article 33(3) of the Vienna Convention,
the terms of the Agreement are presumed to have the same meaning in each authentic text.

Spanish text of Article 59 refers to authority to order "eliminación" which, read in its context as an
alternative to "destrucción", is evid ently a reference to the authority to order that infringing goods be
"apartadas de los circuitos comerciales" in Article 46. Accordingly, the correct interpretation of the
term "disposal" in the first sentence of Article 59 is disposal "outside the channels of commerce".
7.250 The Panel will refer to "destruction" and "dis posal" collectively as "disposition methods" for
ease of reference. It is not disputed that Chin a's Customs measures provide the authority to order
destruction of infringing goods in accordance with the prin ciples set out in Article 46. However, the
United States takes issue with what it considers the "highly limited circumstances" in which the
Customs measures permit destruction.245 China does not deny that its authority to order destruction is,
in principle, subject to certain limitations but ar gues that China Customs h as considerable discretion
to decide whether such limitations apply. The statis tics show that, in practice, over half of infringing
goods seized by Customs in terms of value are in fact destroyed.246
7.251 The Panel recalls its finding at paragraph 7.2 46 above that China is permitted to limit the
authority to order destruction of infringing goods provided that its competent authorities have the
authority in such situations to order disposal of infringing goods in accordan ce with the principles set
out in Article 46. The limitations on Customs' aut hority to order destruction of infringing goods are
relevant to the claim only to the extent that they show that Customs has authority to order neither
destruction of infringing goods nor disposal in accordance with those principles.
7.252 It is in this context that the United States claims that the measures establish a mandatory
sequence of steps, as the authorities will not have eith er of the required forms of authority in a given
situation if the measures at issue compel them to order another disposition method that is not required
by Article 59.
247 This raises the so-called "mandatory/di scretionary distinction" that has been
discussed in a number of GATT and WTO Pane l Reports relating to trade in goods. 248 Whilst
authority to order a disposition method not required by Article 59 does not, in itself, lead to WTO-
inconsistent action, to the extent that such authority mandates a disposition method in any given
circumstance it may preclude authority that is required by Article 59. The preclusion of such
authority may be WTO-inconsistent. For that r eason, the Panel will examine whether certain aspects
of the Customs measures are mandatory.
7.253 The Panel also notes that authority to order a disposition method within the scope of
Article 59 will often be discretionary, as the obligation that Members' competent authorities "shall
have the authority" to make particular or ders applies to what those authorities are permitted to order
by domestic law. Accordingly, the obligation in Article 59 is applicable to both mandatory and
discretionary measures and, in principle, both manda tory and discretionary measures "as such" can be
examined for conformity with that obligation. 249

245 United States' second oral statement, para. 59; response to Question No. 81.
246 China's rebuttal submission, para. 154. See the statistics at paragraph 7.349 below.
247 United States' rebuttal submission, para. 161; responses to Questions Nos. 39, 41, 80 and 83.
248 See further paragraph 7.358 below.
249 The Panel notes that its approach is consiste nt with the view of the Appellate Body in US –
Corrosion-Resistant Steel Sunset Review (at para. 93) that "as with any such analytical tool, the import of the
'mandatory/discretionary distinction' may vary from case to case". The Panel also notes that the possibility of
obligations which would render illegal even discretionary legislation was specifically envisaged in the Panel
Report in US – Section 301 Trade Act (at para. 7.53) as follows:
"The question is then whether, on the correct interpretation of the specific WTO obligation at
issue, only mandatory or also discretionary national laws are prohibited. We do not accept the
legal logic that there has to be one fast and hard rule covering all domestic legislation. After
all, is it so implausible that the framers of the WTO Agreement, in their wisdom, would have

7.254 The Customs measures at issue provide for three disposal options besides destruction. These
are donation to social welfare bodies; sale to the right holder; and auction. The United States claims
that none of these disposal options is in accordance with the principles set out in Article 46 and that
all preclude authority to order destruction. 250 China responds that the first two of these disposal
options constitute authority to or der disposal in accordance with the principles set out in Article 46,
and that the United States has not established th at China Customs lacks authority to order
destruction.251 Therefore, the Panel will proceed as follows:
(a) First, the Panel will determine what are "the principles set out in Article 46";
(b) Second, the Panel will assess China Customs' authority to order donation to social
welfare bodies and, if necessary, sale to the right holder, in order to determine
whether they constitute authority to order disposal in accordance with the principles
set out in the first sentence of Article 46; and
(c) Third, the Panel will assess China Customs' authority to order auction of infringing
goods (plus either of the first two disposal op tions that is found to be disposal not in
accordance with the principles set out in the first sentence of Article 46) to determine
whether such authority mandates a particular disposition method and thereby
precludes authority to order destruction.
(v) "the principles set out in Article 46"
7.255 The first sentence of Article 59 provides that co mpetent authorities shall have the authority to
order the destruction or disposal of infringing goods "in accordance with the principles set out in
Article 46". The phrase referencing the principles set out in Article 46 attaches to "the authority to
order the destruction or disposal of infringing go ods". This directs the treaty interpreter to those
principles in Article 46 that attach to such authority.
7.256 The Panel makes the following observations. First, Article 59 refers to "authority". Second,
Article 59 incorporates principles that attach to aut hority to order "destruction or disposal" (outside
the channels of commerce for the reasons given at paragraph 7.249 above). Third, Article 59 relates
to the authority to order destruction or disposal of "infringing goods" but not principles applicable to
the disposition of materials and implements.
7.257 Article 46 of the TRIPS Agreement provides as follows:
"Other Remedies

In order to create an effective deterrent to infringement, the judicial authorities shall
have the authority to order that goods that they have found to be infringing be,
without compensation of any sort, disposed of outside the channels of commerce in
such a manner as to avoid any harm caused to the right holder, or, unless this would
be contrary to existing constitutional requirements, destroyed. The judicial
authorities shall also have the authority to order that materials and implements the
predominant use of which has been in the creation of the infringing goods be, without
compensation of any sort, disposed of outsi de the channels of commerce in such a
manner as to minimize the risks of further infringements. In considering such

crafted some obligations which would render illega l even discretionary legislation and crafted
other obligations prohibiting only mandatory legislation?"
250 United States' first written submission, paras 184, 189 and 191.
251 China's rebuttal submission, paras 155, 156 and 171.

requests, the need for proportionality between the seriousness of the infringement and
the remedies ordered as well as the interest s of third parties shall be taken into
account. In regard to counterfeit tradem ark goods, the simple removal of the
trademark unlawfully affixed shall not be su fficient, other than in exceptional cases,
to permit release of the goods into the channels of commerce."
7.258 The first sentence of Article 46 refers to "aut hority" to order that "infringing goods" be
"disposed of … or … destroyed". Therefor e, it seems pertinent to Article 59.
7.259 The second sentence of Article 46 refers to disp osal of materials and implements and is
therefore inapposite. Indeed, materials and implem ents used to create infringing goods would not
normally be suspended at the border with the infringing goods, unlike during enforcement actions
within a Member's territory.
7.260 The third sentence of Article 46 refers to "s uch requests" although the previous sentences do
not refer expressly to any requests. The content of the third sentence clearly relates to materials and
implements as addressed in the second sentence but it could equally relate to infringing goods as
addressed in the first sentence. The text is ambiguou s on this point. This ambiguity can be resolved
by reference to the records of the negotiation of the TRIPS Agreement.252
7.261 The TRIPS Agreement was negotiated during the Uruguay Round in the Negotiating Group
on Trade-Related Aspects of Intellectual Propert y Rights, including Trade in Counterfeit Goods
(referred to below as the "TRIPS negotiating group"). The Chairman's draft text of the Agreement of
23 July 1990 included a draft article corresponding to what is Article 46 in the text as finally
agreed.
253 In that draft article, the principle of proportionality and the interests of third parties were
related to a request of the right holder under the previous sentence. That request could be for
remedies with respect to infringing goods as well as materials and implements. In a later draft 254, the
first sentence of the provision on remedies was divide d into two separate sentences, one with respect
to infringing goods and the other with respect to ma terials and implements. Both sentences included
the phrase "upon request from the right holder". In the same draft, the phrase "[i]n considering such a
request" was revised to read "[i]n considering such requ ests" (in the plural). This is the version of the
third sentence that was retained in the so-called "Brussels Draft" 255 and the final text of Article 46 of
the TRIPS Agreement.

252 The Panel has recourse to a supplementary means of interpretation in accordance with Article 32 of
the Vienna Convention in order to determine the meaning when the interpretation according to the general rule
of interpretation in Article 31 leaves the meaning ambiguous.
253 That draft article read as follows:
"10. Other Remedies
10A Where an intellectual property right has been found to be infringed, the court shall
have the authority to order, upon request of the right holder, that the infringing goods, as well
as materials and implements the predominant use of which has been in the creation of the
infringing goods, be, without compensation of any sort, destroyed or disposed of outside the
channels of commerce in such a manner as to mi nimise any harm caused to the right holder.
In considering such a request , the need for proportionality between the seriousness of the
infringement and the remedies ordered as well as the interests of third parties shall be taken
into account. [In regard to counterfeit goods] [Other than in exceptional cases], the simple
removal of the trade mark [or geographical indication] unlawfully affixed shall not be
ordered." (emphasis added) See Part IV of document MTN.GNG/NG11/W/76.
254 Chairman's revised draft text of 13 November 1990, document no. 2814.
255 See draft Article 49 in document MTN.TNC/W/35 /Rev.1 dated 3 December 1990 entitled "Draft
Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations – Revision".

7.262 Accordingly, the records of the negotiation of the TRIPS Agreement clarify that the terms of
Article 46 in the third sentence refer inter alia to the consideration of requests for orders that
infringing goods be disposed of outside the channels of commerce or destroyed. Therefore, the third
sentence seems pertinent to Article 59 as well.
7.263 The fourth sentence refers to a category of infringing goods, i.e. counterfeit trademark goods.
It does not refer expressly to authority to order destruction or disposal outside the channels of
commerce. However, the context shows that the pr inciple of proportionality in the previous sentence
guides the competent authorities' choice between the remedies specified in the first sentence and any
alternative remedies. Similarly, the fourth sente nce of Article 46 sets out a consideration that the
authorities must take into account when choosi ng between the required remedies, namely those
specified in the first sentence, and release into the channels of commerce, if such an order is available.
The fourth sentence attaches to the scope of auth ority to choose between destruction or disposal
outside the channels of commerce and release into the channels of commerce, if that remedy is
available. Therefore, the fourth sentence of Article 46 seems pertinent to Article 59.
7.264 Article 59 refers to the "principles" set out in Article 46. Therefore, it is necessary to
determine what precisely that refers to in the first, third and fourth sentences of Article 46. The word
"principles" can be defined as "a general law or rule adopted or professed as a guide to action." 256
Each of these sentences of Article 46 contains langua ge that is a guide to action by authorities and
none dictate the precise terms of orders in specific cases.
7.265 The Panel does not consider that the choice of th e word "principles" was intended to reflect a
hierarchy of provisions within Article 46 that w ould include only the most general concepts and
exclude the less general. There is a strong si milarity in the language and purpose of the two
provisions that both provide for authority to order destruction or disposal with respect to goods that
have been found to infringe intellectual property rights at the conclusion of an enforcement procedure.
However, there are also differences in the governme nt agencies to which they relate ("competent
authorities" to order remedies in border measure s under Article 59 but "judicial authorities" under
Article 46) and also in the scope of property to which the remedies apply ("infringing goods" under
Article 59 and "infringing goods as well as materials and implements the predominant use of which
has been in the creation of the infringing go ods" under Article 46). These differences made it
inappropriate simply to provide that the oblig ation in Article 59 applied "in accordance with
Article 46" or otherwise incorporate the whole of Article 46. Instead, the cross-reference to
"principles" avoided the duplication of a relatively large amount of text.
257 Therefore, in the Panel's
view, the reference to "principles" is a reference to language that is a guide to action by authorities
with respect to orders for the destruction or disposal of infringing goods.
7.266 Accordingly, for the purposes of Article 59, th e Panel considers that the first sentence of
Article 46 sets out the following "principles":
(a) authorities shall have the authority to order disposal or destruction in accordance with
the first sentence "without compensation of any sort"; and

256 New Shorter Oxford English Dictionary (1993).
257 The Panel notes that the cross-reference from a draft article on remedies in Section 4 to the
"principles" of a draft article on remedies in Section 2 was included in the earliest complete draft of the TRIPS
Agreement, i.e. the Composite Draft Text of 12 June 1990 and can be traced to inter alia the EC draft text of
May 1989 (MTN.GNG/NG11/W/68). The amount of duplication between the two provisions that the cross-
reference avoided can be observed in the prior EC proposal (MTN.GNG/NG11/W/31): see note 261 below.

(b) authorities shall have the authority to order disposal "outside the channels of
commerce in such a manner as to avoid any harm caused to the right holder";258 or
(c) authorities shall have the authority to order destruction "unless this would be contrary
to existing constitutional requirements".
7.267 The third sentence sets out the following principle that applies inter alia to the authority to
order disposal or destruction of infringing goods under the first sentence:
(d) in considering such requests "the need for proportionality between the seriousness of
the infringement and the remedies ordered as well as the interests of third parties shall
be taken into account".

7.268 The fourth sentence sets out the following princi ple that attaches to the authority to order
destruction or disposal of infringing goods under the first sentence:
(e) in regard to counterfeit trademark goods , the simple removal of the trademark
unlawfully affixed shall not be sufficient, other than in exceptional cases, to permit
release of the goods into the channels of commerce.259

7.269 The interpretation of all these principles is in formed by the common objective set out at the
beginning of Article 46, i.e. "to create an effective deterrent to infringement" which is, in itself, also a
guide to action with respect to orders for the destru ction or disposal of infringing goods and, hence, a
principle set out in Article 46.
7.270 In the Panel's view, the above are the "principl es set out in Article 46" incorporated by the
first sentence of Article 59.
7.271 China disagrees, arguing, in effect, that the second sentence of Article 59 constitutes a
lex specialis that would exclude the incorporation of the fourth sentence of Article 46 into
Article 59.260
7.272 The Panel observes certain similarities in the respective texts of the fourth sentence of
Article 46 and the second sentence of Article 59. The second sentence of Article 59 provides as
follows:
"In regard to counterfeit tr ademark goods, the authorities shall not allow the re-
exportation of the infringing goods in an unalte red state or subject them to a different
customs procedure, other than in exceptional circumstances."
7.273 Like the fourth sentence of Article 46, this sen tence begins with the words "[i]n regard to
counterfeit trademark goods" and includes the words "other than in exceptional" circumstances (as
opposed to cases). There is also a similarity in th at the second sentence of Article 59 applies to goods
"in an unaltered state" whilst the fourth sentence of Article 46 applies to "the simple removal of the
trademark unlawfully affixed" which is a means of altering the state of counterfeit trademark goods.
Both sentences are found in Articles that provid e for remedies after particular enforcement
procedures.

258 This principle is interpreted at paragraphs 7.278 to 7.285 below.
259 This principle is interpreted at paragraphs 7.369 to 7.379 below.

7.274 However, Article 59 applies to procedures at th e border with respect to goods destined for
importation whilst Article 46 applies to civil judici al procedures within Members' territories. The
second sentence of Article 59 refers to re-export or release into a different customs procedure (for
example, into transit) which is specific to the enforcement procedure in Section 4. Article 46 refers to
release into the channels of commerce which can be applicable to importation and domestic sale in
both Sections 2 and 4. The second sentence of Artic le 59 and the fourth sentence of Article 46 apply
in different circumstances and neither is in fact more specific than the other.
7.275 There is no reason to infer that the risk of further infringement presented by counterfeit
trademark goods was only intended to be addressed when the goods were re-exported or subject to
another customs procedure and not when they were released at the border into the channels of
commerce.261 Counterfeit trademark goods suspended at the border and then released present a risk of
further infringement whether the goods are released into the channels of commerce within a Member's
territory, or transit through the Member's territory or are re-exported to another Member's territory, as
under the second sentence of Article 59.
7.276 Indeed, read in context, the relevance of "releas e" of goods into the channels of commerce is
even clearer in Article 59 than it is in Article 46. Section 4 concerns the suspension of "release" of
goods to importers, and uses that word in Articles 51, 53.2, 54, 55, 56 and 58. In contrast, Article 46
is part of Section 2, on civil and administrativ e procedures and remedies, so the limited sense of
"release" to an importer cannot apply. Read in cont ext, a broader meaning, equivalent to release to
any party in the channels of commerce, must apply when this word is used in relation to remedies.
7.277 For the above reasons, the Panel confirms its finding at paragraph 7.270 above as to the
interpretation of "the principles set out in Article 46", as incorporated in Article 59.
(vi) "outside the channels of commerce in such a m anner as to avoid any harm caused to the right
holder"
7.278 The parties disagree as to the meaning of th e principle set out in the first sentence of
Article 46 that refers to disposal "outside the ch annels of commerce in such a manner as to avoid any
harm caused to the right holder". The United Stat es has raised concerns regarding the harm that
donations may cause to right holders and the possibil ity that the donated goods may later be sold by
the social welfare bodies.
7.279 The Panel notes that this principle, by its term s, relates to disposal of goods "outside" the
channels of commerce, and not into the channels of co mmerce. It is not disputed that this principle is
applicable to donations (i.e. gifts) to social welfare bodies for their own use or for charitable
distribution. However, if the social welfare bodies later sell goods donated to them by Customs for
charitable distribution, even to raise money for char itable aims, the goods are not in fact disposed of
outside the channels of commerce but into the channels of commerce. If the social welfare bodies
charitably distribute goods donated to them by Cust oms but the goods later find their way back into

261 The records of the TRIPS negotiations shows that similar language to the fourth sentence of
Article 46 and the second sentence of Article 59 together with the cross-reference to the principles of another
article were included in the earliest complete draft of the TRIPS Agreement, i.e. the Composite Draft Text of
12 June 1990. That Draft Text took this language from the EC, US and Swiss draft texts
(MTN.GNG/NG11/W/68, W/70 and W/73). For the record, it can be observed that the prior EC proposal had
duplicated language between the two provisions without a cross-reference. In that proposal, what is now the
fourth sentence of Article 46 appeared in what is no w Article 59, without the cross-reference or the second
sentence (MTN.GNG/NG11/W/31). Without acknowledging its relevance to the interpretation of Article 59, the
Panel notes that the negotiating record to which China itself referred shows that another participant in the
negotiations envisaged application of "exceptional cases" in the border measures remedies provision to
importation as well as reshipment, quoted in China's rebuttal submission, para. 211.

the channels of commerce, this does not alter the f act that the goods were disposed of outside the
channels of commerce, in the ordinary sense of "disposal". 262 Instead, the later sale of the distributed
goods is relevant to the assessment of whether the disposal outside the channels of commerce was "in
such a manner so as to avoid any harm caused to th e right holder". Therefore, the Panel will consider
the interpretation of that part of the principle in further detail.
7.280 This principle, by its terms, provides that authorities shall have the authority to order that the
goods "be disposed of", in the passive voice. Ther e is no obligation that the relevant authorities carry
out the disposal themselves but rather they may en trust the actual disposal to another body. The
carrying out of disposal "outside the channe ls of commerce" recognizes the opportunity for
involvement of other bodies, such as charities, or non-commercial use by government. The principle
attaches to the "manner" in which infringing good s are disposed of, not to the actual disposal.
Authorities are not held responsible for acts of the bodies carrying out the disposal that is beyond the
authorized manner. Further, the principle is that the manner shall be "so as to" avoid harm. This is
phrased in terms of purpose, not result. The respons ibility of the authorities is to ensure that the
manner in which the goods are disposed of outside the channels of commerce is designed in such a
way that it will comply with the principle.
7.281 The principle is that the manner of disposal sha ll "avoid" harm. China argues that this is an
obligation to "pay due regard to". 263 However, the Panel notes that the ordinary meaning of "avoid"
can be defined as "keep off, prevent; obviate". 264 Further, the principle is that the manner shall avoid
"any" harm caused to the right holder, not just "harm" or "some" harm. 265 Therefore, the manner of
disposal must be designed in such a way as to prevent any harm occurring to the right holder.
7.282 It must be recalled that disposal of infringing goods outside the channels of commerce, in
context, is an alternative to destruction of the goods. In the Panel's view, this implies that any
inherent risk of harm due simply to the fact that the goods have not been completely destroyed is
insufficient to disqualify a disposal method, as it would nullify the choice between disposal and
destruction. However, more specific concerns linked to harm caused to the right holder by a
particular manner of disposal are relevant in assessi ng conformity with the principle that disposal
outside the channels of commerce be "in such a manner as to avoid any harm caused to the right
holder".
7.283 The Panel finds confirmation of this interpretati on within Article 46. The fourth sentence of
Article 46 expressly provides that simple removal of the trademark unlawfully affixed is not sufficient
to permit release of counterfeit trademark goods into the channels of commerce other than in
exceptional cases. In contrast, the first sentence of Article 46 contains a more general requirement
that the requisite authority to order disposal of goods outside the channels of commerce shall be "in
such a manner as to avoid any harm caused to the righ t holder". Whilst this reflects, in part, the fact
that the first sentence does not only apply to count erfeit trademark goods, it also demonstrates that
when goods are disposed of outside the channels of commerce it is not assumed that the removal of
the trademark is required (or insufficient).
7.284 It remains possible that the trademark unlaw fully affixed may cause confusion, depending on
the circumstances in which goods are disposed of outside the channels of commerce. Practical
requirements, such as removal of the trademark, affixation of a ch aritable endorsement or controls
over the use of goods or distribution methods, may avoid confusion. The cooperation of the right
holder would be valuable in this regard but the te rms of the Article do not indicate that that is a

262 See note 243 above.
263 China's first written submission, para. 186.
264 New Shorter Oxford English Dictionary (1993).

requirement.266 However, the issue of harm to the right holder, whether to its reputation or through
lost sales, through disposal of goods outside th e channels of commerce without removal of the
trademark unlawfully affixed depends on the circum stances. Otherwise, any disposal outside the
channels of commerce where persons could simp ly observe a counterfeit trademark would be
presumed to cause harm to the right holder. This result is not contemplated by the terms of Article 46,
as the possibility of observing the counterfeit trademark is incidental to the requisite authority not to
destroy the goods.
7.285 These observations are subject to the Panel's findi ngs at paragraphs 7.239 to 7.240 above that
the obligation that competent authorities "shall have th e authority" to order certain types of remedies
leaves Members free to provide that competent authorities may have authority to order other remedies
not required by Article 59. The remedies specified in Article 59 are not exhaustive.
(vii) Donation to social welfare bodies
7.286 The Panel will now assess Customs' authority to order donation to social welfare bodies in
order to determine whether it cons titutes authority to order disposal of infringing goods in accordance
with the principles set out in the first sentence of Article 46 of the TRIPS Agreement, specifically,
whether it constitutes disposal "outside the channe ls of commerce in such a manner as to avoid any
harm caused to the right holder".
7.287 The United States does not object to donation of goods to charity per se.267 It accepts that
donation with the right holder's consent may observe the principles of Article 46. The United States
alleges that the measures do not provide any discre tion to the Customs authorities to determine that
transfer to a social welfare body is not appropriate in circumstances where the right holder would be
harmed.268
– Defective goods
7.288 The United States argues that the donation of "shoddy counterfeit goods", if they fail to
perform properly and especially if defective or dang erous, will damage the right holder's reputation or
even expose it to claims for compensation.269
7.289 The Panel notes that the United States' argume nt is based on the legal structure of the
measures, that allegedly allows defective goods to be donated. 270 The United States does not allege
that any sub-standard, defective or dangerous goods have actually been donated by China Customs to
social welfare bodies. In fact, ap art from the text of the measures at issue, the United States submits
only a US newspaper article titled "China's New Concern: Exploding Phones" reporting on an
unrelated case of mobile phone batteries that had failed safety tests in China and were reportedly
prone to explode unde r certain conditions. 271 The article reports statements by right holders that the
batteries were counterfeit. There is no link in th e story to Customs and no link to social welfare
bodies. This alarming story is therefore irrelevant to the assessment of the claim as it adds nothing to
the general point that goods can be dangerous.

266 United States' first written submission, para. 185 and response to Question No. 72, submitting that
donation to charities with the right holder's consent was a manner of disposal that avoids any harm to the right
holder.
267 United States' response to Question No. 72.
268 United States' first written submission, para. 187.
269 United States' first written submission, para. 186.
270 United States' first oral statement, para. 50.
271 Exhibit US-45.

7.290 China responds that its Customs would neve r donate defective or dangerous goods. 272
Article 27 of the Customs IPR Regulations sets out a condition for donation, in that it provides for
donation "[w]here the confiscated goods which infring e on intellectual property rights can be used for
the social public welfare undertakings". Artic le 30 of the Implementi ng Measures restates the
condition, providing for donation "[ w]here the goods concerned may be used directly for the social
public welfare".
7.291 The Panel sees no reason why defective or dange rous goods would satisfy this condition.
Nothing else in the evidence sugg ests that Customs would donate defective or dangerous goods to
charity. Therefore, the Panel finds that it has not been demonstrated that Customs lacks authority to
donate goods to social welfare bodies in such a manner as to avoid any harm to the right holder
caused by defective or dangerous goods.
7.292 China also referred to Article 6 of the Law on Donations for Public Welfare which provides
as follows:
"Donation shall be made in compliance w ith laws and Regulations, and not in
violation of social morality, nor to the detriment of public interests and the lawful
rights and interests of other citizens."273
7.293 The Panel notes that this provision, on its face, re fers to the "detriment of public interests"
which could include the safety of persons who co uld potentially receive de fective and dangerous
goods from social welfare bodies where those goods we re eligible for donation by Customs to those
social welfare bodies. However, the Panel does not n eed to take a definitive view on this point as it
has already found at paragraph 7.291 above that Ch ina has sufficiently substantiated its assertion on
the basis of the provisions of the measures at issue.
– Harm to reputation
7.294 The United States submits that the above cons iderations do not address the situation of
counterfeit and pirated goods that are usable but likely of lower quality. In its view, such goods could
easily harm the right holder's reputation. Indeed, Article 6 of the Customs – Red Cross Memorandum
(discussed at paragraphs 7.300 to 7.304 below) expressly fores ees the possibility of handing over
goods that have "quality problems".
274
7.295 The Panel recalls its findings at paragraph 7.282 above that an y inherent risk of harm due
simply to the fact that the goods have not been co mpletely destroyed is insufficient to disqualify a
disposal method, and that evidence of actual harm caused to the right holder by the manner of
disposal could be relevant in assessing whether the manner of disposal conforms to this principle.
7.296 Under ordinary circumstances, consumers may be misled as to the origin of counterfeit and
pirated goods, and counterfeit goods w ith quality problems may harm ri ght holders' reputations. The
Panel has taken due note that nothing in the measur es at issue obliges Customs or the social welfare
bodies to remove counterfeit trademarks. Whilst th e evidence shows that, in one case, the Red Cross
imprinted its seal on a batch of donated infringing cl othes, apparently to prevent the goods being sold

272 China's first written submission, paras 162-163; response to Question No. 32.
273 Mutually agreed translation no. 10. The Law on Donations for Public Welf are is, on its face, of
general application (see Article 2) and therefore applicable to donations by Customs of infringing goods to
social welfare bodies under the measures at issue.

after distribution275, it is not suggested that this was pursuant to an obligation or is in any other way
relevant to the "authority" that Customs has to order disposal of goods.
7.297 However, goods donated by Customs to the Red Cross are not distributed in ordinary
circumstances. The Red Cross distributes donated goods itself, outside the channels of commerce,
including in disaster relief projects, where it cannot simply be assumed that the recipients are misled
as to the origin of the goods. 276 The recipients do not choose the goods in the way that ordinary
consumers do, nor can it be assumed that the recipi ents are potential consumers of the genuine goods.
The purposes of the Red Cross and the circumstan ces in which it may use goods donated by Customs
form part of the legal structure bearing on the "ma nner" of disposal of infringing goods by Customs.
Nothing in the evidence suggests that any harm has ever been caused, or is likely to be caused, to right
holders' reputations due to dona tion of infringing goods under the measures at issue. In fact, the
evidence shows that two internationally famous ri ght holders have actually participated in the
distribution by the Red Cross of goods that infringed their rights 277, suggesting that they do not
presume donation of infringing goods harms their reputation. Therefore, the Panel finds that it has not
been demonstrated that Customs lacks authority to donate goods to social welfare bodies in such a
manner as to avoid any harm to the right holder caused by lower quality goods.
– Later sales of donated goods
7.298 The United States also alleges that "nothing a ppears to prevent [social welfare bodies] from
selling the infringing goods they receive under the first "item" thus moving these goods back into
commerce".278
7.299 China responds by reference to Article 30 of the Implementing Measures, which specifically
provides in a final paragraph as follows:
"In cases where relevant social welfare bodies use the infringing goods confiscated by
Customs for the social public welfare, or the holder of the intellectual property rights
assists Customs in destroying the infringing goods, Customs shall carry out necessary
supervision."279 (emphasis added)
7.300 China submits that this provision imposes on Cu stoms a legal responsibility to ensure that
donated goods are used exclusively for social welfare purposes.280 By way of an example of Customs'
implementation of its responsibilit y of supervision, China subm its a Memorandum of Cooperation
dated 13 May 2004 that the General Administration of Customs entered into with the Red Cross
Society of China entitled "Memorandum of Cooperati on on using confiscated infringing goods for
social welfare" (the "Customs – Red Cross Memorandum"). 281 This Memorandum was executed and
entered into force shortly after the Implementing Me asures were adopted but before they entered into
force.282

275 Exhibit CHN-91.
276 For example, the evidence shows goods being delivered in Red Cross packaging: Exhibit CHN-93.
277 Exhibit CHN-91.
278 United States' first written submission, para. 186.
279 Mutually agreed translation no. 7. China also refers to Article 6 of the Law on Donations for Public
Welfare, quoted at paragraph 7.292 above.
281 Exhibit CHN-92.
282 The Standing Committee of the General Administration of Customs adopted the Implementing
Measures on 22 April 2004. The Memorandum of Cooperation was executed by the General Administration of
Customs and the Red Cross Society of China on 13 Ma y 2004 and it came into force immediately: see
Article 11. The Implementing Measures entered into force on 1 July 2004.

7.301 The Customs – Red Cross Memorandum recit es the Customs IPR Regulations and other
relevant laws and administrative regulations and sets up procedures regarding the use of confiscated
infringing goods for social welfare.283 It is, on its face, a legally binding agreement. Article 4 sets out
the rights and obligations of Customs. Item (iv) provides that Customs must hand over the goods
"free of charge". Hence, they are donations and not sales. Item (ii) obliges and entitles Customs to do
the following:
"(ii) monitoring the whereabouts and the usages of Goods. Requiring [Red Cross]
to correct any of its actions that are found in violation of the provisions of this
Memorandum;"
7.302 Article 5 sets out the rights and obligations of the Red Cross and includes the following item:
"(iv) promptly notifying [Customs] of the distribution and the usage of the Goods
upon the request of [Customs]."
7.303 Article 7 stipulates the use of goods donated to the Red Cross as follows:
"The Goods handed over to [t he Red Cross] by [Customs] shall be restricted for use
only for the living purposes of the person who receives relief. [The Red Cross] shall
take effective measures to prevent goods from being used for other purposes or
entering into the channels of commerce by any means."
7.304 The Panel observes that these terms, on their face, (a) require the Red Cross to restrict the use
of infringing goods and take measures to prevent th eir sale; and (b) obliges Customs to monitor use
and entitles Customs to require the Red Cross to corr ect any violation of the restriction on use or its
duty to take measures to prevent their sale. These measures, on their face, show that Customs has a
responsibility for the manner in which the goods are disposed of, and that it has provided that that
manner avoids their return to the channels of commerce.
7.305 The United States argues that th e preventive measures that the Red Cross must take under the
Memorandum "do not in fact demonstrat e that, under Chinese law, the goods cannot return to the
channels of commerce"
284 (emphasis added). However, the Panel recalls that, in accordance with the
relevant principles set out in Article 46, Customs must have the authority to order that the goods be
disposed of outside the channels of commerce, an d that the responsibility of the authorities is to
ensure that the "manner" in which the goods are di sposed of outside the channels of commerce is
designed in such a way that it will avoid any harm caused to the right holder.
7.306 China has provided evidence of cases of donation of infringing goods by Customs to the Red
Cross Society. In one case, Customs donated infringi ng goods to the Red Cross that were allocated to
people in areas struck by natural disasters such as typhoons, rainstorms a nd floods. The goods all
infringed trademark rights and consisted of sport shoes, bags of rice noodles, washing powder, air-
cooled chillers and kerosene heaters.285 There is no evidence on the record that Customs has failed to
discharge its responsibility to ensure that the use of such infringing goods is not circumvented and
that goods do not find their way back into the channels of commerce.

283 The text of the Memorandum refers to "Party A" and "Party B", which are the General
Administration of Customs and the Red Cross Society of China, respectively. The quotations from the
Memorandum in this report refer to the parties by name for ease of reference.
285 Exhibit CHN-93.

7.307 The Panel considers the Customs – Red Cross Memorandum particularly relevant to its
assessment of Customs' authority to dispose of infringing goods by donation because the Red Cross
Society of China is the recipient of the overwhe lming majority of goods d onated under the measures
at issue. The statistics show that the Red Cross Society of China was the recipient of 91 per cent by
value of the infringing goods donated by Customs in the years 2005 to 2007. 286 In fact, no infringing
goods destined for importation have ever been dona ted to any social welfare body besides the Red
Cross Society of China under the measures at issue during the period for which statistics are available.
7.308 The United States notes that other social welfare bodies are not required to enter into an
agreement like the Custom s – Red Cross Memorandum. 287 Donation of infringing goods to other
social welfare bodies might not be in accordance with the principles set out in Article 46.
7.309 The Panel recalls its finding at paragraph 7.240 above that the remedies specified in
Article 59 are not exhaustive. It has not been asse rted that there are circumstances in which Customs
can donate infringing goods to another social welfare body only and not to the Red Cross Society of
China. In other words, authority to donate to another social welfare body does not preclude authority
to donate to the Red Cross. Therefore, to the exte nt that Customs' authority to donate to the Red
Cross Society of China conforms to the principles set out in Article 46, Customs has the authority to
order disposal specified by Article 59. In any ev ent, the possibility that other social welfare bodies
might not have entered into a donation agreement, or th at they might refuse to do so, is an issue to be
demonstrated.
7.310 The United States argues that the Customs – Red Cross Memorandum does not demonstrate
that Customs has the "authority" to order that goods be disposed of in such a manner because Customs
must persuade a charitable organization both to ente r into a donation agreement and to agree that it
will not try to resell the goods.288
7.311 The Panel notes that Customs has already entere d into the Memorandum with the Red Cross,
and that Customs did so in the interval between th e adoption and entry into force of the Implementing
Measures. Customs does not need to persuade the Red Cross to agree any further to enter into such an
agreement. Therefore, this does not disturb the Panel's finding at paragra ph 7.309 above. In any
event, the measures at issue show that if so cial welfare bodies refuse to accept donations, Customs
can then consider other options which include, ultimately, destruction of the goods.
7.312 The Panel recalls that the United States' claim is that the three Customs measures at issue
"provide no discretion" to Customs to determine that transfer to a soci al welfare body is not
appropriate in circumstances where the right holder w ould be harmed and, hence, that Customs lacks
authority to order disposal of infringing goods in accordance with the principles of Article 46. 289 On
the evidence examined so far, the Panel's view is that the United States has not established that part of
its claim, as the measures on their face show tha t: (a) Customs makes a determination as to whether
infringing goods may be used for social public welfare; and (b) Customs has a duty to carry out
necessary supervision of such use, which it ex ecutes by means of the Customs – Red Cross
Memorandum.
7.313 The burden now shifts to the United States to show why, in light of this legal structure, the
three Customs measures at issue "provide no discreti on" to Customs to determine that transfer to a
social welfare body is not appropriate in circumstances where the right holder would be harmed.

286 See Customs Statistics in note 219 above.
287 United States' rebuttal submission, para. 152; see also second oral statement, para. 52.
288 United States' comment on China's response to Question No. 74.
289 See paragraph 7.287 above.

7.314 The United States referred, at the first substa ntive meeting and subsequently, to the Law on
Donations for Public Welfare290, in particular, Article 17 of that Law which authorizes public welfare
organizations to sell donated goods on the ma rket if certain circumstances are present. 291 China
replied that the terms of a donation agreement conc luded under Article 12 of the Law – such as the
Customs – Red Cross Memorandum – prevailed over Article 17 by virtue of Article 18. 292 The
United States responded that selling goods under Ar ticle 17 of the Law and ensuring the resulting
funds continue to be put to the "use" prescribed in the donation agreement appears, on its face, to be
an action consistent with the mandates of Article 18.293
7.315 The Panel has several concerns with this line of argument. First, the Law on Donations for
Public Welfare does not fall within the Panel's terms of reference.294 The United States stated that this
Law confirmed its concerns that delivery of infri nging goods to social welfare bodies "under Chinese
law" does not ensure that the goods will remain outside the channels of commerce. 295 However, the
claim only specified the three Customs measures and no other parts of Chinese law. Whilst this Law
is relevant to China's defence regarding the Cu stoms – Red Cross Memorandum, it appears that the
United States, in substance, purports to make a ne w claim that the manner in which Customs disposes
of goods to social welfare bodies is inconsistent with Article 59 of the TRIPS Agreement based on the
three Customs measures in conjunction with this Law .296 The Panel is not entitled to rule on such a
claim in this dispute.
7.316 Second, the United States seems unsure of the proper interpretation of the Law on Donations
for Public Welfare. It was unaware of the exis tence of this Law at the time of its first written
submission, stating that "nothing appears to pr event public welfare organizations from selling the
infringing goods they receive". 297 In response to a question from the Panel, the United States stated
that "[i]t is not evident whether or how other provisions in this Law affect the operation of
Article 17 …" 298 In response to a question from China, the United States stated that no legal authority
to date demonstrated that Article 17 did not apply to all donations cove red by the Law but that it
"look[ed] forward to hearing more from China on this issue, including how the various provisions in
the Law on Donations for Public Welfare relate to each other." 299 In its rebuttal submission, the
United States asserted that selling donated goods under Article 17(iv) "appears, on its face, to be an
action consistent with the mandates of Article 18."
300 In its comments on responses to questions after
the second substantive meeting, the United States stated that the Law on Donations for Public Welfare

290 Adopted by the Standing Committee of the National People's Congress in 1999 and promulgated by
Order of the President of the People's Republic of China, effective as of 1 September 1999.
291 United States' first oral statement, para. 62; repeated in rebuttal submission, para. 151. An English
translation of Article 17 of the Law, and a complete copy of the original version, were provided in Exhibit
US-59.
292 An English translation of Articles 12 and 18 of the Law was provided by China during the first
substantive meting.
294 WT/DS362/7, attached as Annex D-1 to this report.
295 United States' first oral statement, para. 62.
296 The United States did make such a distinction in its copyright claims where the claims under
Article 9.1 of the TRIPS Agreement identified "Article 4 of the Copyright Law" but the claim under Article 3.1
of the TRIPS Agreement identified "Article 4 of the Copyright Law, in conjunction with the nationality-
dependent pre-authorization and pre-distribution review processes established by the other measures at issue".
(emphasis added) The copyright claims under Articles 41.1 and 61 of the TRIPS Agreement identified
"Article 4 of China's Copyright Law, both independently and in conjunction with the other measures at issue"
(emphasis added).
297 United States' first written submission, para. 186.
298 United States' response to Question No. 31.
299 United States' response to Question No. 2 posed by China.
300 United States' rebuttal submission, paras 151-154.

appears to allow sale into the channels of commerce when certain exigencies are present.301 However,
the United States has provided no evidence to suppor t its assertion besides the text of the Law (which
is unclear) and three provisions of the Contract Law (considered at paragraphs 7.320 to 7.322 below).
The United States asserts that China has not provided any legal basis for asserting that the terms of the
donation agreement override this Law. However, as the party asserting that, due to this Law, the
measures at issue and a donation agreement do not fulfil China's obligations under Article 59, the
United States bears the burden of proof.
7.317 Third, this issue involves a detailed point of Chinese domestic law as to the proper
construction of the Law on Donations for Public Welf are. Article 17(iv), to which the United States
refers, provides as follows:
"Where the property donated is not preservabl e or transportable or exceeds the actual
need, the donee may sell it, but all the inco me therefrom shall be used towards the
aim of the donation."302
7.318 Meanwhile, Article 18 of the same Law, to which China refers, provides as follows:
"Where the donee has concluded a donation agreement with the donor, he shall use
the donated property according to the purpose of use prescribed in that agreement and
may not alter the said purpose of use without authorization. Where such alteration is
actually needed, he shall seek consent from the donor."
303
7.319 The Panel observes that Article 12 of the Law recognizes the right of donors and donees to
enter into donation agreements. Article 17 contains four paragraphs of whic h at least three provide
for use of donated property by certain types of soci al welfare organizations. Article 17 limits use by
such organizations in various general ways. Article 18 refers to use of donated property in accordance
with the specific purpose set out in a donation agreem ent. It is not clear how the two provisions are
reconciled. Article 18 might supplement Article 17 or, equally, set out an alternative that allows
donors and donees to contract out of Article 17. Wi thout further evidence, the Panel cannot reach any
conclusion concerning either party's assertions regarding these provisions of this Law.304
7.320 The United States also makes reference to the Co ntract Law in support of assertions that even
when a donation agreement has been reached, the La w on Donations for Public Welfare appears to
allow sale into commerce 305 and that China's Contract Law indicates that when a contract contains a
provision inconsistent with a Chinese law, th e law prevails over that contract provision. 306 As the
party making these assertions, the United States bear s the burden of proving that they are true. 307
However, the United States does not link the latter a ssertion to the specific evidence of the dispute.
Instead, it submits three provisions of the Contract Law. 308 The first provision provides for the

301 United States' comment on China's response to Question No. 74.
302 Mutually agreed translation no. 10.
303 Ibid. Article 28 of the Law provides for legal re sponsibility where a donee, without permission of
the donor, alternates the nature or purpose of use of the property donated.
304 See also China's response to Question No. 74.
305 United States' second oral statement, para. 52; comment on China's response to Question No. 74.
306 United States' second oral statement, para. 52, annexing Exhibit US-73, setting out three provisions
of the Contract Law, and Exhibit US-74, setting out one article of a Judicial Interpretation of certain issues
concerning the application of the Contract Law.
307 Appellate Body Report in US – Wool Shirts and Blouses, at p. 14.
308 Adopted and promulgated by the National People's Congress in 1999.

invalidity of an entire contract. 309 It provides no substantiation of the improbable suggestion that the
narrow provision in Article 17(iv) of the Law on D onations for Public Welfare renders the entire
Customs – Red Cross Memorandum invalid. The thir d provision provides for monitoring and dealing
with certain illegal acts and its relevance is not clear. 310 The second provision, Article 123, reads as
follows:
"Where another law ( 法律) provides otherwise in respect of a certain contract, such
provisions prevail."311
7.321 It is not clear what "otherwise" means, as the context of Article 123 has not been submitted in
evidence. It seems that the suggestion is that , assuming Article 17(iv) of the Law on Donations for
Public Welfare creates an "implied term", this c ould invalidate Article 7 of the Customs – Red Cross
Memorandum by virtue of Article 123 of the Contr act Law. However, the United States' assertions
with respect to the collective construction of these two laws and a specific contract constitute mere
speculation and the evidence on the record is wholly inadequate to form any view of it.312
7.322 Therefore, the terms of Article 17 of the La w on Donations for Public Welfare, read in
context and in conjunction with the Contract Law, do not rebut China's defence nor, hence, disturb the
Panel's finding at paragraph 7.3 12 above with respect to the term s of the Customs measures and the
Customs – Red Cross Memorandum.
7.323 Lastly, the Panel recalls that the obligation in Article 59 is placed upon China, as the Member,
and not upon the three Customs measures that the United States specified in its request for
establishment of a panel. There is no reason why all conditions relevant to disposal outside the
channels of commerce must appear in these three sp ecific measures, as China is free to determine the
method of implementation of its ob ligations under Article 59 in accord ance with Article 1.1 of the
TRIPS Agreement. 313 The Law on Donations for Public Welfare emerged in piecemeal fashion
throughout these proceedings due to selective quotation by both parties to the dispute. 314 Yet the Law
on Donations for Public Welfare is a public measu re, adopted by the National People's Congress of
China and promulgated by the President of China in 1999. 315 Had this Law, in particular Article 17,
been the subject of consultations between the parti es and specified in the request for establishment of
the Panel in accordance with Article 6.2 of the DS U, it is likely that these issues would have been
properly briefed and that the Panel could have reached a view on some of them.
7.324 For the reasons set out above, the Panel conf irms its finding at paragraph 7.312 above and
finds that the United States has not established that, with respect to the donation of infringing goods to

309 Article 52(v) of the Contract Law provides that "A contract is invalid in any of the following
circumstances: (v) the contra ct violates a compulsory provision of any law ( 法律) or administrative regulation
(行政法规)".
310 Article 127 of the Contract Law provides that cer tain authorities shall monitor and deal with certain
illegal acts.
311 Exhibit US-73.
312 See also China's response to Question No. 74.
313 This was also the approach followed in the Panel Report in EC – Trademarks and Geographical
Indications (US), at paras 7.746-7.751.
314 Article 6 of the Law on Donations for Public Welfare was provided w ith China's first written
submission (Exhibit CHN-90); Article 17 with the United States' during first oral statement (Exhibit US-59);
Articles 12 and 18 were provided by China later during the first substantive meeting and finally a complete
translated copy was submitted after that meeting (Exhibit CHN-154). A mutually agreed translation was
provided shortly before the second substantive meeting (MAT-10).
315 See note 290 above. The United States accessed a copy of the Law from the Ministry of Commerce
website prior to the first substantive meeting with the Pa nel: see United States' first oral statement, para. 61 and
Exhibit US-59.

social welfare bodies under the measures at issue, Customs lacks authority to order disposal of
infringing goods in accordance with the principles set out in the first sentence of Article 46.
(viii) Sale to the right holder
7.325 The second disposal method set out in the measures at issue is sale to the right holder. Sale to
the right holder is voluntary in that it requires th e consent of the right holder. If the right holder
consents, it pays for the infringing goods at a price to be agreed.
7.326 Article 27 of the Customs IPR Regulations sets out sale to the right holder after donation to
social welfare bodies. It uses the modal verb translated as "can" (or "may") ( 可以). Article 30 of the
Implementing Measures sets out donation to social welfare bodies and sale to the right holder as
alternatives with no appare nt order between them. 316 Therefore, there appear to be no circumstances
in which sale to the right holder is the only opti on available and could preclude any authority required
by Article 59. In view of the Panel's finding at paragraph 7.324 above, it is therefore unnecessary to
assess this option to determine whether the Customs measures are consistent with Article 59 of the
TRIPS Agreement.
(ix) Auction and authority to order the destruction of infringing goods
7.327 The Panel will now consider Customs' authority to order that infringing goods be auctioned.
Auction is the third disposal method set out in th e measures at issue. Au ction is not a form of
destruction, and it is undisputed that auction is not a form of disposal outside the channels of
commerce. Accordingly, this disposal method is clearly not required by Article 59. 317 However, the
Panel recalls its finding at paragraph 7.240 above that the remedies specified in Article 59 are not
exhaustive. Therefore, the fact that authority to order auction of infringing goods is not required is
not in itself inconsistent with Article 59.
7.328 The United States claims that, because the aucti on method is allegedly mandatory, it deprives
Customs of the authority to order destruction of infringing goods at a certain point within the purview
of Article 59. 318 It does not allege that Customs has authority to order donation to social welfare
bodies (or sale to the right holder) in circumstances wh ere Customs is considering auction. In these
circumstances, it is assumed that Customs has already decided against those other methods. The issue
is only whether the authority to order auction precludes authority to order destruction of infringing
goods.
7.329 The claim is that the measures, on their face, treat auction (and the other disposal methods) as
"compulsory prerequisites" to destruction and creat e a "compulsory sequence of steps" that renders
auction mandatory in certain circumstances. 319 China responds that the Regulations express a
"preference" for certain disposition methods a nd that the Implementing Measures confirm this
prioritization. China argues that the measures v est Customs with "considerable discretion" to
determine what method is appropriate and that Customs has the legal authority to order any of the four
disposition methods.320

316 The United States agrees that, as a legal matte r, they are parallel options: see its response to
Question No. 78.
317 See paragraph 7.244 above.
318 United States' rebuttal submission, para. 161; responses to Questions Nos. 39, 41 and 83.
319 United States' first written submission, paras 191 and 194.
320 China's first written submission, paras 158-159.

7.330 The Panel begins by examining the measures on their face. The Customs IPR Regulations set
out four disposition methods in Article 27, of which auction is the third. With respect to auction,
Article 27 provides as follows:
"Where the confiscated goods infringing on intellectual property rights cannot be
used for social public welfare undertakings and the holder of the intellectual property
rights has no intention to buy them, Customs can, after eradicating the infringing
features, auction them off according to law."321 (emphasis added)
7.331 This phrase provides for the auction of infri nging goods. It is conditional on the non-
application of the first two methods, i.e. donation to social welfare bodies and sale to the right holder.
This phrase uses a modal verb translated as "can" (or "may") ( 可以). This indicates that the Customs
IPR Regulations impose no obligation to auction infringing goods even where the first two disposition
methods are not applied.
7.332 The context confirms that the choice of this modal verb is significant as the same paragraph
also uses the modal verb translated as "shall" (应当) for other disposition methods; specifically, it uses
"can" or "may" for sale to the right holder and auc tion, but "shall" for donation to social welfare
bodies and destruction.
7.333 The succeeding phrase on destruction provides that "[w]here the infringing features are
impossible to eradicate, Customs shall destroy th e goods." This indicates that the provision that
Customs shall destroy the goods is conditional upon whether "the infringing features are impossible to
eradicate". That condition, on its face, does not imply that there is any lack of authority to destroy the
goods where the infringing features are not impossible to eradicate.
7.334 It seems clear from the text that the eradication of infringing features is a condition attached
to the auction method. This is in fact expressly confirmed by the first operative paragraph of Public
Notice No. 16/2007 quoted at paragraph 7.195 above. In other words, the inability to eradicate
infringing features precludes the auction method. However, that does not imply that the ability to
eradicate infringing features precludes the destruc tion method because the auction method is optional,
not mandatory, under Article 27 of the Customs IPR Regulations.
7.335 The United States submits that if none of th e first three options is viable, "Customs may, then
and only, proceed to the third item: destru ction of the goods" (emphasis added). 322 However, in the
Panel's view, this misreads the text which provides that if none of the first three options is viable,
Customs shall destroy the goods. It does not state that Customs shall not destroy the goods in other
situations.
7.336 In summary, Article 27 of the Customs IPR Regulations provides for four options of which
the second, as well as the third, i.e. auction, are optional. The Panel will examine whether this
position is altered by the Implementing Measures.
7.337 The Implementing Measures provide for the same four disposition methods in Article 30 in
the same order. Article 30 sets out the first two op tions as alternatives in a single item numbered (1),
then sets out auction in item (2) and destruction in item (3). Article 30 establishes a clear order
among these options by providing that item (2) (auction) applies:
"[w]here the goods concerned cannot be dispo sed of in accordance with Item (1) but
the infringing features can be eradicated";

321 Mutually agreed translation no. 6.
322 United States' first written submission, para. 182.

and providing that item (3) (destruction) applies:

"where the goods concerned ca nnot be disposed of in accordance with Items (1) and
(2)".
7.338 Like Article 27 of the Customs IPR Regulations, item (3) on destruction provides that the
goods "shall" (应当) be destroyed when the above condition is met. However, this does not, of itself,
imply that destruction is not permitted where the ot her disposition methods are available. That would
depend on whether the measure obliged Customs to order any of the other disposition methods in any
circumstances.
7.339 The parties agreed to include the modal verb "s hall" in all three items of Article 30 of the
Implementing Measures for the purposes of translati on into English but Chin a maintains that the
measure gives Customs considerable discretion.
323 The Panel does not assume that the use of the
word "shall" in a non-authentic translation of the Implementing Measures necessarily denotes an
obligation in the same way as the word "shall" when used in the English version of the WTO covered
agreements. The Panel notes that the original, au thentic version of Article 30 of the Implementing
Measures does not include a modal verb in either item (1) or item (2) with respect to any of the first
three disposition methods but only in item (3) with respect to destruction. The original version uses
the modal verb translated as "shall" ( 应当) in the introductory sentence that reads "Customs 'shall'
dispose of infringing goods it has confiscat ed according to the following provisions". 324 The first
three disposition methods are then set out as a series of steps that, in different circumstances, Customs
"hands over", "assigns" or "auctions off" 325 , in contrast to item (3) which uses the modal verb
translated as "shall" (应当) (as does the concluding paragraph, twice). This may indicate that Customs
has a degree of discretion under the Implementing Measures, as China mainta ins. Therefore, the
Panel does not consider that the text of Article 30 of the Implementing Measures is sufficiently clear
on its own to conclude that it obliges Customs to auction goods at any point.
7.340 The Implementing Measures were adopted by the Standing Committee of the General
Administration of Customs to implement the Customs IPR Regulations, which were enacted by the
Standing Committee of the State Council. The State Council is the highest organ of administrative
power in China. Therefore, any ambiguity in the Implementing Measures should be resolved by
reference to the higher norm, i.e. the Customs IPR Regulations. 326 Article 27 of the Customs IPR
Regulations provides that auction is optional.
7.341 Public Notice No. 16/2007 is another measure of the General Administration of Customs of
general application with respect to the auction of infringing goods. It contains a single recital that
reads as follows:
"In accordance with Article 27 of the Regula tions of the People's Republic of China
on Customs Protection of Intellectual Prope rty Rights (hereinafter referred as the
'Regulations'), where the confiscated goods infringing intellectual property rights
cannot be used in social public welfare and the holder of intellectual property rights
does not wish to buy them, the Customs may auction them off according to law after
eradicating the infringing features. In order to regulate the auction of infringing

323 See paragraph 7.328 above.
324 Only the original version of the measures is authentic.
325 Item (2) also includes the adverb 依法which has been translated as "according to law". The United
States acknowledges that this means auction should comply with the relevant rules governing these activities:
see response to Question No. 77.
326 The United States agrees that the higher sour ce of law will likely carry more weight: see its
response to Question No. 27.

goods by Customs, improve the transparency of enforcement by Customs, and
safeguard the right to know of the holders of intellectual property rights, it is hereby
publicly notified as follows in respect of relevant matters:" (emphasis added)
7.342 The recital indicates that the General Administra tion of Customs issued this Public Notice for
the express purposes of regulating the auction of infringing goods by Customs and improving
transparency of enforcement by Customs, as well as granting a right to comment to right holders. The
Panel observes that although Public Notice No. 16/2007 post-dates both the Customs IPR Regulations
and the Implementing Measures, it recites only the pe rmissive language of Article 27 of the Customs
IPR Regulations in describing its authority to auction infringing goods. 327 This tends to confirm that
any ambiguity in the Implementing Measures should be resolved by reference to the higher norm,
i.e. the Customs IPR Regulations.328
7.343 Accordingly, the Panel finds that the United States has not established that the Customs
measures on their face oblige Customs to order the auction of infringing goods.
7.344 The evidence on the record al so includes documents from Customs' case files and statistics
that indicate how Customs has in fact discharged its authority under Article 30 of the Implementing
Measures to destroy, rather than auction, goods. The Panel considers it appropriate to review this
evidence, bearing in mind that the claim concerns whether Customs "[has] the authority" to order
destruction, not whether it actually uses that authority.
7.345 The Panel observes that the documents from Cust oms' case files show that destruction has
occurred in a circumstance that is not mentioned on the face of the Implementing Measures. Given
that auction is the third disposition method in the order established in the measures at issue and that
destruction is the fourth and last, auction must nece ssarily have been decided against with respect to
any goods destroyed. The Implementing Measures on their face set out only one condition that, if not
satisfied, would dictate a decision to destroy goods, ra ther than auction them. That condition, set out
in item (2) of the Implementing Measures, is that "the infringing features can be eradicated".
7.346 However, in one case concerning counterfeit auto mobile parts, Customs expressly stated a
different reason for not auctioning the goods. It stated that the infringing goods could not be used for
public welfare and the right holders had no intentio n to purchase the goods (a condition on the face of
the Implementing Measures) plus "[t]he safety of these goods can not be guaranteed, and thus it is not

327 The United States agrees that P ublic Notice No. 16/2007 "merely c onfirms the current hierarchy of
disposal options for confiscated goods that exist under China's measures": see United States' first written
submission, fn. 118.
328 The Panel also observes that the documents from Customs' case files cite the Customs IPR
Regulations but do not cite the Implementing Measures: for example, a Report on the destruction of certain
infringing goods cites the Customs Law, the Trademark Law and the Customs IPR Regulations and reports that
the goods were destroyed in accordance with the provisions of the Customs IPR Regulations (Exhibit CHN-96).
In another case, a Decision Notice cited the Trademark Law, the Customs IPR Regulations and Regulations on
the Implementation of Customs Administrative Punishments (Exhibit CHN-98). In another case, an Application
form for destruction of infringing goods cites Article 27.3 of the Customs IPR Regulations in an opinion that
goods should be destroyed (Exhibit CHN-99).

appropriate to auction them." 329 That condition does not appear on the face of the Implementing
Measures. No reference was made to the eradication of infringing features.330
7.347 The issue of safety is not mentioned on th e face of the Implementing Measures and the
United States does not allege that it is somehow imp lied, for example, by the requirement that goods
be auctioned "according to law". 331 China submits that Customs may not auction goods with quality
and safety defects in accordance with the Law on Product Quality 332 and asserts that there are other
applicable norms, that it does not substantiate. 333 The United States does not dispute that there may
be other applicable laws but argues that, even if they do apply, the Customs hierarchy still remains
mandatory.334 The United States acknowledges that it "does not know" whether goods may have been
destroyed for reasons other than those "mandated" in the Customs measures.335
7.348 In the Panel's view, if the United States argu es that the measures are mandatory "on their
face", the argument is that the measures are mandatory as stated. The fact that there appear to be
circumstances in which Customs departs from the te rms of the measures indicates that, at the very
least, the measures are not "as mandatory" as they appear on their face which calls into question
whether the particular disposal method at issue is, i ndeed, mandatory at all. This is consistent with
the view that, in accordance with the terms of Impl ementing Measures, as interpreted in light of the

329 An Application form for destruction of infringing goods apparently prepared by Fuzhou Customs in
2006 refers to the destruction of certain counterfeit autom obile parts. The application form sets out the opinion
of the case handlers (in this case "suggesting destruction") and the opinions of the section chief, division chief
and director (in each case "agreed" or a signature) in Exhibit CHN-99.
330 China submitted evidence of three other cases in which Customs destroyed goods, allegedly for
reasons other than that the infringing features could not be eradicated. However, the Panel does not find these
case files probative. In a case concerning counterfeit game consoles, Customs states the reasons for destruction.
These were that the goods infringed trademarks and "des ign patent rights". This does not expressly mention
eradication of the infringing features (a condition on the face of the Implementing Measures for auction), but it
might have implied that, as features of shape or ornamentation, the infringing features could not be eradicated:
see "Report on the Destruction of the Counterfeit PS Game Console by Huangpu Customs" 埔关法 [2008]
No. 78 in Exhibit CHN-96. Elsewhere, China suggests that "design patent rights" imply that the infringing
features cannot all be eliminated: see China's first written submission, para. 224.
In a case concerning counterfeit electric irons, Ch ina submits a summary of the case and that asserts
that the infringing features could be eliminated and the goods could be auctioned according to law but the goods
were destroyed because they presented quality problems and safety risks. The Panel notes that the infringing
goods were confiscated and the exporter was fined: see Decision Notice of Administrative Punishment 拱关知
字 [2006] No. 9. Customs notified the exporter that it wo uld sell the goods (as well as the vehicles) in case of
non-payment of the fine but destroyed them instead. The Opinion Form does not state the reason why Customs
chose to destroy, rather than auction, the goods. See Exhibit CHN-98.
In a case concerning counterfeit motorcycle seats, China asserts that the goods were destroyed because
Customs determined that even the slight risk of defect warranted their destruction. However, this is not clear
from the supporting documents: see a report prepared by Huangpu Customs in the case shows only that the
infringing goods were destroyed without giving the reason in Exhibit CHN-173.
331 United States' response to Question No. 77.
332 Law on Product Quality, adopted by the Standing Committee of the National People's Congress and
promulgated by Order No. 71 of the President of the People's Republic of China on 22 February 1993, amended
in accordance with a Decision of the Standing Committee of the National Pe ople's Congress on 8 July 2000.
Articles 12 and 13 of this Law are reproduced in Exhibit CHN-97: see China's first written submission,
para. 170; response to Question No. 82. The Panel also notes that a document prepared by the General Office
of Fujian Provincial People's Government dated 8 Marc h 2006 in the case of the counterfeit automobile parts
also refers to requirements of the National Office for Combating Smuggling that "all smuggled dismantled
automobiles and fittings confiscated shall not be auctioned or released to the market, and shall be disposed by
the local Customs after being crushed": in Exhibit CHN-99.
333 China's response to Question No. 82.
334 United States' second oral statement (closing statement), para. 22; response to Question No. 78.
335 United States' response to Question No. 79.

Customs IPR Regulations, the auction method is not in fact mandatory, in the sense that it does not
preclude the destruction option.
7.349 Uncontested statistics provided by China 336 show that Customs orders the disposition of
infringing goods in the following proportions in term s of shipments: (1) donation to social welfare
bodies (53.5%); (2) destruction (44.9%); (3) auction (0.87%); and (4) sale to the right holder
(0.65%). The proportions in terms of value are as follows: (1) destruction (57.5%); (2) donation to
social welfare bodies (39.5%); (3) auction (2.2%); and (4) sale to the right holder (1%). 337 The
statistics are consistent with the Panel's reading of Article 27 of the Customs IPR Regulations, as set
out at paragraph 7.336 above, as they show that th e two disposition methods that are clearly optional
under the Regulations are used far less than the two that are not.
7.350 Further, if one excludes all goods disposed of under item (1) of the Implementing Measures
(i.e. by donation to social welfare bodies or sale to th e right holder), one is left with the subset of
goods where Customs chose between auction and d estruction. The Implementing Measures on their
face provide for the destruction of such goods only where the infringing features cannot be eradicated.
The statistics show that, among goods dealt with under items (2) and (3) of the Implementing
Measures, the following decisions were in fact ma de in terms of the number of shipments and the
relative value of the infringing goods:

 2005 2006 2007 Total
By shipment338
Auctioned 4 7 1 12 Exports +
imports Destroyed 143 227 248 618
By value
Auctioned 7.10% 3.54% 0.59% 3.70% Exports +
imports Destroyed 92.90% 96.46% 99.41% 96.30%
Auctioned 0% 0% 0% 0% Imports
only Destroyed 100.00% 100.00% 100.00% 100.00%

7.351 It is apparent that the number of shipment s destroyed far exceeds the number of shipments
auctioned, and that in three years Customs has only decided to auction goods twelve times. In fact, no
infringing goods destined for importation have ever been auctioned under the measures at issue during
the period for which statistics are available. Customs evidently has little, if any, difficulty in choosing
to destroy goods, which is consistent with the view that it has wide authority to do so.
7.352 The Panel notes that there is a small number of cases where Customs has ordered the auction
of goods. However, the small number of cases of auction does not indicate whether this was pursuant
to a choice not to destroy the goods, or whether Cu stoms considered that it lacked the authority to
destroy the goods. The Panel reiterates that the pertinent issue is whether Customs was permitted by

336 See Customs Statistics in note 219 above.
337 See Customs Statistics at note 219 above.
338 The number of shipments of imports auctioned was zero. Separate figures for the number of
shipments of imports destroyed were not provided.

law to order destruction in those cases. 339 The United States agrees that a Member may choose
between destruction and auction in its discretion provided that it has unconditional power to order
destruction in all circumstances.340
7.353 The very low rate of auctions is consistent with the view that auctions are not mandatory. It
could be consistent with the view that the aucti on method is mandatory if there were some indication
that the infringing features cannot be eradicated from an exceedingly large number and proportion of
goods confiscated by Customs. However, in the absen ce of such evidence, and in light of the other
evidence discussed above, the Panel does not accept that view.
7.354 For the above reasons, the Panel finds that the United States has not established that the
authority to order auction of infringing goods under the Customs measures precludes authority to
order destruction of infringing goods in accordance with the principles set out in the first sentence of
Article 46.
7.355 The Panel recalls its findings at paragra phs 7.324 and 7.354 and concludes that the
United States has not established that the Customs measures are inconsistent with Article 59 of the
TRIPS Agreement, as it incorporat es the principles set out in the first sentence of Article 46 of the
TRIPS Agreement.
(x) Auction and "simple removal of the trademark unlawfully affixed"
– Procedural issue
7.356 The Panel recalls its finding at paragraph 7. 270 above that "the principles set out in
Article 46" as incorporated by Article 59 of the TRIPS Agreement include the fourth sentence of
Article 46. That sentence provides as follows:
"In regard to counterfeit trademark goods, the simple removal of the trademark
unlawfully affixed shall not be sufficient, other than in exceptional cases, to permit
release of the goods into the channels of commerce."
7.357 The Panel has not found that the Customs measures are mandatory with respect to the auction
of infringing goods. However, the Panel does not consider that this is fatal to the United States' claim
with respect to the fourth sentence of Article 46.341
7.358 The Panel recalls its finding at paragraph 7.253 above that the obligation in Article 59 applies
both to mandatory and discretionary measures as th e obligation that Members' competent authorities
"shall have the authority" to make particular orders attaches to what the authorities are permitted by
law to order, not only to what they must order. This finding applies a fortiori to the principle in the
fourth sentence of Article 46 as only discretionary authority to order release of goods into the
channels of commerce will not preclude the authority required by the first sentence of Article 46 at
some point.
342 The principle in the fourth sentence of Article 46 regarding authority to order the
release of goods into the channels of commerce, as an alternative to destruction or disposal outside the
channels of commerce, could be redundant if it did not apply to discretionary measures. 343 Therefore,

339 The issue here can be contrasted with that addressed in paragraph 7.138 above. It is not disputed
that Article 4(1) of the Copyright Law is mandatory, and the obligation at issue in th at claim is not phrased in
terms that authorities "shall have the authority".
340 United States' response to Question No. 41.
341 China acknowledged that this claim was also made with respect to the fourth sentence of Article 46:
342 This is without prejudice to the Panel's comments at paragraph 7.244 above.
343 The position is the same under the second sentence of Article 59.

the fact that authority to release goods into the channels of commerce is not mandatory does not shield
such a disposition method from a Panel's assessment of its conformity "as such" with Article 59 of the
TRIPS Agreement, as it incorporates the principle in the fourth sentence of Article 46.
7.359 This particular case also presents a specific set of circumstances. The nature of the measures
at issue is such that, even if they do not manda te auction (and do not preclude authority to order
destruction) the elimination of the infringing features is mandatory in every case where Customs
chooses to auction infringing goods (as discussed belo w). If the elimination of the infringing features
constitutes simple removal of the trademark, it will be inconsistent with the principle in the fourth
sentence of Article 46, as incorporated by Article 59, in all cases where Customs orders auction of
infringing goods. Although Customs has never aucti oned goods destined for importation, this may be
due only to the smaller volume of infringing goods destined for importation rather than exportation.344
China does not assert that Customs might auc tion goods destined for importation in future 345 but
defends its auction method based on its own good faith interpretation of the requirements of
Article 59 of the TRIPS Agreement and of the fourth sentence of Article 46. Indeed, China advises
the Panel that auction, whether of exports or impor ts, is a "preferred" disposition method in certain
circumstances and it vigorously defends its right to use it, albeit sparingly. Therefore, the Panel's
rulings on the applicability of the fourth sentence of Article 46, as incorporated in Article 59, of the
TRIPS Agreement and the conformity of China's auction method with that provision will, to the
extent that the obligation is applicable, prevent China ex ante from engaging in certain conduct
inconsistent with its obligations under a covered agreement, which is precisely the purpose of an "as
such" claim.346
7.360 Therefore, the Panel will continue with its assessme nt of this claim with respect to the other
principle set out in Article 46 that the United States has raised.
– Simple removal of the trademark unlawfully affixed
7.361 The Panel recalls that the parties have differing vi ews as to the applicability of this principle.
The United States submits that the fourth sentence of Article 46 is applicable under the first sentence
of Article 59.347 China considers that Customs is not subject to the principles articulated by the fourth
sentence of Article 46. 348 The Panel has found that the fourth sentence of Article 46 is so applicable
and will now interpret the principle that it sets out.
7.362 The fourth sentence of Article 46 reads as follows:
"In regard to counterfeit trademark goods, the simple removal of the trademark
unlawfully affixed shall not be sufficient, other than in exceptional cases, to permit
release of the goods into the channels of commerce."
7.363 The term "counterfeit trademark goods" is define d by footnote 14(a) to the TRIPS Agreement
as follows:
"For the purposes of this Agreement:

344 See paragraphs 7.232 and 7.233 above.
345 This can be contrasted with the position of the respondent in the GATT Panel Report in US -
Superfund (at para 5.2.9 and noted at para. 5.2.10); the GATT Panel Report in US - Tobacco (at para. 122); and
the WTO Panel Report in US – Section 301 Trade Act (at para. 7.112).
346 See Appellate Body Report in US – Oil Country Tubular Goods Sunset Reviews, para. 172.
347 United States' first written submission, paras 175-178.
348 China's first written submission, paras 218-222.

(a) 'counterfeit trademark goods' shall mean any goods, including packaging,
bearing without authorization a trademark which is identical to the trademark validly
registered in respect of such goods, or which cannot be distinguished in its essential
aspects from such a trademark, and which th ereby infringes the rights of the owner of
the trademark in question under the law of the country of importation;"
7.364 Turning to the measures at issue, the Panel reca lls its findings at paragraph 7.225 above that
the measures at issue apply inter alia to counterfeit trademark goods and at paragraphs 7.331 and
following that the measures permit auction of such goods . In this regard, Article 27 of the Customs
IPR Regulations provides as follows:
"Where the confiscated goods infringing on intellectual property rights cannot be
used for social public welfare undertakings and the holder of the intellectual property
rights has no intention to buy them, Customs can, after eradicating the infringing
features, auction them off according to law."
349 (emphasis added)
7.365 It seems clear from this provision that the er adication of infringing features is a condition
attached to auction of goods confiscated by Custom s. Article 27 of the Customs IPR Regulations is
implemented and confirmed by Articl e 30(2) of the Implementing Measures 350 and is expressly
confirmed by the first operative pa ragraph of Public Notice No. 16/2007 which provides, relevantly,
as follows:
"Where the confiscated infringing goods ar e auctioned by Customs, Customs shall
completely eradicate all infringing features on the goods and the packaging thereof
strictly pursuant to Article 27 of the Regulations, including eradicating the features
infringing trademarks, copyright, patent and other intellectual property rights."
351
7.366 It is undisputed that in all cases in which Customs auctions goods that it has confiscated under
the measures at issue, Customs first removes the infringing features.352 It is clear from the measure on
its face that the phrase "infringing features" refers to features that infringe any intellectual property
rights covered by the measures, including not only trad emarks, but also copyright and patents. With
respect to counterfeit trademark goods, it seems obvious that the infringing features will comprise the
counterfeit trademarks. Therefore, the fact that the measures refer to infringing "features" does not
suggest that anything besides the counterfeit trad emark is eradicated in these cases. China has
confirmed that "with regard to trademark-infringing goods, elimination of infringing features refers to
removal of the infringing trademark from the goods".353
7.367 Therefore, insofar as the state of the counterfeit trademark goods is concerned, the only action
taken prior to auction is the removal of the trad emark. The question arises whether this constitutes
"simple" removal of a trademark within the meaning of the fourth sentence of Article 46 of the TRIPS
Agreement.
7.368 China argues that its measures do not provide for "simple" removal of the trademark because
they also provide an opportunity for the trademark right holder to comment prior to auction. 354 This

349 Mutually agreed translation no. 6.
350 See paragraph 7.194 above.
351 Mutually agreed translation no. 8.
352 United States' first written submission, para. 56; rebuttal submission, para. 169; China's first
353 China's response to Question No. 34.
354 China's first written submission, para. 224.

procedure is set out in the second operativ e paragraph of Public Notice No. 16/2007. 355 China does
not allege that Customs has an obligation to take any right holder's comments into account.356
7.369 The Panel notes that the word "simple" can be defined as "with nothing added; unqualified;
neither more nor less than; mere, pure". 357 A situation in which a trademark is removed from a good
and no other action is taken will co nstitute "simple" removal of the tr ademark. Therefore, the Panel's
preliminary view is that eradication of the in fringing features under the measures at issue constitutes
"simple" removal of the trademark as contemplat ed by the fourth sentence of Article 46, as
incorporated by Article 59.
7.370 It is inevitable that a Member's authorities exercising authority under Article 59 will take
certain actions of a procedural nature in releasing the good into the channels of commerce, such as
physically transferring them to the custody of an other party. The question is which other actions
render removal of the trademark unlawfully affixed not "simple".
7.371 The context within the fourth sentence of Ar ticle 46 shows that simple removal of the
trademark unlawfully affixed "shall not be sufficien t" to permit release of the goods into the channels
of commerce. The text does not prohibit the rel ease of the goods into the channels of commerce
per se. Rather, by specifically addressing the case of c ounterfeit trademark goods, and stating what is
"not … sufficient" to permit release, the provision impliedly permits release of counterfeit trademark
goods into the channels of commerce where more than simple removal of the trademark is carried out.
7.372 Removal of a counterfeit trademark would ensure that the goods do not infringe the exclusive
rights set out in Article 16 of the TRIPS Agreemen t. However, the fourth sentence of Article 46
provides that that shall not be sufficient, other than in exceptiona l cases. The fact that the negotiators
included an additional requirement shows that this pr inciple is intended to achieve more than simply
the cessation of an infringement.
7.373 The context within Article 46 shows that the fourth sentence is one of a series of expressions
of an objective set out at the beginning of that Ar ticle, namely, "to create an effective deterrent to
infringement". Where counterfeit trademark goods are released into the cha nnels of commerce after
the simple removal of the trademark unlawfully affi xed, an identical trademark can be produced or
imported separately and unlawfully reaffixed, often with relative ease, so that the goods will infringe
once again.
7.374 This problem applies to counterfeit trademark goods in particular because, as provided in the
definition of "counterfeit trademark goods" in footnote 14(a) to the TRIPS Agreement, the counterfeit
trademark is identical to the valid trademark or cannot be di stinguished in its essential aspects from
the valid trademark. Counterfeit trademark goods are more likely to imitate the appearance of
genuine goods in their overall appearance and not simply in the affixation of the counterfeit
trademark, as the likelihood that a counterfeit trademark good will c onfuse a consumer is related to
the degree to which all its features, infringing and non-infringing, resemble the genuine good. Where
the counterfeit trademark is removed, the resulting stat e of the goods may still so closely resemble the
genuine good that there is a heightened risk of further infringement by means of re-affixation of a
counterfeit trademark. Whilst this may be true of other, non-infringing goods as well, the goods
confiscated by Customs are already counterfeit and are being released into the channels of commerce.
The negotiators evidently considered that the he ightened risk of further infringement warranted
additional measures to create an effective deterrent to further infringement.

355 See paragraph 7.195 above.
356 For example, in a case concerning counterfeit padlocks, the right holder objected to auction and
offered to buy the goods. However, Jinhua (金华) Customs destroyed the goods instead: see Exhibit CHN-94.
357 New Shorter Oxford English Dictionary (1993).

7.375 Viewed in light of the objective, the "simpl e" removal of the trademark is principally a
reference to the fact that the state of the goods is not altered in any other way so that the absence of
the trademark is not an effective deterrent to furt her infringement. Removal of the trademark is not
"simple" if the state of the goods is altered sufficiently to deter further infringement.
7.376 The Panel finds confirmation for this interp retation in the second sentence of Article 59,
which addresses the same issue but in a different context, and provides as follows:
"In regard to counterfeit tr ademark goods, the authorities shall not allow the re-
exportation of the infringing goods in an unaltered state or subject them to a different
customs procedure, other than in exceptional circumstances." (emphasis added)
7.377 This sentence addresses the same basic problem as the fourth sentence of Article 46. It
confirms that the state of the counterfeit trademark goods is the relevant consideration, although the
obligation in the second sentence of Article 59 is less specific with resp ect to removal of the
trademark, suggesting that "simple removal of the trademark" is an example of a means of altering the
state of infringing goods. However, in the present di spute, the applicable obligation is found in the
fourth sentence of Article 46, as incorporated by Article 59.
7.378 China argues that right-holders have a legal ri ght to protection from goods that infringe their
intellectual property, but not from unmarked goods that do not.358
7.379 The Panel notes that the fourth sentence of Article 46, by its specific terms, is not limited to
an action to render goods non-infringing, which the si mple removal of the trademark would achieve.
Rather, the fourth sentence of Article 46 impos es an additional require ment beyond rendering the
goods non-infringing in order to deter further acts of infringement with those goods. Therefore, it is
insufficient, other than in excepti onal cases, to show that goods that have already been found to be
counterfeit are later unmarked. The release into the channels of commerce of such goods, while they
may no longer infringe upon the exclusive rights in Article 16 of the TRIPS Agreement, will not
comply with the requirement in the fourth sentence of Article 46, as incorporated by Article 59.
7.380 Turning to the measures at issue, the Panel observes that the proce dure for seeking comment
by right holders does not affect the state of the goods , nor is there any obligation to take right holder's
comments into account. Therefore, it is irreleva nt to the question whether the measures at issue
provide for "simple removal of the trademark unlawfully affixed".
7.381 China alleges that auctions of goods confiscated by Customs are subject to a reserve price that
ensures that infringers do not have the opportunity to purchase the seized goods at an unreasonably
low cost and reaffix counterfeit marks.359
7.382 The Panel does not agree. As China itself stated in its rebuttal submission, "the very principle
of trademark protection is that a trademark dis tinguishes a good and allows for a significant market
premium".360 The Panel points out that a counterfeit tradem ark is designed to obtain some or all of
that economic premium. When the counterfeit tr ademark is removed, the value of the good is
diminished and is less than its market value if it is resold with a counterfeit trademark reaffixed. In
other words, it remains economically viable for th e importer or a third party to purchase the goods at
auction and reaffix the trademarks in order to infringe again, with the heightened risk of this occurring
discussed at paragraph 7.374 above. In any case, th ere is no evidence that the prices established by

359 China's first oral statement, para. 77; first written submission, paras 170-171.

the method used by China Customs are so high that it is no longer economically viable to purchase the
goods and reaffix the trademarks.361
7.383 China argues that the measures at issue preven t the cheap return of the seized good to the
infringer and, by ensuring that the infringers reap no economic benef its, effectively deter
infringement.362
7.384 The Panel sees no reference to the original infri nger in the relevant obligation or in the
objective set out in Article 46. There is no reason to suppose that the text is aimed at deterring
infringement by the importer only and not by other pa rties, such as purchasers at auction. The use of
the word "release" into the channels of commerc e does not imply such a limitation as the sentence
reads "release into the channels of commerce" not "release to the importer".363
7.385 Therefore, the Panel considers that, in re gard to counterfeit trademark goods, China's
Customs measures provide that the simple removal of the trademark unlawfully affixed is sufficient to
permit release of the goods into the channels of commerce.
7.386 The Panel does not conclude on this basis alone that the measures at issue are inconsistent
with the requirement of the fourth sentence of Artic le 46, as incorporated by Article 59, because that
sentence contains the phrase "other than in exceptional cases". This phrase, read in context, implies
that "in exceptional cases" the simple rem oval of the trademark unlawfully affixed may be sufficient
to permit release of the goods into the channels of commerce.
7.387 The United States, in response to a question, submits that the ordinary meaning of
"exceptional" suggests that there is something about the circumstances that is unusual or special, not
that there is some de minimis number of cases where it is permissible to release the goods into normal
channels of commerce after simply removing the infringing mark. If the negotiators had intended it to
be the number of cases, they might have been expected to phrase the provision more in terms of
"other than in a very limited number of cases" or "other than in a de minimis/insignificant number of
cases".
364
7.388 China, in response to the same question, submits that the ordinary meaning of "exceptional"
includes "special", which suggests a qualitative test , and "unusual", which re fers to frequency and
suggests a quantitative test. An interpretation in terms of the set of circumstances, and an

361 The specific measures for the establishment of rese rve prices in auctions of goods confiscated by
Customs are set out in the Measures on Administration of Property Confiscated by Customs. These are internal
measures of the General Administrati on of Customs formulated in accordance with th e Customs Law, the Law
on Administrative Penalty and the Auction Law in 2003: see Exhibit CHN-100. Article 18 of these Measures
provides as follows:
"A reserve price shall be set for the confiscated property authorized to be auctioned off.
Should appraisal be required in accordance with relevant provisions of laws and regulations, a
price assessment entity lawfully established shall be authorized to complete such appraisal. In
the case that several auction enterprises bid for the right to auction, the bid prices shall be
compared with the appraisal price and the highest one taken as the reserve price. In the case
that there were no multiple bids for the right to auction, the reserve price shall be reasonably
determined based on the appraisal price given by the price assessment entity." (footnote
omitted) See mutually agreed translation no. 9.
363 As noted at paragraph 7.276 above, the use of th e word "release" in Article 46 and, hence, as
incorporated in Article 59, has a broader meaning than simply release to the importer.
364 United States' response to Question No. 86.

interpretation in terms of the number of cases, are both consistent with the plain meaning of
"exceptional cases".365
7.389 The Panel notes that the phrase "other than in ex ceptional cases", read in context, refers to a
subset of the cases covered by the fourth senten ce of Article 46, as incorporated by Article 59,
namely, those cases in which a Member's competen t border authorities permit the release of goods
that have been found to be count erfeit trademark goods into the channels of commerce. The question
is how to determine when any such case may be considered "exceptional".
7.390 The word "exceptional" may be defined as "of the nature of or forming an exception;
unusual, out of the ordinary; special;" 366 This definition does not explain in what way a case must be
different from other cases in order to be considered "exceptional" within the meaning of the fourth
sentence of Article 46. Further, the question of how different a case must be from others is also a
question of degree.
7.391 The Panel considers that the phrase "other than in exceptional cases", like the rest of the
principle set out in the fourth sentence of Article 46 , must be interpreted in light of the objective of
that Article, namely, "to create an effective deterre nt to infringement". There may well be cases in
which the simple removal of the trademark prior to release of the goods into the channels of
commerce would not lead to further infringement. For example, an innocent importer who has been
deceived into buying a shipment of counterfeit goods, who has no means of recourse against the
exporter and who has no means of reaffixing count erfeit trademarks to th e goods, might constitute
such a case. 367 However, such cases must be narrowly circumscribed in order to satisfy the
description of "exceptional". Even when narrowl y circumscribed, application of the relevant
provision must be rare, lest the so-called exception become the rule, or at least ordinary.
7.392 The Panel does not consider that "exceptiona l cases" for the purposes of the fourth sentence
of Article 46 may simply be demonstrated by a low rate of cases in which simple removal of the
trademark is treated as sufficient to permit release of goods into the channels of commerce. Firstly,
"exceptional cases" within the meaning of the four th sentence of Article 46, as incorporated in
Article 59, is not assessed in terms of a proportion of all cases of infringing goods seized at the
border. Secondly, such an approach to goods that have already been found to be counterfeit
trademark goods would amount to a margin of toleran ce of further infringement that is not consistent
with the objective of Article 46 of creating an effective deterrent.
7.393 Therefore, the Panel considers that, in re gard to counterfeit trademark goods, China's
Customs measures provide that the simple removal of the trademark unlawfully affixed is sufficient to
permit release of the goods into the channels of commerce in more than just "exceptional cases".
7.394 For the above reasons, the Panel concludes that the Customs measures are inconsistent with
Article 59 of the TRIPS Agreement, as it incorporates the principle set out in the fourth sentence of
Article 46.
3. Conclusions with respect to the Customs measures
7.395 The Panel recalls its conclusions at paragraphs 7.231, 7.355 and 7.394 above that:

365 China's response to Question No. 86.
366 New Shorter Oxford English Dictionary (1993).
367 Without prejudice to the relevance of statements by individual participants in the negotiations, the
Panel notes that China referred to this example in the records of the negotiation of the TRIPS Agreement: see
its rebuttal submission at paras 211-213.

(a) Article 59 of the TRIPS Agreement is not a pplicable to the Customs measures insofar
as those measures apply to goods destined for exportation;
(b) the United States has not established that th e Customs measures are inconsistent with
Article 59 of the TRIPS Agreement, as it incorporates the principles set out in the
first sentence of Article 46 of the TRIPS Agreement; and
(c) the Customs measures are inconsistent with Article 59 of the TRIPS Agreement, as it
incorporates the principle set out in the fourth sentence of Article 46 of the TRIPS
Agreement.
C. CRIMINAL THRESHOLDS
1. Description of the measures at issue
(a) Introduction
7.396 This Section of the Panel's findings concerns criminal thresholds established by the following
measures. China's Criminal Law was adopted by the National People's Congress in 1979, revised by
the National People's Congress in 1997 and promulga ted by Order of the President of the People's
Republic of China in 1997. The Criminal Law is divided into two Parts: Part One, setting out
"General Provisions", and Part Two, setting out "Specific Provisions". Part Two, Chapter III,
provides for "Crimes of disrupting the order of the socialist market economy". Chapter III, Section 7,
provides for "Crimes of infringing intellectual pr operty rights" and comprises Articles 213 to 220,
considered below.
7.397 The Interpretation of the Supreme People's Court and the Supreme People's Procuratorate
Concerning Some Issues on the Specific Applic ation of Law for Handling Criminal Cases of
Infringement of Intellectual Property Rights (Interp retation No. 19 [2004] of the Supreme People's
Court) ("Judicial Interpretation No. 19 [2004] ") was adopted in November 2004 and entered into
force in December 2004. It interprets certain term s used in Articles 213 to 219 of the Criminal Law
and also deals with certain other matters.
7.398 The Interpretation of the Supreme People's Court and the Supreme People's Procuratorate
Concerning Some Issues on the Specific Applic ation of Law for Handling Criminal Cases of
Infringement of Intellectual Property Rights – II (Interpretation No. 6 [2007] of the Supreme People's
Court) ("Judicial Interpretation No. 6 [2007] ") was adopted and entered into force in April 2007. It
interprets certain terms used in Article 217 of th e Criminal Law and also deals with certain other
matters.
(b) Trademark provisions
(i) Use of a counterfeit trademark
7.399 Article 213 of the Criminal Law may be translated as follows:
"Whoever, without permission from the owner of a registered trademark, uses a
trademark which is identical with the re gistered trademark on the same kind of
commodities shall, if the circumstances are serious , be sentenced to fixed-term
imprisonment of not more than three years or criminal detention and shall also, or
shall only, be fined; if the circumstances are especially serious, the offender shall be

sentenced to fixed-term imprisonment of not less than three years but not more than
seven years and shall also be fined."368 (emphasis added)
7.400 Article 1 of Judicial Interpretation No. 19 [2004] interprets the phrase "the circumstances are
serious" in Article 213 of the Criminal Law and may be translated as follows:
"Whoever, without permission from the owner of a registered trademark, uses a
trademark which is identical with the re gistered trademark on the same kind of
commodities, in any of the following circum stances which shall be deemed as 'the
circumstances are serious' under Article 213 of the Criminal Law, shall be sentenced
to fixed-term imprisonment of not more than three years or criminal detention for the
crime of counterfeiting registered trademark, and shall also, or shall only, be fined:
(1) the illegal business operation volume of not less than 50,000 Yuan 369 or the
amount of illegal gains of not less than 30,000 Yuan;
(2) in the case of counterfeiting two or more registered trademarks, the illegal
business operation volume of not less than 30,000 Yuan or the amount of illegal gains
of not less than 20,000 Yuan;
(3) other serious circumstances." 370 (emphasis added)
7.401 Article 12(1) of Judicial Interpretation No. 19 [2004] defines the term "illegal business
operation volume" and may be translated as follows:
"The 'illegal business operation volume' here in means the value of the infringing
products manufactured, stored, transported or sold during the course of commission
of the act of infringing intellectual property rights. The value of the sold infringing
products shall be calculated at the actua l sale price. The value of the infringing
products manufactured, stored, transported and unsold shall be calculated at the
labelled price or at the average actual sal es price of the infringing products as
verified. If there is no labelled price on the infringing products or the actual sales
price is unable to be verified, the price of the infringing products shall be calculated
at the middle market price of the infringed products."
371
7.402 Article 17 of Judicial Interpretation No. 30 [1998] 372 defines the term "amount of illegal
gains" and may be translated as follows:
"The 'amount of illegal gains' in this In terpretation refers to the amount of profit
obtained."373
(ii) Selling counterfeit trademark commodities
7.403 Article 214 of the Criminal Law may be translated as follows:

368 Mutually agreed translation no. 1.
369 This corresponds to US$6,250 at average market exchange rates (¥8.013/US$ for 2004-2007).
370 Mutually agreed translation no. 3.
371 Mutually agreed translation no. 3.
372 The Interpretation by the Supreme People's Co urt of Certain Questions Concerning the Specific
Application of Law in Adjudicating Criminal Cases Involving Illegal Publications (Interpretation No. 30 [1998]
of the Supreme People's Court) in Exhibits US-4 and CHN-3.
373 Mutually agreed translation no. 4. The parties agree that this definition is applicable under Judicial
Interpretation No. 19 [2004]: see United States' and China's respective responses to Question No. 3(a).

"Whoever sells commodities, knowing 374 that such commodities bear counterfeit
registered trademarks shall, if the amount of sales is relatively large, be sentenced to
fixed-term imprisonment of not more than three years or criminal detention and shall
also, or shall only, be fined; if the amount of sales is huge, the offender shall be
sentenced to fixed-term imprisonment of not less than three years but not more than
seven years and shall also be fined."
375 (emphasis added)
7.404 Article 2 of Judicial Interpretation No. 19 [2004] interpreted the phrase "the amount is
relatively large" under Article 214 of the Criminal Law and may be translated as follows:
"Whoever sells commodities, knowing that such commodities bear counterfeit
registered trademarks, with the amount of sales of not less than 50,000 Yuan, this
shall be deemed as 'the am ount is relatively large' under Article 214 of the Criminal
Law, and the offender shall be sentenced to fixed-term imprisonment of not more
than three years or criminal detention for the crime of selling commodities bearing a
counterfeit registered trademark, and shall also, or shall only, be fined."376
(iii) Forgery of trademarks and sale of forged trademarks
7.405 Article 215 of the Criminal Law may be translated as follows:
"Whoever forges or, without the author ization of another person, makes
representations of that person's registered trademarks, or sells representations of
another person's registered trademark that ar e forged or made without authorization,
shall, if the circumstances are serious , be sentenced to fixe d-term imprisonment of
not more than three years, criminal deten tion or public surveillance and shall also, or
shall only, be fined; if the circumstances are especially serious, the offender shall be
sentenced to fixed-term imprisonment of not less than three years but not more than
seven years and shall also be fined."377 (emphasis added)
7.406 Article 3 of Judicial Interpretation No. 19 [2004] interpreted the phrase "the circumstances are
serious" under Article 215 of the Criminal Law and may be translated as follows:
"Whoever forges or, without the author ization of another person, makes
representations of that person's registered tr ademarks or sells such representations, in
any of the following circumstances which sh all be deemed as 'the circumstances are
serious' under Article 215 of the Criminal La w, shall be sentenced to fixed-term
imprisonment of not more than three years, criminal detention or public surveillance
for the crime of illegally producing or se lling illegally made representations of the
registered trademark, and shall also, or shall only, be fined:
(1) forging or, without the authorization, making representations of the registered
trademarks or selling such representations of not less than 20,000 pieces, or with the
illegal business operation volume of not less than 50,000 Yuan, or the amount of
illegal gains of not less than 30,000 Yuan;
(2) forging or, without the authori zation, making two or more kinds of
representations of the registered trademarks or selling such representations of not less

374 Note in mutually agreed translation: Please refer to Article 9 of the 2004 Judicial Interpretation.
375 Mutually agreed translation no. 1.
376 Mutually agreed translation no. 3.
377 Mutually agreed translation no. 1.

than 10,000 pieces, or with the illegal business operation volume of not less than
30,000 Yuan, or the amount of illegal gains of not less than 20,000 Yuan;
(3) other serious circumstances." 378 (emphasis added)
7.407 Article 12(1) of Judicial Interpretation No. 19 [2004] defines the term "illegal business
operation volume" as set out at paragraph 7.401 above. Article 17 of Judicial Interpretation No. 30
[1998] defines the term "amount of illegal gains" as set out at paragraph 7.402 above. Article 12(3) of
Judicial Interpretation No. 19 [2004] defines the term "piece" and may be translated as follows:
"'Piece' ( 件) 379 under Article 3 herein means one representation with the entire
trademark pattern."380
(c) Copyright provisions
(i) Criminal copyright infringement
7.408 Article 217 of the Criminal Law may be translated as follows:
"Whoever, for the purpose of making profits, commits any of the following acts of
infringement of copyright shall, if the amount of illegal gains is relatively large , or if
there are other serious circumstances , be sentenced to fixed- term imprisonment of
not more than three years or criminal detention and shall also, or shall only, be fined;
if the amount of illegal gains is huge or if there are other especially serious
circumstances, the offender shall be sentenced to fixed-term imprisonment of not less
than three years but not more than seven years and shall also be fined:
(1) reproducing [/] 381 distributing written works, musical works, cinematographic
works, television or video works, computer software or other works without
permission of the copyright owner;
(2) publishing a book of which the exclusive right of publication is enjoyed by
another person;
(3) reproducing [/] distributing audio recording [/] video recording made by another
person without permission of the maker;
(4) making, selling 382 a work of fine art with the forged signature of another
person."383 (emphasis added)
7.409 Article 5 of Judicial Interpretation No. 19 [2004] interpreted the phrases "the amount of
illegal gains is relatively large" and "there are other serious circumstances" under Article 217 of the
Criminal Law and may be translated as follows:

378 Mutually agreed translation no. 3.
379 Note in mutually agreed translation: in this context, piece ( 件) is a "measure word" for a trademark
representation.
380 Mutually agreed translation no. 3.
381 The parties advised the Panel orally at the sec ond substantive meeting that the use of "[/]" in
mutually agreed translations nos. 1, 2 and 3 did not indi cate disagreement but rather reflected the fact that the
original version did not use the word "and".
382 Note in mutually agreed translation: There is neither "and" or "or" between "making" and "selling",
only a Chinese repetitive comma (、) or 顿号 which has no precise English equivalent.
383 Mutually agreed translation no. 1.

"Whoever, for the purpose of making profits, commits any of the acts of infringement
of copyright under Article 217 of the Criminal Law, with the amount of illegal gains
of not less than 30,000 Yuan which shall be deemed as 'the amount of illegal gains is
relatively large'; in any of the followi ng circumstances which shall be deemed as
'there are other serious circumstances', shall be sentenced to fixed-term imprisonment
of not more than three years or criminal detention for the crime of infringement of
copyright, and shall also, or shall only, be fined:
(1) the illegal business operation volume of not less than 50,000 Yuan;
(2) reproducing [/] distributing, without permission of the copyright owner, a
written work, musical work, cinematographic work, television or other video works,
computer software and other works of not less than 1,000384 张 (份)385 in total;
(3) other serious circumstances." 386 (emphasis added)
7.410 Article 12(1) of Judicial Interpretation No. 19 [2004] defines the term "illegal business
operation volume" as set out at paragraph 7.401 above. Article 17 of Judicial Interpretation No. 30
[1998] defines the term "amount of illegal gains" as set out at paragraph 7.402 above.
7.411 Article 1 of Judicial Interpretation No. 6 [200 7] re-interpreted the phrase "there are other
serious circumstances" under Article 217 of the Criminal Law and may be translated as follows:
"Whoever, for the purpose of making profits, reproduces [/] distributes, without
permission of the copyright owner, a written work, musical work, cinematographic
work, television or video works, computer software and other works of not less than
500 张 ( 份)387 in total, [the offence] shall be deemed as 'there are other serious
circumstances' under Article 217 of the Criminal Law …" 388
7.412 The number "500" in this provision conflicts w ith the number "1000" in the earlier Judicial
Interpretation. The number "500" therefore prevails by virtue of Article 7 of Judicial Interpretation
No. 6 [2007], which may be translated as follows:
"Where any previously promulgated judicial interpretation is in conflict with this
Interpretation, this Interpretation shall prevail."389
(ii) Selling copyright-infringing reproductions
7.413 Article 218 of the Criminal Law may be translated as follows:
"Whoever, for the purpose of making profits , sells infringing reproductions, knowing
that such infringing reproductions are tho se stipulated in Article 217 of this Law
shall, if the amount of illegal gains is huge , be sentenced to fixed-term imprisonment

384 The number "1000" has been superseded by "500": see paragraphs 7.411 and 7.412 below.
385 Note in mutually agreed translation: 张 is a Chinese "measure word" broadly used to count flat
things (like optical disks, pages, etc.) and 份 is a "measure word" used to count copies in general.
386 Mutually agreed translation no. 3.
387 Note in mutually agreed translation: 张 is a Chinese "measure word" broadly used to count flat
things (like optical disks, pages, etc.) and 份 is a "measure word" used to count copies in general.
388 Mutually agreed translation no. 2.
389 Mutually agreed translation no. 2 and the parties' respective responses to Question No. 3(a).

of not more than three years or criminal detention and shall also, or shall only, be
fined."390 (emphasis added)
7.414 Article 6 of Judicial Interpretation No. 19 [2004 ] interpreted the phrase "the amount of illegal
gains is huge" under Article 218 of the Criminal Law and may be translated as follows:
"Whoever, for the purpose of making profits, co mmits any of the acts as stipulated in
Article 218 of the Criminal Law, where the amount of illegal gains is not less than
100,000 Yuan, this shall be deemed as 'the amount of illegal gains is huge', and the
offender shall be sentenced to fixed-term im prisonment of not more than three years
or criminal detention for the crime of selling infringing reproductions, and shall also,
or shall only, be fined."391
(d) Crimes of infringing intellectual property rights committed by a unit
7.415 The Panel's terms of reference also refer to Article 220 of the Criminal Law on crimes under
Articles 213 to 219 where committed by a unit. The Un ited States has not requested relief in respect
of that Article. Therefore, the Panel does not consider this aspect of the measure.
2. Construction of the measures at issue
(a) Introduction
7.416 The Panel notes that this claim challenges China' s criminal measures "as such". The parties
disagree on certain aspects of the measures at issue. The Panel is therefore obliged, in accordance
with its mandate, to make an objective assessment of the meaning of the relevant provisions of those
measures. The Panel recalls its observations at pa ragraph 7.28 above and confirms that it examines
these measures solely for the purpose of determining their conformity with China's obligations under
the TRIPS Agreement.
(b) Normative effect of the Judicial Interpretations
7.417 Under the 1982 Constitution of the People's Republic of China, the National People's
Congress is the highest organ of State power and its permanent body is its Standing Committee. The
National People's Congress and its Standing Committee exercise the legislative power of the State.
The National People's Congress enacts and amends basi c laws, such as the Criminal Law, whilst its
Standing Committee enacts and amends other statutes.392
7.418 In 1981, the Standing Committee of the National People's Congress adopted a Resolution on
Improving the Work of Interpreting the Law, in which it decided as follows:
"Questions involving the specific application of laws and decrees in court trials shall
be interpreted by the Supreme People's Court. Questions involving the specific
application of laws and decrees in procur atorial work shall be interpreted by the
Supreme People's Procuratorate."393

390 Mutually agreed translation no. 1.
391 Mutually agreed translation no. 3.
392 1982 Constitution of the People's Republic of Ch ina, Articles 62 and 67, explained in China's WTO
Trade Policy Review, Report by the Secretariat, WT/TPR/S/161, Chapter II(2), referenced in United States' first
written submission, para. 22, set out in Exhibit US-16.
393 1981 Resolution of the Standing Committee of the National People's Congress on Improving the
Work of Interpreting the Law, paragraph 2, in Exhibit US-13.

7.419 In 1997, the Supreme People's Court formulated Certain Provisions on Judicial Interpretation
Work. In March 2007, it replaced these with new Provisions on Judicial Interpretation Work, which
may be translated as follows:
"Judicial interpretations issued by the Supreme People's Court shall have legal
effect."394
7.420 In 1996 the Supreme People's Procuratorate formulated Provisional Provisions on Judicial
Interpretation Work. In May 2006, it replaced these with Provisions on Judicial Interpretation Work,
which may be translated as follows:
"Judicial interpretations made by the S upreme People's Procuratorate have legal
effect. People's procuratorates may use provi sions of judicial interpretation in legal
documents such as bills of indictment or protest."395
7.421 The Provisions of the Supreme People's Cour t on Judicial Interpretation Work and the
Provisions of the Supreme People's Procuratorate on Judicial Interpretation Work both provide for the
joint formulation of judicial interpretations by the Supreme People's Court and the Supreme People's
Procuratorate when an issue involves both judicial and prosecutorial work.396
7.422 The United States submits that, in light of the a bove, the Judicial Interpretations at issue in
this dispute are binding and have the force of law.397
7.423 China submits that the Judicial Interpretations are issued "in order to ensure a uniform
understanding and application of the law". 398 China does not disagree with the United States'
description of the legal basis and binding nature of the Judicial Interpretations at issue as set out in the
United States' first written submission. 399 China confirms that if an illegal act does not meet one of
the pertinent thresholds set out in the Judicial Interp retations at issue, prosecution of that act is legally
impossible.400
7.424 In light of the above, the Panel finds that the Judicial Interpretations of the Articles of the
Criminal Law at issue are binding and have the force of law.
(c) Thresholds under the Criminal Law in general
7.425 China informs the Panel that it employs thresholds across a range of commercial crimes,
reflecting the significance of various illegal acts for overall public and economic order and China's
prioritization of criminal enforcement, prosecution and judicial resources. China submits that the
criminal thresholds for counterfeiting and piracy are reasonable and appropriate in the context of this
legal structure and the other laws on commercial crimes.401

394 Provisions of the Supreme People's Court on Judicial Interpretation Work, Article 5, 法发 [2007]
No. 12 in Exhibit US-14.
395 Provisions of the Supreme People's Procuratorate on Judicial Interpretation Work, Article 5, 高检发
研字 [2006] No. 4 in Exhibit US-15.
396 Provisions of the Supreme People's Court on Judici al Interpretation Work (referred to in note 394
above), Article 7, and Provisions of the Supreme People's Procuratorate on Judicial Interpretation Work
(referred to in note 395 above), Article 21.
397 United States' first written submission, para. 24.
398 China's first written submission, para. 22.
399 China's response to Question No. 10, referencing paras 20-24 of that submission.
400 China's response to Question No. 55.
401 China's first written submission, paras 122-127.

7.426 The United States responds that what China choo ses to do with its domestic non-IPR criminal
thresholds has no bearing on the Panel's assess ment of whether China meets its international
obligations under the first sentence of Article 61 of the TRIPS Agreement.402
7.427 The Panel observes that Part One of the Crim inal Law sets out general provisions. Within
Part One, Chapter II, Section 1 provides for "Crimes and Criminal Responsibility". Article 13 defines
a crime and may be translated in fine as follows:
"However, if the circumstances are obviously minor and the harm done is not serious,
the act shall not be considered a crime."403
7.428 China submits that, throughout the Criminal La w, the definitions of various crimes are
accompanied by rules for determining at what point the particular proscribed conduct becomes so
serious as to constitute a crime. 404 These are collated and issued in Prosecution Standards. In
response to a question from the Panel, China indicated that most substantive provisions in Chapter III
on economic crimes, Chapter V on property violation and Chapter VI, Section 9 on producing, selling
and disseminating pornographic materials 405 are also subject to specific thresholds, such as those
applicable to Articles 213, 214, 215, 217 and 218 of the Criminal Law that are at issue in this
dispute.406
7.429 The Panel notes China's acknowledgement that a tota l of 11 crimes out of 117 crimes set out
in these relevant Parts and this relevant Section of the Criminal Law are not subject to any specific
threshold.407 Therefore, whilst China may for internal policy reasons frequently use thresholds to
define the point at which many classes of illegal act are considered serious enough to be criminalized,
China's legal structure is capable of criminalizing certain acts without recourse to thresholds.
(d) Thresholds for conviction or aggravation
7.430 The Panel notes that some thresholds in th e Criminal Law set minimum requirements for
conviction ("conviction thresholds") whilst othe rs set minimum requirements for higher penalties
("aggravation thresholds"). Most of the Articles at issue in this dispute include both. The conviction
thresholds comprise "serious circumstances" in Articles 213 and 215, "relatively large amount of
sales" in Article 214, "relatively large amount of illegal gains" or "other serious circumstances" in
Article 217 and "huge amount of sales" in Article 218. The aggravation thresholds comprise
"especially serious circumstances" in Article s 213, 215 and 217 and "huge amount of sales" in
Article 214.
7.431 The United States only challenges the convic tion thresholds as these render prosecution
impossible in the absence of certain criteria. Ther efore, the Panel does not consider the aggravation
thresholds further.

402 United States' rebuttal submission, paras 100-102.
403 Exhibit CHN-1.
404 China's first written submission, para. 121.
405 Crimes under Part Two, Chapter VI, Section 9 of the Criminal Law were addressed together with
copyright crimes under Articles 217 and 218 in Judicial Interpretation No. 30 [1998] (referred to in note 372
above).
406 See China's response to Question No. 57.
407 China's response to Question No. 57.

(e) General provisions on inchoate crimes
7.432 China refers to certain general provisions of the Criminal Law that it alleges apply to the
crimes of infringing intellectual property rights. Th ese include Article 22 on preparation for a crime,
and Article 23 on attempted crime, which may trigger criminal prosecution and penalties.408
7.433 The United States replied that the extent to wh ich these general provisions on inchoate crimes
can address evidence of potential infringement is beside the point, as the thresholds rule out criminal
liability based on evidence of actual infringement.409 In response to a question, the United States
notes that neither the Criminal Law, Judicial Inte rpretation No. 19 [2004] nor Judicial Interpretation
No. 6 [2007] contains any specific provisions concerning the offences of preparation or attempt
relating to the completed crimes of trademark counterfeiting and copyright piracy.410
7.434 The Panel observes that Part One, Chapter II, Section 2 of the Criminal Law sets out three
inchoate crimes of preparation for a crime, cr iminal attempt and discontinuation of a crime. 411
Article 22 may be translated as follows:
"Preparation for a crime refers to the preparation of the instruments or the creation of
the conditions for a crime.
An offender who prepares for a crime may, in comparison with one who completes
the crime, be given a lighter or miti gated punishment or be exempted from
punishment."412
7.435 Article 23 may be translated, relevantly, as follows:
"A criminal attempt refers to a case where an offender has already started to commit a
crime but is prevented from completing it for reasons independent of his will.
An offender who attempts to commit a crime may, in comparison with one who
completes the crime, be given a lighter or mitigated punishment."413
7.436 The Panel notes that each of these Articles contains provisions that appear to be of general
application and that relate explicitly to "a crime" ( 犯罪). The Articles to which China refers contain
no express limitation to certain specific provisions of th e Criminal Law. They form part of Chapter II
on "Crimes" found in Part One on "General Provisions", which also sets out the aim, basic principles
and scope of application of the Criminal Law in Ch apter I, provisions on punishments in Chapter III
and the concrete application of punishments in Ch apter IV. On their face, there is no reason to
suppose that Articles 22 and 23 do not apply to the crimes of infringing intellectual property rights in
Articles 213, 214, 215, 217 and 218 of the Criminal La w. This reading is confirmed by examples of
judicial decisions submitted by China that show co urts applying Articles 22 and 23 of the Criminal
Law in cases of crimes of infringing intellectual property rights.
414
7.437 The Panel also notes that China has referred to the offences of preparation for a crime and
attempted crime to show that packaging and pr oduct components can be taken into account in

408 China's first written submission, paras 35-37; rebuttal submission, paras 36-41.
409 United States' second oral statement, para. 34.
410 United States' response to Question No. 8.
411 The parties have not referred to Article 24 on discontinuation of a crime.
412 Exhibit CHN-1.
413 Exhibit CHN-1.
414 The United States refers to these judicial deci sions and appears to acknowledge that the Articles
were applied in these cases: see United States' response to Question No. 8.

determining the availability of criminal procedures to enforce the substantive crimes of infringing
intellectual property rights. However, the Panel not es that China has not alleged that the offences of
preparation and attempt render activities falling below the thresholds in Articles 213 to 220 generally
subject to criminal prosecution.
(f) General provisions on joint crimes
7.438 Japan, supported by the European Communities, argues that quantitative thresholds would not
capture counterfeiting activities of limited value or smaller quantities which are on a "commercial
scale" due to their professional organization or the systematic cooperation with other persons. 415
Mexico further submits that small scale activity is "clearly meaningful" as it contributes to the chain
of infringement.416
7.439 In response to these third party submissions, Chin a refers to Articles 25, 26 and 27 of the
Criminal Law on joint liability, criminal groups and accomplices to show that the Criminal Law
recognizes certain non-quantitative factors, such as evidence of collaboration between infringers. 417
China submits that they apply to the crimes of infringing intellectual property rights in Articles 213,
214, 215, 217 and 218 of the Criminal Law.418
7.440 The United States replies that this argument is of no consequence with respect to infringers
that work alone. All the evidence demonstrates is th at below-the-threshold activity could be captured
if it existed as part of an above-the-threshold activity.419
7.441 The Panel observes that Part One, Chapter II, Section 3 of the Criminal Law provides for
"Joint crimes". It sets out five provisions. Article 25 may be translated, relevantly, as follows:
"A joint crime refers to an intentional crime committed by two or more persons
jointly. …" 420
7.442 Article 26 may be translated as follows:
"A principal criminal refers to any pers on who organizes and leads a criminal group
in carrying out criminal activities or plays a principal role in a joint crime.
A criminal group refers to a relatively stable criminal organization formed by three or
more persons for the purpose of committing crimes jointly.
Any ringleader who organizes or leads a criminal group shall be punished on the
basis of all the crimes that the criminal group has committed.
Any principal criminal not included in para graph 3 shall be punished on the basis of
all the crimes that he participates in or that he organizes or directs." 421

415 Japan's third party written submission, para. 17; European Communities' third party oral statement,
para. 10.
416 Mexico's third party oral statement, paras 6-7.
417 China's rebuttal submission, paras 42-46.
419 United States' second oral statement, para. 35, referring to the application of the joint crime
provision in one case (CHN-12), cited by China in its rebuttal submission, para. 44, and its response to Question
No. 56.
420 Exhibit CHN-1.
421 Exhibit CHN-1.

7.443 Article 27 may be translated as follows:
"An accomplice refers to any person who plays a secondary or auxiliary role in a joint
crime.
An accomplice shall be given a lighter or mitigated punishment or be exempted from
punishment." 422
7.444 The Panel observes that Articles 26 and 27 are limi ted to "joint crimes" which are defined by
Article 25 as "intentional crimes". On their face, there is no reason to suppose that Articles 25, 26 and
27 do not apply to the crimes of infringing intellectual property rights in Articles 213, 214, 215, 217
and 218 of the Criminal Law. Several judicial d ecisions submitted by China show one or more of
these Articles being cited in relation to Article 213.
423 The decisions show that the relevant factors
were aggregated among several offenders in order to reach a criminal threshold.
7.445 China submitted that it may apply criminal pr ocedures and penalties, on the basis of joint
crimes and criminal group membership, to infring ers that would not otherwise reach the criminal
thresholds of the substantive criminal laws. 424 However, in response to a question, China confirmed
that the numerical thresholds under Articles 213, 214, 215, 217 and 218 of the Criminal Law apply to
joint crimes under Articles 25, 26 and 27 of the Criminal Law.425
7.446 Therefore, the Panel considers that the concept of joint crimes is relevant to the capacity of
the Criminal Law to take into account an elem ent of organization among different offenders.
However, it does not alter the lack of criminal procedures and penalties for acts of infringement
falling below the thresholds in Articles 213 to 220.
(g) Specific features of the thresholds for crimes of infringing intellectual property rights
(i) Profit-making purpose
7.447 The United States submits that the thresholds "all require proof of an intention to make a
financial gain or profit".426
7.448 The Panel observes that, as regards the tradem ark offences, two of the thresholds under
Article 213 of the Criminal Law, as interpreted by Article 1 of Judicial Interpretation No. 19 [2004],
are set in terms of "illegal business operation volum e" and "illegal gains" (i.e. amount of profits
obtained427). Article 214 of the Criminal Law applies to the act of selling, and the corresponding
threshold in Article 2 of Judicial Interpretation No . 19 [2004] is set in terms of "amount of sales".
These all imply a purpose of obtaining financial gain or making profits. Article 215 of the Criminal
Law does not expressly refer to a profit-making purpose.
7.449 As regards the copyright offences, both Artic les 217 and 218 of the Criminal Law expressly
refer to acts carried out for "the purpose of maki ng profits". This language is reiterated in the
corresponding interpretations in Articles 5 and 6 of Judicial Interpretation No. 19 [2004] and Article 1
of Judicial Interpretation No. 6 [2007].

422 Exhibit CHN-1.
423 Exhibits CHN-4, CHN-6, CHN-9, CHN-12, CHN-13 and CHN-16.
425 China's response to Question No. 56.
426 United States' response to Question No. 59.
427 See paragraph 7.402 above.

7.450 Therefore, Articles 213, 214, 217 and 218 of th e Criminal Law take account of at least one
qualitative factor in conjunction with the numerical th resholds. In this dispute, the United States does
not challenge this aspect of the measure.428
(ii) Alternative thresholds
7.451 The parties agree that the thresholds refer to a range of different factors, comprising illegal
business operation volume, amount of illegal gains (o r profits), amount of sales, number of "copies"
and "other serious circumstances". The first three are, by their own terms, indicators of business
activity and are either expressly, or impliedly, linke d to selling, in other words, commercial activity.
The first four are all expressed in numerical terms.
7.452 China emphasizes that the multiple standards set forth in each of Articles 213, 215 and 217 of
the Criminal Law are all alternatives.429 The United States agrees and claims that application of any or
all of the alternative thresholds leaves many acts of commercial scale piracy and counterfeiting
immune from criminal prosecution or conviction.430
7.453 The Panel observes that Articles 213 and 215 of the Criminal Law each contain a single
threshold. However, these are interpreted by Articl es 1 and 3 of Judicial Inte rpretation No. 19 [2004]
in terms of a series of distinct circumstances. It is clear from the text of Articles 1 and 3 that each of
these circumstances applies in th e alternative as Articles 1 and 3 each provide that the conviction
threshold under the relevant Article of the Criminal Law shall be deemed satisfied in "any of the
following circumstances".
7.454 The Panel observes that Article 217 of the Crim inal Law contains two conviction thresholds
namely, "the amount of illegal gains" and "other serious circumstances". The text of Article 217
makes it clear that these are alternatives to each othe r by the use of the word "or". Both of these
thresholds are interpreted by Article 5 of Judicial Interpretation No. 19 [2004]: the former in terms of
a numerical amount and the latter in terms of a series of distinct circumstances. It is clear from the
text of Article 5 that each of these circumstances a pplies in the alternative as Article 5 provides that
the conviction threshold of "other serious circum stances" under Article 217 of the Criminal Law shall
be deemed satisfied in "any of the following ci rcumstances". Satisfaction of any one of those
circumstances, or "the amount of illegal gains" thr eshold, shall be deemed to satisfy the relevant
conviction threshold.
7.455 This means, for example, that the use of a counterfeit trademark where the illegal business
operation volume is, say, ¥40,000 (i.e. below the th reshold of ¥50,000 applicable under Article 213 of
the Criminal Law) is not exempt from criminal prosecution unless the amount of illegal gains, the
number of registered trademarks involved in the offe nce, and other circumstances all fail to fulfil the
other applicable thresholds. However, where an act of infringement falls below all the applicable
thresholds, criminal prosecution and penalties are not available.
7.456 It is not disputed that the crimes of selli ng under Articles 214 and 218 of the Criminal Law
each contain only one conviction threshold. Therefore, those thresholds do not apply as alternatives.
(iii) Cumulative calculation over time
7.457 China submits that the thresholds are calculate d over a prolonged period of time. This is
reflected in the general limitation period for crimes of a continuous nature, and the specific provision

428 See paragraphs 7.659 and 7.660 below.
429 China's first written submission, paras 33-34.

on cumulative calculation in Article 12(2) of Judicial Interpretation No. 19 [2004]. China asserts that
this principle also applies to thresholds in terms of numbers of copies. Therefore, the thresholds for
crimes infringing intellectual property rights can be calculated over the entire duration of the
infringing activity.431
7.458 The United States notes that Article 12(2) of Judi cial Interpretation No. 19 [2004] is subject
to a condition, namely, that no administrative pe nalty or criminal punishment has been imposed. 432
China responds that administrative enforcement forestalls the commission of the crime.433
7.459 The Panel observes that Part One, Chapter IV, Section 8 of the Criminal Law sets out
limitation periods for the prosecution of crimes. Article 87 provides for limitation periods calculated
according to the maximum punishment for the relevant crime, of which the shortest period is five
years. Article 89 of the Criminal Law provides that the limitation period for a criminal act of a
continual or continuous nature shall be counted from the date the criminal act is terminated.
434
7.460 The Panel also notes that Article 12(2) of Judicial Interpretation No. 19 [2004] may be
translated as follows:
"In the case of infringement committed for [ sic] more than once for which no
administrative penalty or criminal punishment has been imposed, the illegal business
operation volume, the amount of illegal ga ins, or the amount of sales shall be
calculated accumulatively."435
7.461 These provisions show that the thresholds may take into account multiple acts of
infringement, and not simply the income, profits, sales or number of copies in a single transaction or
at a single point in time. This point is confir med by examples of judicial decisions submitted by
China showing that, when calculatin g whether thresholds had been met, courts have taken into
account infringements during periods of up to five years.
436 An administrative penalty for a particular
act of infringement excludes that act from the cumulative calculation of the "illegal business operation
volume", "the amount of illegal gains", or "the amount of sales" thresholds and, hence, from criminal
procedures and penalties.
(iv) Calculation of illegal business operation volume – goods
7.462 China submits that the calculation of "illega l business operation volume" thresholds is not
limited to goods in a single location at the same poi nt in time. Rather, the threshold covers all
infringing goods associated with the infringer, even those no longer in the infringer's possession.437
7.463 The United States acknowledges that, in certain circumstances, the definition of "illegal
business operation volume" appears to permit an infri nger's goods on different pr emises to be taken
into account in calculation of the threshold.438
7.464 The Panel observes that three conviction thr esholds under Articles 213, 215 and 217 of the
Criminal Law are set in terms of "illegal busin ess operation volume". The definition of "illegal

431 China's first written submission, paras 30-32; rebuttal submission, paras 26-27.
432 United States' response to Question No. 2(a).
433 China's rebuttal submission, paras 28-29.
434 Exhibit CHN-1.
435 Mutually agreed translation no. 3.
436 Exhibits CHN-4, CHN-13 and CHN-14.
437 China's first written submission, paras 23-24.
438 United States' response to Question No. 2(a).

business operation volume" in Article 12(1) of Judicial Interp retation No. 19 [2004] 439 refers to
infringing products "manufactured, stored, transported or sold" during the course of commission of
the act of infringing intellectual property rights. On its face, this does not restrict the calculation of
these thresholds to the value of goods seized in a single place at the same point in time. This
interpretation is confirmed by examples of judicial decisions submitted by China showing that courts
have taken into account the value of goods already sold 440, as well as of goods seized at different
locations441 when calculating the illegal business operation volume.
(v) Calculation of illegal business operation volume – price
7.465 The United States claimed that the calculation methodology required for "illegal business
operation volume" was based on the prices of in fringing goods, not the value of legitimate non-
infringing goods.442
7.466 China responded that the calculation methodology is based on the actual, labelled or average
sales price of the infringing goods but, where this cannot be determined, the price will be calculated
based on the average market price of the infringed, i.e. genuine, goods. 443 In response to a question
from the Panel, China agreed that the price of the genuine goods is used as a last resort.444
7.467 The Panel observes that three conviction thr esholds under Articles 213, 215 and 217 of the
Criminal Law are set in terms of "illegal busin ess operation volume", which can be calculated by
alternative methods. Ultimately, the parties agree that, in accordance with th e definition of "illegal
business operation volume" in Article 12(1) of Judicial Interpretation No. 19 [2004] 445, the primary
method of calculation of those thresholds is based on the actual price at which infringing goods were
sold or labelled or, if unsold, th e average actual sales price of the infringing products as verified. It is
only where there is no labelled price or the actual sal es price is unable to be verified that the illegal
business operation volume is calculated according to the "middle" market price of the infringed
products. In other words, the threshold primarily re lates to the value of the counterfeit trademark or
copyright infringing goods but may, as a last resort, relate to the value of the genuine products.
7.468 It is not disputed that the value of the counterfeit trademark goods or copyright infringing
goods will be less than the value of the corresponding genuine goods. This has the effect of making
the illegal business operation threshold harder to sa tisfy in those cases where the price of the genuine
goods is not used. The number of cases that will fall below the thresholds is th erefore greater than if
the price of the infringed goods is used in all cases.
(vi) Number of goods and prices
7.469 China also submits that the illegal business operati on threshold, in particular, is a flexible
standard in its own right because it takes into account both the number and the value of infringing
articles.446 The United States does not comment.

439 Set out at paragraph 7.401 above.
440 Exhibits CHN-4, CHN-5 and CHN-6.
441 Exhibit CHN-7.
442 United States' first written submission, para. 119, relying on a translation in Exhibit US-2 that
referred in fine to "products produced by infringing on intellectual property rights" rather than "the infringed
products".
443 China's first written submission, para. 28.
444 China's response to Question No. 2(c).
445 Set out at paragraph 7.401 above.
446 China's rebuttal submission, paras 23-24.

7.470 The Panel observes that, in accordance with the definition of "illegal business operation
volume" in Article 12(1) of Judicial Interpretation No. 19 [2004] 447, these thresholds are calculated in
terms of the price of goods. Naturally, the numbe r of goods required to meet the threshold is
inversely proportional to the value of those goods. Therefore, the threshold is flexible enough to
capture a small number of high-value goods or a large number of low-value goods. However, where
the number of goods multiplied by the value of the goods is less than the threshold and not captured
by any alternative applicable threshold, no criminal procedures and penalties will apply.
(vii) Residual thresholds
7.471 The parties initially did not address another thres hold, that of "other serious circumstances"
applicable under Articles 213, 215 and 217 of the Criminal Law.
7.472 In response to a question from the Panel for clar ification of the meaning of these thresholds,
the United States noted a case in which a prosecutor had invoked th e similarly undefined aggravation
threshold of "other especially serious circumstances" under Article 1 of Judicial Interpretation No. 19
[2004]. That prosecutor had unsuccessfully cited " serious effects in both dom estic and international
society".448
7.473 In response to the same question, China expl ained that the inclusion of "other serious
circumstances" was a legislative device that preserv es legal flexibility for courts and for the future
development of laws. The provisions allows a cour t to determine that a particular act, while not
meeting the other defined thresholds, is comparable and equivalent to those thresholds and therefore
deserves to be subject to criminal penalties. China was unable in the time available to provide
specific examples of cases in which this threshold had been used.449
7.474 The Panel observes that, on the face of the measur es at issue, one of the thresholds applicable
to three crimes infringing intellectual property ri ghts is a residual category of "other serious
circumstances". In the case of Articles 213 and 215 of the Criminal Law, this threshold only appears
in the text of Judicial Interpretation No. 19 [2004]. In the case of Article 217 of the Criminal Law,
this threshold actually appears in the text of the Ar ticle itself, but is later defined in terms of two
specific thresholds plus an identi cally worded residual category of "other serious circumstances".
This bears out China's explanation that this threshol d is a legislative device th at allows for the future
development of laws. However, it is not alleged that any other thresholds have yet been devised
beyond those set out in this Report.
7.475 Moreover, it is not alleged that the courts or prosecutors would treat all infringing acts that
fall below the numerical thresholds as criminal acts by virtue of this residual threshold. China
confirms that if an illegal act does not meet one of the pertinent thresholds set out in the Judicial
Interpretations at issue, prosecution of that act is legally impossible.
450 China also confirms that these
residual thresholds apply to other acts that are "com parable and equivalent" to the defined thresholds.
Therefore, these residual thresholds do not significan tly alter the legal position but rather help define
the class of trademark- and copyright-infringing acts that are not treated as criminal.
(viii) Administrative enforcement
7.476 China draws the Panel's attention to its system of administrative enforcement of intellectual
property infringement that operates separately from its criminal enforcement system. It informs the

447 Set out at paragraph 7.401 above.
448 United States' response to Question No. 9, citing Exhibit US-61.
449 China's response to Questions Nos. 9 and 55; rebuttal submission, para. 22.
450 See paragraphs 7.423 and 7.455 above.

Panel that in China infringement on any scale is subject to administrative enforcement. Public
security authorities tend to focus more on infringement above the criminal thresholds, and copyright
and commerce administrative authorities are more likely to target low-scale infringement.451
7.477 The United States responds that only crimin al procedures and penalties can fulfil the
obligations in Article 61 of the TRIPS Agreement. Administrative enforcement is not a substitute for
criminal enforcement.452
7.478 The Panel notes that administrative sanctions, in cluding fines, are available for intellectual
property infringement falling below the criminal thresholds in China. Therefore, the thresholds do not
create a "safe harbour". However, neither party to the dispute 453 argues that administrative
enforcement may fulfil the obligations on criminal procedures and remedies set out in Article 61 of
the TRIPS Agreement. Therefore, the Panel does not consider this issue further.
(h) Conclusion regarding construction of the measures at issue
7.479 For the above reasons, the Panel concludes that, whilst the structure of the thresholds and the
method of calculation of some of them can take ac count of various circumstances, acts of trademark
and copyright infringement falling below all the applicable thresholds are not subject to criminal
procedures and penalties. The Panel will now cons ider whether any of those acts of infringement
constitute "wilful trademark count erfeiting or copyright piracy on a commercial scale" within the
meaning of Article 61 of the TRIPS Agreement.
3. Claim under the first sentence of Article 61 of the TRIPS Agreement
(a) Main arguments of the parties
7.480 The United States submits that the concept of "commercial scale" extends both to those who
engage in commercial activities in order to make a "financial return" in the marketplace, and who are,
by definition, therefore operating on a commercial scale, as well as to those whose actions, regardless
of motive or purpose, are of a sufficient extent or magnitude to qualify as "commercial scale" in the
relevant market.454 Later, it clarified that the concept of "commercial scale" referred to counterfeiting
or piracy that reach a certain extent or magnitude wi th a link to the marketplace. Whether a particular
counterfeiting or piracy activity is "on a commercial scale" will depend on the facts and circumstances
surrounding that activity. Relevant factors would include the market for the infringed goods, the
object of the infringement, the value of the infri nged goods, the means of producing the infringed
goods, and the impact of the infringement on the right holder. 455 Some activity would be so trivial or
of a de minimis character so as not to be "on a commercial scale" in some circumstances, such as
occasional infringing acts of a purely personal nature ca rried out by consumers, or the sale of trivial
volumes for trivial amounts (i.e., the sale of one copy for ¥1) unless there are circumstances indicating
to the contrary.456
7.481 China responds that "commercial scale" refers to a significant magnitude of infringement
activity. This is a broad standard, subject to national discretion and local conditions. 457 The United
States fails to interpret "commercial scale" as a single term and its interpretation reads the word

451 China's first written submission, paras 39-43.
452 United States' rebuttal submission, paras 116-119.
453 Contrast Brazil's third party written submission, paras 39-42.
454 United States' first written submission, para. 110.
455 United States' response to Question No. 59.
456 United States' response to Question No. 60.
457 China's first written submission, paras 64 and 117; China's first oral statement, para. 30.

"scale" completely out of the definition. 458 The context of Articles 1.1 and 41.5 of the TRIPS
Agreement shows that Members retain considerable discretion with respect to law enforcement, and
that the ability to define the standards of Article 61 is reserved for Members. 459 Later, it clarified that
while these Articles did not provide an absolute defence against the substantive obligation of
Article 61, they did provide relevant context a nd counselled strongly against interpretations of
Article 61 in ways that would be inconsistent with China's legal system and would require the
diversion of enforcement resources. 460 The negotiating record of the TRIPS Agreement, as well as
subsequent actions of Members show that they understood "commercial scale" to impose only a high
and broad standard which only covered significant infringement activity.461
7.482 The United States claims that China's criminal thresholds require authorities to disregard
other indicia of commercial scale counterfeiting and piracy from physical evidence to consideration of
the impact the piracy or counterfeiting has on th e commercial marketplace and by extension, right
holders.462 The United States argues that a range of quantitative and qualitative factors should be
taken into account to ensure all "commercial scale" activities are subject to Article 61.463
7.483 China responds that Chinese courts do consider semi-finished or unfinished products, and that
these are evidence of preparation and attempt, as well as of substantive crimes. 464 Evidentiary
procedures and impact on the right holder are i rrelevant to Article 61 of the TRIPS Agreement. 465
The Criminal Law also addresses organizational elem ents of crimes in provisions on vicarious
liability.466
(b) Main arguments of third parties
7.484 Argentina argues that China's measures do not appear to be inconsistent with Article 61 of the
TRIPS Agreement, as Article 1.1 provided China with the flexibility to implement enforcement
provisions in a way compatible with its existing constitutional and regulatory framework.467
7.485 Australia argues that "commercial scale" encomp asses any act or series of acts of trademark
counterfeiting or copyright piracy that adversely a ffects the financial rewards available to a right
holder within a Member territory and that the ordi nary meaning of the word "scale" incorporates the
notion of a comparative assessment. Whether an individual case is on a commercial scale can only be
determined case-by-case, taking account of all rele vant circumstances, including the potential impact
of digitally-based technologies. 468 This can include infringement activities with no financial
advantage for the infringer, which nevertheless have substantial prejudicial impact on the right holder
because of the availability of infringing material on digital networks.469

458 China's first written submission, paras 67-71, China's first oral statement, paras 26-27.
459 China's first written submission, paras 90, 92 and 98-101.
460 China's second written submission, paras 102-107.
461 China's first written submission, paras 104-108 and 109-116; China's second written submission,
paras 116-134.
462 United States' first written submission, paras 143-150.
464 China's first written submission paras 35-37; rebuttal submission, para. 32.
465 China's first written submission, paras 141 and 139.
466 China's rebuttal submission, paras 42-46.
467 Argentina's third party written submission, paras 20 and 23.
468 Australia's third party written submission, paras 18-19, supporting the definition suggested in the
United States' first written submission, para. 110.
469 Australia's third party written submission, para. 16, Australia's response to Third Party Question
No. 6.

7.486 Brazil argues that an interpretation of "commercia l scale" must give meaning to both terms in
this expression, which combine "order of magnitude" with the purpose of obtaining financial gains.
Therefore, Brazil considers that Article 61 establis hes a two-pronged minimum standard that requires
Members to provide for criminal procedures and pena lties at least for wilful trademark and copyright
infringements that involve profit-seeking motivation and significant amounts of infringing goods.470
7.487 Canada argues that China's authorities are precluded from applying criminal sanctions in
many cases of wilful trademark counterfeiting or copyright piracy on a commercial scale because
China's thresholds are arbitrary, too high and infl exible. The concept of "commercial scale" includes
different factors. It relates to more than ju st industrial production and includes cases of wilful
trademark counterfeiting and copyright piracy undert aken on sufficient scale to constitute the pursuit
of profit or the carrying out of a business. This is a qualitative test and requires discretion in order to
consider the circumstances of a given case. While negligible volumes of counterfeit would probably
not qualify, the wilful reproduction of hundreds of pirated copies for the equivalent value of
thousands of dollars in sales revenue would, by any objective measure, be infringing on a commercial
scale. This would be especially true in China where annual GDP per capita is just US$2,500 and
57 million people earn less than US$125 per year. Wh ile Article 61 does not require prosecution of
each case of wilful trademark counterfeiting and co pyright piracy on a commercial scale, it does
require Members to be in a position to do so, when circumstances merit the ex ercise of prosecutorial
discretion.471
7.488 The European Communities argues that Article 61 singles out two types of infringements
because they have a particular potential of harming right holders. Therefore, "on a commercial scale"
must comprise all activities with a particular poten tial for harm which results from them pertaining to
a business or profit generation. Quantitative thres holds alone are not enough to capture aspects of
professional organization or systematic cooperation. In order to capture all infringements on a
commercial scale, criminal enforcement authorities must be able to take into account additional
factors such as indications of business organi zation or profit orientation of an activity. 472 The
European Communities further argues that, because it provides for criminal procedures and penalties
"to be applied", the first sentence of Article 61 oblig es Members not just to criminalize, but also to
prosecute the activities mentioned therein.473
7.489 Japan argues that while quantitative thresholds could identify many instances of "commercial
scale" counterfeiting they would not capture count erfeiting activities of limited value or smaller
quantities which are on a "commercial scale" due to additional circumstances, such as their
professional organization or easy repetition. Mere quantification of "commercial scale" does not
capture all instances of commercial scale counterfe iting, and additional qualitative elements need to
be taken into account in order to consider such organizational characteristics of an activity.474
7.490 Korea argues that China's thresholds arbitr arily carve out certain IPR crimes from the
possibility of criminal sanction and are theref ore inconsistent with the TRIPS Agreement.
"Commercial scale" represents a level of magnitude that is realized by operating or maintaining a
business activity, large or small, for the purpose of gaining financial return through IPR infringement
in a somewhat systematic fashion. Therefore, an ybody engaging in a business activity by infringing

470 Brazil's third party written submission, paras 35-38
471 Canada's third party written submission, paras 4-8 and 11.
472 European Communities' third party oral statement, paras 10 and 14.
473 European Communities' third party written submission, para. 10-11; European Communities'
response to Third Party Question No. 10,
474 Japan's third party written submission, paras 17 and 30; Japan's third party oral statement, para. 13.

IPRs and realizing a financial return, regardless of the alleged amount at issue, should be regarded as
violating IPRs on a "commercial scale".475
7.491 Mexico submits that the concept of "commercial scale" encompasses activities that go beyond
casual or occasional infringements that are not made for the purpose of generating revenue. In that
context, the word "scale" is not necessarily bound to conditions of magnitude, but alternatively to that
of quality. Mexico further submits that small scal e activity is "clearly meaningful" as it contributes to
the chain of infringement.476
7.492 Chinese Taipei submits that "commercial scale" is an abstract legal concept that involves
multiple factors of local circumstan ces, such as nature of the infringed rights, value and price in the
market, motive and purpose of act, method and scal e of infringement, damage caused, profit gained,
cultural background, advancement of modern tec hnology and living standards, that need to be
considered on a case-by-case basis.477
7.493 Thailand argues that, as there is no definition of "commercial scale" in the TRIPS Agreement,
this constitutes a built-in flexibility recognizing th e different legal systems of Members. Every
Member can adopt the interpretation it deems appropriate.478
(c) Consideration by the Panel
(i) Nature of the claim
7.494 The United States' claim relates to cases of wilful trademark counterfeiting and copyright
piracy in respect of which China does not provide for criminal procedures and penalties to be applied
but which the United States claims are "on a commercial scale". 479 The claim is based on two alleged
"fundamental problems" referred to in this Report as the two limbs of this cl aim. The first limb
concerns the level and method of calculation of th e thresholds. By specifying certain levels, the
thresholds allegedly eliminate whole classes of counterfeiting and piracy from risk of criminal
prosecution and conviction. 480 The second limb concerns the limited set of numerical tests in the
thresholds. By focussing solely on these tests, the thresholds allegedly require law enforcement
officials to disregard other indicia of counterfeiting and piracy.481
7.495 The Panel notes that the first limb of the claim addresses the numbers specified in the
numerical tests, and the way in which some of th em are calculated, in order to show that the
thresholds are too high. These ar e quantitative issues. The second lim b addresses certain factors that
the numerical tests do not take into account. These are qualitative issues. Neither limb is a broad
claim that numerical thresholds cannot capture all cases "on a commercial scale". In response to the
Panel's requests for clarification of the claim after both the first and the second substantive meetings,
the United States clarified that it did not object to the use of numerical thresholds per se. 482

475 Korea's third party written submission, paras 20 and 27; Korea's third party oral statement, para. 6.
476 Mexico's third party written submission, paras 10; Mexico's third party oral statement, paras 6-7.
477 Chinese Taipei's third party written submission, para. 21; Chinese Taipei's third party oral statement,
para. 11.
478 Thailand's third party oral statement, para. 3.
479 United States' first written submission, paras 116 and 143.
481 United States' first oral statement, para. 36; first oral statement (closing statement), para. 16.
482 United States' responses to Questions Nos. 25 and 54. It seems pertinent to note that during the
negotiations of the terms of China's accession to the WTO, some members of the Working Party took a similar
position. In particular, they expressed concerns that the monetary thresholds were very high and seldom met.
They considered that those thresholds should be lowered: see the Working Party Report, para. 304. China

Accordingly, the Panel is not asked to consider whether numerical thresholds, as a matter of principle,
can implement an obligation in terms of cases "on a commercial scale".
7.496 Therefore, in its assessment of this claim, the Panel will proceed as follows:
(a) with respect to the first limb of th e claim, the Panel will assess whether the levels in
China's thresholds are too high to capture all cases on a commercial scale; and
(b) with respect to the second limb of the claim, the Panel will assess whether the other
factors raised by the United States can be take n into account by China's thresholds to
capture all cases on a commercial scale and, if not, whether this is a TRIPS
requirement.
(ii) Procedural issues
7.497 China argues that the United St ates bears "a significantly higher burden [of proof] than it
would normally encounter" because this claim concerns criminal law matters. China argues that the
Panel should treat sovereign jurisdiction over po lice powers as a powerful default norm, departure
from which can be authorized only in light of ex plicit and unequivocal consent of State parties.
483
China later clarified that it was not referring to a factual burden of proof but rather to the inability of
the United States to provide the evidence to support its legal interpretation of Article 61 of the TRIPS
Agreement.484 China also argues for the application of the "interpretative canon" of in dubio mitius
which, it submits, has a particular justification in the realm of criminal law.485
7.498 The United States responds that th e fact that Article 61 of th e TRIPS Agreement touches on
criminal law does not change the provisions of Article 3.2 of the DSU or the customary rules of treaty
interpretation reflected in the Vienna Conventio n on the Law of Treaties ("Vienna Convention").
486
In this dispute, the meaning of "commercial s cale" is reached through the general rule of
interpretation in Article 31 of the Vienna Conventio n. There is no "doubt" which is a precondition of
reliance on the concept of in dubio mitius.487
7.499 The Panel notes that this claim is brought u nder Article 61 of the TRIPS Agreement, which
concerns criminal procedures and penalties.488 Article 64.1 of that Agreement provides that:
"The provisions of Articles XXII and XX III of GATT 1994 as elaborated and applied
by the Dispute Settlement Understanding shall apply to consultations and the
settlement of disputes under this Agreement except as otherwise specifically provided
herein."
7.500 The application of the rules and procedures of the DSU to the settlement of disputes under the
TRIPS Agreement is confirmed by Article 1.1 of the DSU, in conjunction with Appendix 1 of the
DSU which lists the TRIPS Agreement as a "covered agreement". In accordance with Article 3.2 of
the DSU, the Panel applies "the customary rules of interpretation of public in ternational law" to its
task of interpreting the TRIPS Agreement in this dispute. The general rule of interpretation,

subsequently reduced certain thresholds with the adoptio n of Judicial Interpretation No. 19 [2004]: see United
483 China's first written submission, paras 49-59.
484 China's first oral statement (closing statement), paras 4-7.
485 China's rebuttal submission, paras 51-56.
486 United States' rebuttal submission, paras 63-67.
488 Despite use of the word "remedie s" in the second and third senten ces, it seems clear that criminal
sanctions are "penalties".

expressed in Article 31 of the Vienna Conventi on, and the rules on supplementary means of
interpretation in Article 32 of the Vienna Convention, have attained the status of rules of customary or
general international law.489 The Panel will apply the general rule of interpretation and, to the extent
warranted, supplementary means of interpretation. The Panel is mindful that Article 3.2 of the DSU
also provides that "recommendations and rulings of th e DSB cannot add to or diminish the rights and
obligations provided in the covered agreements".
7.501 The Panel acknowledges the sensitive nature of criminal matters and attendant concerns
regarding sovereignty. These concerns may be exp ected to find reflection in the text and scope of
treaty obligations regarding such matters as negotiated by States and other Members. 490 Section 5 of
Part III of the TRIPS Agreement, dedicated to cr iminal procedures and remedies, is considerably
briefer and less detailed than the other Sections on en forcement in Part III. Brief as it is, the text of
Section 5 also contains significant limitations and flexibilities. The customary rules of treaty
interpretation oblige the treaty interpreter to take these limitations and flexibilities into account in
interpreting the relevant provision.
(iii) Nature of the obligation
7.502 This claim is brought under the first senten ce of Article 61 of the TRIPS Agreement.
Article 61 constitutes the whole of Section 5 of Part III of that Agreement and provides as follows:
"SECTION 5: CRIMINAL PROCEDURES

Article 61

Members shall provide for criminal procedur es and penalties to be applied at least in
cases of wilful trademark counterfeiting or copyright piracy on a commercial scale.
Remedies available shall include imprisonment and/or monetary fines sufficient to
provide a deterrent, consistently with the level of penalties applied for crimes of a
corresponding gravity. In appropriate cases, remedies available shall also include the
seizure, forfeiture and destruction of th e infringing goods and of any materials and
implements the predominant use of which has been in the commission of the offence.
Members may provide for criminal procedur es and penalties to be applied in other
cases of infringement of intellectual propert y rights, in particular where they are
committed wilfully and on a commercial scale."
7.503 The first sentence of this Article uses the word "sha ll", indicating that it is mandatory. This
stands in contrast to the fourth sentence, which addresses the same issue with respect to other cases of
infringement of intellectual property rights but uses the word "may", indicating that it is permissive.
Unlike the third sentence, the first sentence contains no language such as "in appropriate cases" which
might expressly introduce some margin of discretion. The terms of the first sentence of Article 61,
read in context, impose an obligation.
7.504 This interpretation is confirmed by Artic le 41 of the TRIPS Agreement on "General
Obligations", which is the first provision of Part III of the TRIPS Agreement and forms part of the
context of Article 61. Article 41.1 provides, relevantly, as follows:
"Members shall ensure that enforcement pr ocedures as specified in this Part are
available under their law so as to permit effective action against any act of

489 Appellate Body Reports in US – Gasoline, at p. 17; and Japan – Alcoholic Beverages II, at p. 10.
490 Articles 3, 4 and 41, in particular paragraph 4, of the TRIPS Agreement inter alia also apply to
criminal enforcement procedures.

infringement of intellectual property rights covered by this Agreement, including
expeditious remedies to prevent infri ngements and remedies which constitute a
deterrent to further infringements."
7.505 In the Panel's view, the general obligation in Article 41.1 confirms that Article 61 contains
obligations, as one of the specific provisions on enforcement procedures in Part III.
7.506 China submits that the first sentence of Ar ticle 61 cannot set forth a specific obligation
because it provides for enforcement against certain types of infringement but neither the TRIPS
Agreement nor the Berne Convention (1971) define what constitutes substantive infringement.
Rather, they defer to national discretion to define the rights being infringed.491
7.507 The Panel agrees with China that the first sentence of Article 61 contains a number of terms
that are not defined by the Agreement and that this can affect the proper interpretation of the
provision. However, even though the first sentence does not use the term "infringement", it is
important to note that Part II of the TRIPS Agreement, including the provisions of the Paris
Convention (1967) incorporated by Article 2.1, and the provisions of the Berne Convention (1971)
incorporated by Article 9.1, provide for minimum standards concerning the availability, scope and use
of intellectual property rights that apply irresp ective of national treatment. These provisions define
the rights conferred by intellectual property and the circumstances in which those rights are infringed.
Part III of the TRIPS Agreement provides for the en forcement of those rights, to varying degrees.
Therefore, the Agreement contains substantive oblig ations that are not simply matters of national
discretion.
7.508 China submits that Article 61 of the TRIPS Agreement is less specific than the Anti-Dumping
Agreement and the Agreement on Subsidies and Countervailing Measures and lacks the clarity
required to demonstrate a specific, concrete obliga tion. China also argues that the TRIPS Agreement
lacks a provision such as Article 18.4 of the Anti-Dumping Agreement requiring Members to take
steps to ensure the conformity of their laws with its provisions.492
7.509 The Panel agrees that the TRIPS Agreement differs from trade remedy agreements. However,
the Panel will apply the usual rules of treaty interp retation to the terms used in the TRIPS Agreement
and make its assessment on that basis in accordance with Article 11 of the DSU. The Panel draws
China's attention to Article XVI:4 of the WTO Agreement which provides as follows:
"Each Member shall ensure the conformity of its laws, regulations and administrative
procedures with its obligations as provided in the annexed Agreements."
7.510 The "annexed Agreements" include the TRIPS Ag reement. Therefore, Members are obliged
to ensure conformity of their respective laws w ith their respective obligations as provided in the
TRIPS Agreement.
7.511 China submits that the third sentence of Artic le 1.1 of the TRIPS Agreement sets forth the
overall context for interpreting the specificity of the standards in the TRIPS Agreement. It describes
Article 1.1 as a specific "caveat" that establishes boundaries on obligations, specifically in the realm
of enforcement.493
7.512 The Panel observes that Article 1.1 of the TRIPS Agreement provides as follows:

491 China's first written submission, paras 80-82.
492 China's first written submission, paras 83-87.
493 China's first written submission, paras 89-97.

"Members shall give effect to the provisi ons of this Agreement. Members may, but
shall not be obliged to, implement in thei r law more extensive protection than is
required by this Agreement, provided that such protection does not contravene the
provisions of this Agreement. Members sh all be free to determine the appropriate
method of implementing the provisions of this Agreement within their own legal
system and practice."
7.513 The first sentence of Article 1.1 sets out the basic obligation that Members "shall give effect"
to the provisions of this Agreement. This means th at the provisions of the Agreement are obligations
where stated, and the first sentence of Article 61 so states. The second sentence of Article 1.1
clarifies that the provisions of the Agreement ar e minimum standards only, in that it gives Members
the freedom to implement a higher standard, subject to a condition. The third sentence of Article 1.1
does not grant Members freedom to implement a lo wer standard, but rather grants freedom to
determine the appropriate method of implementation of the provisions to which they are required to
give effect under the first sentence. The Pane l agrees that differences among Members' respective
legal systems and practices tend to be more important in the area of enforcement. However, a
coherent reading of the three sentences of Article 1.1 does not permit differences in domestic legal
systems and practices to justify an y derogation from the basic obligation to give effect to the
provisions on enforcement.
7.514 Therefore, the standard of compliance with Ar ticle 61 is the minimum internationally agreed
standard set out in that Article. The minimum standard in Article 61 does not defer to China's
domestic practice on the definition of criminal liabili ty and sanctions for other wrongful acts in areas
not subject to international obligations under the TRIPS Agreement, unless it so states. For example,
the second sentence refers to "crimes of a corres ponding gravity" which might refer to domestic
practice in other areas. However, the first sentence of Article 61 does not make any such reference.
7.515 For the above reasons, the Panel confirms its view at paragraphs 7.503 to 7.505 above that the
first sentence of Article 61 of the TRIPS Agreement imposes an obligation. The Panel will now turn
to the terms used in that provision, read in context and in light of the object and purpose of the
Agreement, to determine the scope and content of that obligation.
(iv) Scope of the obligation
7.516 The terms of the obligation in the first sentence of Article 61 of the TRIPS Agreement are that
Members shall "provide for criminal procedures and penalties to be applied". That obligation applies
to "wilful trademark counterfeiting or copyright pi racy on a commercial scale". Within that scope,
there are no exceptions. The obligation applies to all acts of wilful trademark counterfeiting or
copyright piracy on a commercial scale.
7.517 The Panel recalls its conclusion at paragraph 7.479 above that, in China, acts of trademark
and copyright infringement falling below the appli cable thresholds are not subject to criminal
procedures and penalties. The issue that arises is whether any of those acts of infringement constitute
"wilful trademark counterfeiting or copyright piracy on a commercial scale" within the meaning of the
first sentence of Article 61. This requires the Panel to consider the interpretation of that phrase.
7.518 The Panel notes that the first sentence of Article 61 contains no fewer than four limitations on
the obligation that it sets forth. These define the scope of the relevant obligation and are not
exceptions. The first limitation is that the obligation applies to trademarks and copyright rather than
to all intellectual property rights covered by the TRI PS Agreement. The fourth sentence of Article 61
gives Members the option to criminalize other infringements of intellectual property rights, in
particular where they are committed wilfully and on a commercial scale. Despite the potential gravity
of such infringements, Article 61 creates no obligati on to criminalize them. This can be contrasted

with Sections 2 and 3 of Part III of the TRI PS Agreement, regarding civil and administrative
procedures and remedies, which apply to any act of infringement of intellectual property rights
covered by the Agreement. It can also be cont rasted with Section 4 of Part III which attaches
conditions to the option to apply its procedures to other infringements of intellectual property
rights.494
7.519 The second limitation in the first sentence of Article 61, which is related to the first, is that it
applies to counterfeiting and piracy rather than to all infringements of trademarks and copyright. This
can also be contrasted with Sections 2 and 3 of Pa rt III of the TRIPS Agreement. This limitation, like
the first, indicates an intention to reduce the scope of the obligation. Indeed, the records of the
negotiation of the TRIPS Agreement confirm that the term "infringements of trademarks and
copyright" on a commercial scale was considered in the draft provision on criminal procedures but
ultimately rejected.495
7.520 The terms "trademark counterfeiting" and "copy right piracy" are not defined in the TRIPS
Agreement. They are distinct from the concepts of "trademark infringement" and "copyright
infringement". They are similar to the terms "counterfeit trademark goods" and "pirated copyright
goods" which are defined for the purposes of the TRIPS Agreement496 in footnote 14 as follows:
"For the purposes of this Agreement:
(a) 'counterfeit trademark goods' shall mean any goods, including packaging,
bearing without authorization a trademark which is identical to the trademark validly
registered in respect of such goods, or which cannot be distinguished in its essential
aspects from such a trademark, and which th ereby infringes the rights of the owner of
the trademark in question under the law of the country of importation;
(b) 'pirated copyright goods' shall mean any goods which are copies made
without the consent of the right holder or person duly authorized by the right holder
in the country of production and which are made directly or indirectly from an article
where the making of that copy would have constituted an infringement of a copyright
or a related right under the law of the country of importation."
7.521 The terms used in the first sentence of Artic le 61 denote classes of acts or activity whilst the
terms used in footnote 14 denote classes of goods only. This reflects the fact that Article 61 provides
for criminal enforcement against infringing acts whilst Section 4 of Part III (in which the terms
defined in footnote 14 are used) provides for enforc ement at the border against infringing goods. The
definitions in footnote 14 also refer to the law of the country of "importation" whilst Article 61 relates
to the law of the Member to which the obligation applies – generally speaking, the law of the Member
where the infringing act occurs. Subject to these ob servations, the Panel considers that the definitions
in footnote 14 are relevant in understanding the terms used in Article 61.
7.522 The United States does not claim that Articles 213, 214, 215, 217 and 218 of the Criminal
Law fail to cover the full extent of the terms "t rademark counterfeiting" and "copyright piracy" as

494 See paragraph 7.223 above.
495 The Panel has recourse to this supplementary mean s of interpretation in accordance with Article 32
of the Vienna Convention in order to confirm the meaning resulting from the application of the general rule of
interpretation in Article 31. See, for example, the Chairman's draft text of 23 July 1990 (document
MTN.GNG/NG11/W/76).
496 The terms "counterfeit trademark goods" and "pir ated copyright goods" are used not only in
Section 4 of Part III but also in Article 69 of the TRIPS Agreement. The identical term "counterfeit trademark
goods" is also used in Article 46.

used in Article 61 of the TRIPS Agreement. 497 China does not contest that each of the thresholds
established by the Criminal Law, in particular Articles 213, 214, 215, 217 and 218, applies to acts of
"trademark counterfeiting" and "cop yright piracy". Therefore, it is unnecessary for the Panel to
interpret those terms in greater detail at this stage.
7.523 The third limitation in the first sentence of Artic le 61 is indicated by the word "wilful" that
precedes the words "trademark counterfeiting or copyri ght piracy". This word functions as a qualifier
indicating that trademark counterfeiting or copyright pi racy is not subject to the obligation in the first
sentence of Article 61 unless it is "wilful". This word, focussing on the infringer's intent, reflects the
criminal nature of the enforcement procedures at issu e. It is absent from Section 4 of Part III, even
though that Section is similarly limited, as a mi nimum, to counterfeit tr ademark goods and pirated
copyright goods. The penalties for criminal acts, such as imprisonment, fines and forfeiture of
property, are relatively grave, as reflected in the second sentence of Article 61. There is no obligation
to make such penalties available w ith respect to acts of infringement committed without the requisite
intent.
7.524 The fourth limitation in the first sentence of Article 61 is indicated by the phrase "on a
commercial scale" that follows the words "trademark counterfeiting or copyright piracy". This phrase,
like the word "wilful", appears to qualify both "t rademark counterfeiting" and "copyright piracy".
The limitation to cases on a commercial scale, like the limitation to cases of wilfulness, stands in
contrast to all other specific obligations on enforcement in Part III of the TRIPS Agreement.498
7.525 The principal interpretative point in dispute is the meaning of the phrase "on a commercial
scale". This phrase functions in context as a qualifie r, indicating that wilful trademark counterfeiting
or copyright piracy is included in the scope of the obligation provided that it also satisfies the
condition of being "on a commercial scale". Acco rdingly, certain acts of wilful trademark
counterfeiting or copyright piracy are excluded from the scope of the first sentence of Article 61.
7.526 Despite the fact that trademark counterfeiting an d copyright piracy infringe the rights of right
holders, and despite the fact that they can be gr ave, the two qualifications of wilfulness and "on a
commercial scale" indicate that Article 61 does not require Members to provide for criminal
procedures and penalties to be applie d to such counterfeiting and piracy per se unless they satisfy
certain additional criteria. This is highlighted by the fourth sentence of Article 61, which allows
Members to provide for criminal procedures and penalties to be applied in other cases of
infringement, "in particular" where they are committed wilfully and on a commercial scale. This
indicates that the negotiators considered cases of wilful infringement on a commercial scale to
represent a subset of cases of infringement, comprising the graver cases. This is useful context for
interpreting the first sentence of Article 61, even th ough it does not refer to "infringement" in general,
because the first sentence refers to both "counterfeiting" and "piracy" and wilfulness and commercial
scale, evidently to limit the cases of infringement in di fferent ways. Therefore, the text of Article 61
indicates that it must not be assumed that the nature of counterfeiting and piracy per se is such that
Members are obliged to provide for the application of criminal procedures and penalties.
7.527 This is consistent with the nature of the obligation, being a minimum standard, as expressly
confirmed by the use of the words "at least" in the fi rst sentence of Article 61 and, more generally, by
the second sentence of Article 1.1, quoted at para graph 7.512 above. Members may, and many do,
criminalize other acts of trademark counterfeiting, other acts of copyright piracy, other acts of
infringement of trademarks and copyright, and act s of infringement of other intellectual property
rights such as patents, but there is no obligation to do so under the TRIPS Agreement.

497 United States' first written submission, paras 101 and 106.
498 Section 4 contains a de minimis exception, discussed at paragraph 7.553 below.

7.528 Part III of the TRIPS Agreement distinguishes between the treatment of wilful trademark
counterfeiting and copyright piracy on a comme rcial scale, on the one hand, and all other
infringements of intellectual property rights, on the other hand, in that only the former are subject to
an obligation regarding criminal procedures and pe nalties. This indicates the shared view of the
negotiators that the former are the most blatant a nd egregious acts of infringement. This view must
inform the interpretation of Article 61.
7.529 The Panel recalls its findings at paragraph 7.241 above as to the circumstances of conclusion
of the TRIPS Agreement with resp ect to enforcement procedures. Whilst some of the pre-existing
international intellectual property agreements or c onventions contain provisions on the characteristics
of enforcement mechanisms, it is striking that none of them create any specific minimum standard for
criminal enforcement procedures.
499 Among the international intell ectual property agreements with
wide membership, Article 61 of the TRIPS Agreement is, in this sense, unique.
7.530 This reflects, in part, the fact that intellect ual property rights are private rights, as recognized
in the fourth recital of the Preamble to the TRI PS Agreement. In contrast, criminal procedures are
designed to punish acts that transgress societal valu es. This is reflected in the use of the word
"penalties" in Article 61.
7.531 Bearing in mind these aspects of the context of the first sentence of Article 61, and the object
and purpose of the TRIPS Agreement, the Panel now turns to the ordinary meaning of the words "on a
commercial scale".
(v) "on a commercial scale"
7.532 The parties adopt different approaches to the task of interpreting the phrase "on a commercial
scale". The Panel will examine each of these appr oaches in turn, beginning with that of the
complainant.
7.533 The ordinary meaning of the word "scale" is unc ontroversial. It may be defined as "relative
magnitude or extent; degree, proportion. Freq. in on a grand, lavish, small, etc. scale".500 The
ordinary meaning of the word includes both the concep t of quantity, in terms of magnitude or extent,
as well as the concept of relativity. Both concep ts are combined in the notions of degree and
proportion. Therefore, a particular "scale" compares certain things or actions in terms of their size.
Some things or actions will be of the relevant size and others will not.
7.534 The relevant size is indicated by the word "commercial". The ordinary meaning of
"commercial" may be defined in various ways. The following two definitions have been raised in the
course of these proceedings:
"1. Engaged in commerce; of, pertaining to, or bearing on commerce.
2. (…)
3. Interested in financial return rather than artistry; likely to make a profit; regarded
as a mere matter of business."501

499 The Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of
their Phonograms, Article 3, expressly provides that each Contractin g State may implement the Convention by
means of penal sanctions.
500 New Shorter Oxford English Dictionary (1993). Mexico notes a definition in Spanish that refers to
degree, but that is not apposite in context: see Mexico's third party oral statement, fn. 8.
501 New Shorter Oxford English Dictionary (1993).

7.535 The Panel considers the first definition to be apposite. It includes the term "commerce" which
may, in turn, be defined as "buying and selling; the exchange of merchandise or services, esp. on a
large scale". 502 Reading this definition into the definition of "commercial" indicates that
"commercial" means, basically, engaged in buying and selling, or pertaining to, or bearing on, buying
and selling. 503 A combination of that expanded definiti on of "commercial" and the definition of
"scale" would render a meaning in terms of a relati ve magnitude or extent (of those) engaged in
buying and selling, or a relative magnitude or extent pertaining to, or bearing on, buying and selling.
This draws a link to the commercial marketplace.
7.536 The United States also submits that the wo rd "commercial" scale draws a link to the
commercial marketplace. However, it refers to elements of the first and third meanings in
definition 3., but dismisses the relevance of the s econd meaning, "likely to make a profit", because it
is different from the other two.504
7.537 The Panel notes that the third definition, which includes the qualifiers "rather than artistry"
and "mere", refers to usages such as a "commerc ial artist", "commercial film" or "commercial
writing" in the sense of those who are more interested in financial return than the artistic merit of a
work, works that are of such a natu re that they are likely to make a profit and works that are regarded
as a mere matter of business rather than as expressions of other values. This definition is not apposite
in the first sentence of Article 61.
7.538 Therefore, the Panel considers that the first definition set out at paragraph 7.534 above is
appropriate. However, the combination of that de finition of "commercial" with the definition of
"scale" presents a problem in that scale is a quantitative concept wh ilst commercial is qualitative, in
the sense that it refers to the nature of certain acts. Some acts are in fact commercial, whilst others are
not. Any act of selling can be described as commercial in this primary sense, irrespective of its size or
value. If "commercial" is simply read as a qualit ative term, referring to all acts pertaining to, or
bearing on commerce, this would read the word "scal e" out of the text. Acts on a commercial scale
would simply be commercial acts. The phrase "on a commercial scale" would simply mean
"commercial". Such an interpretation fails to give meaning to all the terms used in the treaty and is
inconsistent with the rule of effective treaty interpretation.505
7.539 There are no other uses of the word "scale" in the TRIPS Agreement, besides the first and
fourth sentences of Article 61. However, the wider context shows that the TRIPS Agreement
frequently uses the word "commercial" with many other nouns, although nowhere else with "scale".
The other uses of the word "commercial" include "commercial rental" 506, "commercial purposes" 507,
"commercial exploitation" 508 , "commercial terms" 509 , "public non-commercial use" 510 , "first
commercial exploitation" 511 , "honest commercial practices" 512 , "commercial value" 513 , "unfair
commercial use"514, "non-commercial nature"515 and "legitimate commercial interests".516

502 Ibid.
503 The Panel also observes that the definition of "commerce" itself expressly includes a notion of
"scale", but this appears to refer to commerce in a gene ral sense, such as "trade and commerce", which does not
appear apposite within the word "commercial".
504 See United States' first written submission, paras 109, 110 and 123.
505 See, for example, Appellate Body Reports in US – Gasoline, at p. 23; Japan – Alcoholic
Beverages II, at p. 12.
506 Articles 11 and 14.4 of the TRIPS Agreement.
507 Articles 26.1 and 36 of the TRIPS Agreement.
508 Article 27.2 of the TRIPS Agreement.
509 Article 31(b) of the TRIPS Agreement.
510 Article 31(b) and (c) of the TRIPS Agreement.
511 Article 38.1 and 38.2 of the TRIPS Agreement.

7.540 The provisions of the Paris Convention (1967) incorporated by Article 2.1 of the TRIPS
Agreement include uses of the word "commerc ial" in the phrase "industrial or commercial
establishment" (in the singular or plural) 517 and in the phrases "industrial or commercial matters" and
"industrial or commercial activities". 518 The provisions of the Berne Convention (1971) incorporated
by Article 9.1 of the TRIPS Agreement include the phrase "any commercial purpose". 519 The
provisions of the IPIC Treaty incorporated by Article 35 of the TRIPS Agreement include the phrase
"commercially exploited" and "exploits ordinarily commercially".520
7.541 The context shows that the negotiators chose to qualify certain activities, such as rental,
exploitation and use, as "commercial". They also chose to qualify various nouns, such as "terms",
"value", "nature" and "interests", as "commercial" or "non-commercial". In a similar way, they could
have agreed that the obligation in the first sente nce of Article 61 would apply to cases of wilful and
"commercial" trademark counterfeiting or copyright piracy. This would have included all commercial
activity. Indeed, the records of the negotiation of the TRIPS Agreement show that this formulation
was in fact suggested (by the United States) at an early stage. 521
7.542 The context shows that the negotiators used the term "commercial purposes" in two
provisions on the scope of protection of certain cate gories of intellectual property rights, and that the
Appendix to the Berne Convention (1971) already did use that term in the singular in provisions on
possible limitations to particular rights. However, the negotiators did not agree that the obligation in
the first sentence of Article 61 would apply to cases of wilful trademark counterfeiting or copyright
piracy "for commercial purposes". This would have included all activity for financial gain or profit.
7.543 Instead, the negotiators agreed in Article 61 to use the distinct phrase "on a commercial
scale". This indicates that the word "scale" was a deliberate choice and must be given due
interpretative weight. "Scale" denotes a relative size, and reflects the intention of the negotiators that
the limitation on the obligation in the firs t sentence of the Article depended on the size of acts of
counterfeiting and piracy. Therefore, whilst "comme rcial" is a qualitative term , it would be an error
to read it solely in those terms. In context it must indicate a quantity.522
7.544 A review of the uses of the word "commercia l" throughout the TRIPS Agreement indicates
that it links various activities, not simply selling, to the marketplace. It also shows that "commercial"
activities cannot be presumed to be on a larger sc ale than others, such as "public non-commercial"
activities, even though they would generally be larg er than, say, "personal" or "domestic" use. The
distinguishing characteristic of a commercial activity is that it is carried out for profit. 523 The review

512 Article 39.2 of the TRIPS Agreement.
513 Article 39.2(b) of the TRIPS Agreement.
514 Article 39.3 of the TRIPS Agreement.
515 Article 60 of the TRIPS Agreement.
516 Article 63.4 of the TRIPS Agreement.
517 Articles 3, 5C(3), 6 quinquiesA(2) and 7 bis(1)) of the Paris Convention (1967). This phrase also
appears in footnote 1 to the TRIPS Agreement.
518 Article 10bis of the Paris Convention (1967).
519 Articles II(9)(a)(iv) and IV(4)(c)(iii) of the Appendix to the Berne Convention (1971).
520 Article 7(1) and (2), of the IPIC Treaty.
521 The United States suggested in October 1988 a pr ovision applying to trademark counterfeiting and
copyright infringement that were "wilful and commercial" (see document MTN.GNG/NG11/W/14/Rev.1). This
suggestion was not taken up. A later US proposal, li ke certain other proposals, used the phrase "on a
commercial scale" (see document MTN.GNG/NG11/W/70).
522 The Panel is not required, for the purposes of this claim, to express a view as to whether
"commercial" also indicates certain qualitative factors, such as a profit-seeking purpose.
523 At the same time, some activities – such as experimentation – may be conducted in the course of
business or in connection with a business without a specific profit-making purpose.

of the uses of the word "commercial" also shows that, unlike all the others, Article 61 uses the word
"commercial" to qualify a notion of size.
7.545 In the Panel's view, the combination of the primary definition of "commercial" and the
definition of "scale" can be reconciled with the context of Article 61 if it is assessed not solely
according to the nature of an activity but also in terms of relative size, as a market benchmark. As
there is no other qualifier besides "commercial", th at benchmark must be whatever "commercial"
typically or usually connotes. In quantitative terms, the benchmark would be the magnitude or extent
at which engagement in commerce, or activities pertaining to or bearing on commerce, are typically or
usually carried on, in other words, the magnitude or extent of typical or usual commercial activity.
Given that the phrase uses the indefinite article "a", it refers to more than one magnitude or extent of
typical or usual commercial activity. The magnitude or extent will vary in the different "cases" of
counterfeiting and piracy to which the obligation appli es. In the Panel's view, this reflects the fact
that what is typical or usual varies according to the type of commerce concerned.
7.546 Turning to the arguments of the parties and va rious third parties on this point, they have
attempted to give due meaning to both the terms "c ommerce" and "scale" in different ways. Initially,
the United States submitted as follows:
"those who engage in commercial activities in order to make a 'financial return' in the
marketplace … are, by definition, therefore operating on a commercial scale" 524
7.547 Similarly, Canada submitted that "commercia l scale" refers to activities undertaken with a
view to profiting. 525 The European Communities submitted that the terms "commercial" and "scale"
denote activities that pertain to a business or to the generation of profits".526
7.548 The Panel considers these interpretations unsatis factory, as they seem to equate "commercial
scale" with "commercial purpose" or merely "commercial", which are not the term used in Article 61.
7.549 The United States then clarified that it does not read the word "scal e" out of the term
"commercial scale" and added a qualifier or two to its initial position, submitting that:
"an infringer seriously engaged in pursuing financial gain in the marketplace is
necessarily acting on a 'scale' that is 'commercial' and therefore falls within the
ordinary meaning of the term." (emphasis added and removed)527; and
"'commercial scale' certainly extends to those who are genuinely engaged in
commercial activities in order to make a financial return."528 (emphasis added)
7.550 In response to a request for clarification from the Panel, the United States explained:
"The United States has employed the words 'seriously' or 'genuinely' to underscore
that the IPR infringer must be actually e ngaged in pursuing financial gain through
non-trivial commercial activities in the ma rketplace, as opposed to, for example, a
one-off entry into the marketplace of a limited nature.

524 United States' first written submission, para. 110. This submission also interpreted "scale": see
paragraph 7.659 below.
525 Canada's third party written submission, para. 5.
526 European Communities' third party oral statement, paras 4 and 14.
528 United States' closing oral statement at the second substantive meeting, para. 15.

Whether an infringer is 'seriously' or 'g enuinely' engaged in commercial activities
would depend on the facts and circumstances of the activity. (…)" 529
7.551 The Panel understands that this refined approach interprets "commercial scale" as basically
everything that is "commercial" with the exception of some trivial or de minimis activities. It is not
clear how "seriously" and "genuinely" indicate "n on-trivial" activities – if anything, "seriously"
indicates something more important. However, there is no need to consider its meaning further as the
word "seriously" is not used in the terms of the treaty, nor is it implied by the terms that are used.
7.552 Whilst the United States' refined approach has the merit of ensuring that its interpretation of
"commercial scale" does not capture an identical class of acts as the term "commercial purpose", the
difference seems minimal. This refined approach does not read the word "scale" out of the text but
nevertheless it reads the word down to such an extent that it lacks the significance that the negotiators
evidently intended. The negotiators chose the word "scale", which refers to size, rather than other
words that they actually used elsewhere in the Agreement that do not exclude activities on the basis of
size. They also used the word " scale" in the fourth sentence of Artic le 61, together with the term "in
particular", which would be virtually redundant if the sentence simply me ant that Members could
provide for criminal procedures and penalties to be applied "in particular" to more than trivial or
de minimis cases. The context throughout Part III shows that the limitations in Section 5 reflect an
effort to address only the more blatant and egregious infringements.
7.553 As to the view that "on a commercial scale" is basically a de minimis provision, the Panel
need look no further than the preceding provision, Article 60, to see how the negotiators addressed
that issue. Article 60 forms part of Section 4 on special requirements related to border measures and
serves an analogous purpose to the phrase "on a commercial scale" in Article 61 in that both define
the lower end of infringement at which a particular t ype of enforcement procedure must be available.
However, the terms of each are quite different: Article 60 defines de minimis infringement in terms of
volume ("small quantities"), nature ("of a non-commerci al nature") and circumstances ("in travellers'
personal luggage or sent in small consignments") . Had the negotiators wanted to exclude only
de minimis infringement from the minimum standard of Ar ticle 61, they had a model in Article 60, or
they could have used words such as "except for minor or personal use". However, they did not. 530
Instead, Article 61 refers to size ("scale") qualified on ly by the word "commercial". This indicates
that the negotiators intended something different from de minimis. Article 60 also indicates that the
negotiators did not equate small with non-commercial, confirming that a "commercial" scale is not
necessarily small-scale nor large-scale.
7.554 Among the other third parties, Brazil referred to a "significant" or "large" enough level based
on certain factors 531 , Mexico argued for a "meaningful" level 532 ; Korea referred to operating a
business "in a somewhat systematic fashion".533 Canada acknowledged as follows:
"There is perhaps no easily quantifiable measure because none is provided for in
TRIPS. This omission suggests that the test is qualitative: what a reasonable person
would think in the circumstances."
534
7.555 The Panel considers that these interpretations, whilst they may reflect sound domestic policy
considerations, lack a clear basis in the rules of treaty interpretation which the Panel is obliged to

529 United States' response to Question No. 63.
530 Indeed, the United States expressed a similar view in order to explain why a reference to
"exceptional cases" in Article 46 of the TRIPS Agreement is not a de minimis test (see paragraph 7.387 above).
531 Brazil's third party written submission, para. 36.
532 Mexico's third party oral statement, para. 6.
533 Korea's third party written submission, para. 27.
534 Canada's third party written submission, para. 7.

apply. All of these interpretations are valid e xplanations as to why such infringement should be
unlawful but they do not explain why it must be a cr ime. The answer to that question must be found
in the terms of the treaty as finally agreed.
7.556 In this connection it seems pertinent to recall that the negotiators chose a term that was
different from the commercial purpose or financial retu rn standards used in the national legislation of
a number of the participants.
7.557 Turning now to the respondent's approach to the interpretation of "on a commercial scale",
China submits that these words shoul d be interpreted as a single term. 535 The United States proposes
that each of the terms in the two-word term be interpreted and does not submit that there are other
ordinary uses of the phrase that would be relevant.536
7.558 The Panel observes that the general rule of trea ty interpretation in Article 31 of the Vienna
Convention refers in paragraph 1 to the ordinary meaning of the terms of the treaty, read in context.
Where the terms are a single term, or ordinarily used together, then the treaty interpreter should refer
to the ordinary meaning of that single term, or of ea ch term in the particular context of each other.
This is a distinct exercise from that in paragra ph 4 of Article 31 of the Vienna Convention which
requires a "special meaning" to be given to a term if it is established that the parties so intended. No
party to this dispute considers that a "special meaning" should be given to the phrase "on a
commercial scale", and nor does the Panel.
7.559 The Panel will follow the approach explained by the Appellate Body in EC – Chicken Cuts:
"The Appellate Body has observed that dictionaries are a 'useful starting point' for the
analysis of 'ordinary meaning' of a treaty term, but they are not necessarily
dispositive. The ordinary meaning of a tr eaty term must be ascertained according to
the particular circumstances of each case. Importantly, the ordinary meaning of a
treaty term must be seen in the light of the intention of the parties 'as expressed in the
words used by them against the light of the surrounding circumstances'".
537
7.560 The Panel recalls that the dictionary definition of "scale" (quoted at paragraph 7.533 above)
includes the entry "Freq. in on a grand, lavish, small, etc. scale". These examples show that the
phrase "on a … scale" is frequently used. Therefore, the use of the words "o n a commercial scale" as
a phrase appears to be relevant to their ordinary meaning.
7.561 The circumstances surrounding the inclusion of th e phrase "on a commercial scale" show that
the phrase has been used and, in so me cases, defined in the intellectua l property legislation of various
countries for periods stretching back almost a century . Specifically, the patent laws of these countries
refer to the working of inventions, or failure to work inventions, "on a commercial scale".538 The term
is used in relation to the exploitation of protected subject matter, as in Article 61, but the purpose of
these non-working provisions, and the considerations relevant to their operation, are distinct from

535 China's first written submission, paras 69-71.
536 United States' response to Question No. 68.
537 Appellate Body Report in EC – Chicken Cuts , para. 175, quoting Appellate Body Report in US –
Softwood Lumber IV, para. 59, and referring to Appellate Body Reports in US – Offset Act (Byrd Amendment),
para. 248, and US – Gambling, para. 166, and quoting McNair, The Law of Treaties (Oxford, Clarendon Press,
1961), p. 365.
538 See, for example, the Australian Patent Act 1990, s. 135(1) (mentioned in response to Third Party
Question No. 9); Indian Patents Act 1970, ss. 83-84; South African Patent Act 1978, s. 56; United Kingdom
Patent Act 1977-1988, s. 50; Zimbabwean Patents Act 1971, s. 31, in Exhibit CHN-198, and the patent laws of
other Commonwealth countries. Earlier, the United Kingdom Patents and Design Act 1919, s. 27, had referred
to working a patent "on a commercial scale".

those of criminal procedures and penalties as addressed in Article 61 of the TRIPS Agreement. There
is insufficient indication that the meaning ascribed to the term "on a commercial scale" in such
legislation was that intended by the negotiators of the TRIPS Agreement when they used the term in
the first and fourth sentences of Article 61. Howeve r, this circumstance shows the phrase in use in an
intellectual property context long before the negotiation of the TRIPS Agreement.
7.562 The term "on a commercial scale" was also us ed in the specific context of trademark
counterfeiting and copyright piracy in the WIPO Committee of Experts on Measures Against
Counterfeiting and Piracy in 1988 co ntemporaneously with the earlier pa rt of the negotiations of the
TRIPS Agreement. Draft Model Provisions for National Laws set out in a Memorandum by the
International Bureau of WIPO for that Committee in cluded, in Article A(1), (2) and (3), three draft
Model Provisions on manufacturing as an act of counterfeiting, manufacturing as an act of piracy and
additional acts of counterfeiting and piracy, respectively. Each of those draft Model Provisions
contained a proviso that such goods were manufact ured, or the act was co mmitted, "on a commercial
scale". An explanatory observation accompanied the term "commercial scale" as a phrase.
539
7.563 The evidence on the record includes many othe r uses of the words "commercial scale" and
"on a commercial scale" in a variety of contexts. Accordingly, the Panel considers that the words
"commercial" and "scale" provide important context for the ordinary meaning of each other when
used together in the phrase "on a commercial scale" as in the first sentence of Article 61 of the TRIPS
Agreement.
7.564 China submits that the phrase "on a commercial s cale" refers to "a significant magnitude of
infringement activity".
540 China refers to four isolated uses of the phrase "commercial scale" spread
out over a period of forty years: one at the 1947-1948 Havana Conference, one in a 1985 GATT
Council meeting, and two in US national legislation on alternative energy development. From these
uses, China posits an interpretation suggestive of industrial scale activity.541
7.565 The Panel considers that this interpretation is predetermined by the context of the uses that
China has selected, which refer to commercial scale activities at an industrial level. This is inapposite
in the context of Article 61 of the TRIPS Agre ement which applies to acts of infringement of
individual rights, including those subsisting in i ndividual products. This interpretation simply
replaces the term "commercial", that is used in the te xt, with "significant", that is not used in the text,
effectively reading out the term "commercial".
7.566 China also argues that the explanatory ob servation that accompanied the draft Model
Provisions is an example of ordinary usage of the term "commercial scale".542
7.567 The Panel notes that the explanatory observati on did not purport to be a definition but was
prepared by the International Bureau of WIPO for the specific purpose of accompanying a provision
on manufacturing in the draft Model Provisions. The Report of the WIPO Committee of Experts on
Measures against Counterfeiting and Piracy of Apri l 1988 shows that the concept of "commercial

539 That explanatory observation read as follows:
"'Commercial scale' is a notion which will have to be applied taking into consideration the
circumstances accompanying the manufacture. The quantity of the goods ma nufactured, the
way in which they were, are or are intended to be used and the will to make profit are among
the factors that the courts will have to take into consideration."
See WIPO document C&P/CE/2 of 18, 19 February 1988, para. 17, set out in Exhibit CHN-43
540 China's first written submission, para. 64.
541 Exhibits CHN-44, CHN-45, CHN-46 and CHN-47.

scale" proved controversial.543 Accordingly, it is not an example of ordinary usage. In any event, the
draft Model Provisions of the Committee of Experts themselves were never agreed. 544 Therefore, it
would not be appropriate to select an explanatory observation that accompanied them and elevate it to
the status of the proper interpretation of a treaty te xt that was negotiated in another forum and that
was finally agreed.
7.568 Turning to other evidence on the record, two th ird parties contrasted "commercial scale"
production with "pilot scale" productio n or "small scale test" production. 545 The Panel finds these
contrasting terms relevant because they indicate a quantity, and because production can be an act of
counterfeiting or piracy.
7.569 In response to questions from the Panel, China, but not the United States, provided other
examples of ordinary uses of the phrase "commerc ial scale", including in company press releases,
filings with the US Securities and Exchange Commiss ion and patent applications. The United States
argues that these examples are functions of individu als' "own lexicography" and are not used in the
same fashion or manner.
546 The United States also notes that pate nt applications are unrelated to the
first sentence of Article 61 of the TRIPS Agreement.
7.570 The Panel considers that each of the uses on the record, being in the English language,
reflects the understanding of the authors as to the ordi nary meaning of those words and phrases in that
language. That is the reason why a language allo ws its speakers to render themselves mutually
intelligible. These are the very meanings that di ctionaries catalogue. Naturally, words and phrases in
the same language may have more than one mean ing, "common or rare, universal or specialized". 547
It is incumbent on the Panel to assess these usages in context to discern which is relevant to the
question of interpretation at hand, just as the Panel has done when confronted with multiple
definitions of the words "commercial" and "scale" in the same dictionary. The Panel also notes that
Article 61 of the TRIPS Agreement specifically re lates the concept of infringement "on a commercial
scale" to other intellectual property ri ghts, which include patents, in the fourth sentence of that
Article.
7.571 Turning to the ordinary meaning of the term "on a commercial scale", the evidence includes
examples of uses of that precise term and also the words "commercial scale" followed by a noun. It is
not suggested that this changes the meaning. The nouns include "manufacturing", "production",
"facility", "processes", "reactor", "composition" a nd "cultivation", and the term also follows
"manufacture" and "employ". 548 This confirms that the phrase can be used in different contexts as a
single term.
7.572 Some of these nouns, notably manufacturing and production, refer to acts that could constitute
trademark counterfeiting and copyright piracy, a nd are therefore particularly apposite to the
interpretation of the first sentence of Article 61 of the TRIPS Agreement. However, counterfeiting
and piracy include other acts besides manufacturing and production. There are no uses on the record
of the phrase with the word "sales" or "selling".

543 See Report adopted by the WIPO Committee of Experts on Measures Against Counterfeiting and
Piracy, WIPO document C&P/CE/4 of 28 April 1988, reproduced in Exhibit CHN-72, at paras 71-81 and 94.
544 The April 1988 session of the Committee of Experts could not complete its work and it was
envisaged that a revised text would be prepared: see Report in note 543 above, at para. 177.
545 Australia's and Mexico's respective responses to Third Party Question No. 4.
546 United States' response to Question No. 69; comments on China's response to Question No. 68.
547 Appellate Body Report in US – Gambling, para. 164.
548 Press releases of Novovax and Dupont, and US Securities and Exchange Commission filings of
Amylin Pharmaceuticals, In c., Biocryst Pharmaceuticals, Inc., Ca mbridge Display Technology, Inc. and
Verenium Corporation in Exhibit CHN-196; and China's original evidence in Exhibits CHN-44, CHN-45, CHN-
46 and CHN-47.

7.573 Simple searches of online patent databases of the Patent Cooperation Treaty, the United
States Patent and Trademark Office and the European Patent Office, reveal many patent applications
that use the phrase "commercial scale". China has provi ded abstracts of some applications that define
the phrase "commercial scale" in precise, quan titative terms of volume, weight or speed. 549 These
definitions vary greatly and relate to different factors, according to the invention claimed in the
application. From this evidence, China concludes that:
"In the context of patent applications, the phrase 'commercial scale' refers to a certain
level of magnitude. This magnitude is not necessarily objectively high, but it is
relatively high in the context of the operation involved."550
7.574 The United States finds this statement "telling" and recalls its view that:
"[B]ased on its ordinary meaning, what qualifies as 'commercial scale' piracy or
counterfeiting will vary am ong product and market, and therefore, what is
'commercial scale' can be determined us ing factors relevant to a particular
situation."551
7.575 The United States argues that the uses in th e press releases and SEC filings must be
understood in context, as in some cases:
"[W]hether a manufacturing activity is 'commercial scale' may well mean whether the
activity is undertaken on a scale, or at a leve l of economic efficiency, that allows that
public company to make a return on investment or profit for its shareholders."552
7.576 The Panel observes a certain degree of convergen ce between the parties' views, as compared
to their initial positions, when addressing these ordina ry uses of the phrase "commercial scale". The
Panel considers that the contexts in which the te rm "on a commercial scale" or "commercial scale" is
used, given their variety, indicate that each of th e words "commercial" and "scale" provides important
context for the interpretation of the other when used together. Their combined meaning varies greatly
according to the context around them and the lack of precision in the term is apparent. 553 However, it
is clear that none of these uses refer to activities that are simply commercial. Rather, they are
evidently intended to distinguish certain activities (or premises) from others that pertain to or have a
bearing on commerce but which do not meet a market benchmark in terms of what is typical. The
precise benchmark in each case depends on the product and the market to which the phrase relates.
7.577 The Panel recalls its view at paragraph 7.545 ab ove and, in light of the evidence considered
above, finds that a "commercial scale" is the magn itude or extent of typical or usual commercial
activity. Therefore, counterfeiting or piracy "on a co mmercial scale" refers to counterfeiting or piracy
carried on at the magnitude or extent of typical or usual commercial activity with respect to a given
product in a given market. The magnitude or exte nt of typical or usual commercial activity with
respect to a given product in a given market fo rms a benchmark by which to assess the obligation in
the first sentence of Article 61. It follows that what constitutes a commercial scale for counterfeiting
or piracy of a particular product in a particular ma rket will depend on the magnitude or extent that is
typical or usual with respect to such a product in such a market, which may be small or large. The

549 International applications published under the PCT: WO 00/61722; WO 2004/054949 A1; WO
2006/110534 A2; WO2008/020357 A2; United States patent no. 6,525,205 B2; United States patent application
no. 2007/0202578 A1; in Exhibit CHN-197.
550 China's response to Question No. 69.
551 United States' comment on China's response to Question No. 69, citing its response to Question
No. 16 and second oral statement (closing statement), paras 10-11.
552 United States' comment on China's response to Question No. 68.
553 The lack of precision is highlighted by the addition of specific definitions in the patent applications.

magnitude or extent of typical or usual comme rcial activity relates, in the longer term, to
profitability.554
7.578 The Panel observes that what is typical or us ual in commerce is a flexible concept. The
immediate context in the second sentence of Article 61, which is closely related to the first, refers to
the similarly flexible concepts of "deterrent" and "corresponding gravity". Neither these terms nor
"commercial scale" are precise but all depend on circ umstances, which vary according to the differing
forms of commerce and of counterfeiting and piracy to which these obligations apply.
7.579 The parties have presented certain other facts a nd arguments in relation to the interpretation
of "a commercial scale", which the Panel will now assess.
(vi) Subsequent practice
7.580 China refers to certain material as "subsequent practice" in the application of the TRIPS
Agreement within the meaning of Article 31(3) of the Vienna Convention. The material comprises the
enforcement policies of two authorities of two Members, a draft Directive of another Member and
various free trade agreements entered into by the United States.555
7.581 The Panel has reviewed the material and consid ers that it lacks the breadth to constitute a
common, consistent, discernible pattern of acts or pronouncements. Further, the content of the
material does not imply agreement on the interpretation of Article 61 of the TRIPS Agreement. 556
Therefore, the Panel does not consider that it cons titutes subsequent practice for the purposes of this
interpretation.
(vii) Supplementary means of interpretation
7.582 China initially submitted that the draft Model Pr ovisions contained a definition which formed
the basis for discussion of the term in the negotiation of the TRIPS Agreement.557
7.583 The United States responded that the status of this document under the Vienna Convention is
unclear. If the document could be used as a supplemen tary means of interpretation, it would confirm
that a variety of factors would need to be take n into account to determine whether an act is on a
commercial scale.558
7.584 Canada and Japan refer to the explanator y observation on "commercial scale" that
accompanied the draft Model Provisions, noting that it referred to quantitative as well as non-
quantitative factors. The European Communities sees limited interest in recourse to supplementary
means of interpretation but notes the same point.559
7.585 The Panel recalls its observations regarding th e explanatory observation that accompanied the
draft Model Provisions at paragraph 7.567 above. It appears that the explan atory observation did not
represent the common intentions of the WIPO Committee of Experts on Measures Against

554 This finding is without prejudice to the qualitativ e aspect of "commercial scale" considered with
respect to the second limb of this claim.
555 China's first written submission, paras 104-108.
556 See Appellate Body Reports in Japan – Alcoholic Beverages II, p. 13; US – Gambling, paras 192-
557 China's first written submission, paras 72-75 and 110.
558 United States' rebuttal submission, paras 26-37.
559 Canada's third party written submission, para. 6; Japan's third party written submission, paras 22-23;
European Communities' third party oral statement, paras 11-12.

Counterfeiting and Piracy, much less the common intentions of the participants in the negotiation of
the TRIPS Agreement.
7.586 The draft Model Provisions were mentioned in the records of the TRIPS negotiations, in May
1988560 and August 1988 561, in the context of a discussion of the scope of a framework on trade in
counterfeit goods (that was never concluded). Documents of the WIPO Committee of Experts,
including the draft Model Provisions, were communi cated to the TRIPS negotiating group and made
available in the GATT Secretariat for consultation by interested delegations, but not circulated, in
June 1988. 562 The Panel considers that this evidence indicates that the negotiators of the TRIPS
Agreement were aware of the explanatory obser vation by the International Bureau of WIPO
addressing "commercial scale", but it does not indi cate that the content of that explanatory
observation represented their common intentions.
7.587 There is a certain temporal correlation betwee n the work of the WIPO Committee of Experts
and the use of the term "commercial scale" in the drafting of Article 61 of the TRIPS Agreement. The
European Communities' proposal for the negotiations on the enforcement of tr ade-related intellectual
property rights in May 1989 ("EC proposal") 563 contained a draft provision on criminal procedures
and sanctions that bears a strong similarity to the first, second and fourth sentences of Article 61 in the
final text of the TRIPS Agreement. It was also the first proposal to use the words "on a commercial
scale". In response to a question from the Panel, the European Communities informed the Panel that:
"In spite of intense research, the European Communities has not been able to find any
trace that the phrase 'on a commercial scale' in the EC proposal of 30 May 1989 was
sourced from another instrument."
564
7.588 In any event, there are differences between the draft Model Provisions of the WIPO
Committee of Experts, the EC proposal on crim inal procedures and sanctions to the TRIPS
negotiating group, and the terms of Article 61 of the TRIPS Agreement. In particular, the draft Model
Provisions incorporated the phrase "on a commercial scale" within the concepts of "counterfeiting"
and "piracy" whilst Article 61 uses the phrase "on a commercial scale" to qualify the concepts of
"wilful trademark counterfeiting or copyright piracy". Further, the explanatory observation that
accompanied the draft Model Provisions was limited to the act of manufacturing whilst Article 61
encompasses the range of acts of counterfeiting and piracy.
7.589 The records of the TRIPS negotiations do not disclose any discussion of the meaning of the
phrase "on a commercial scale".
7.590 Therefore, the Panel does not consider that the explanatory observation that accompanied the
draft Model Provisions sheds any further light beyond that noted at paragraph 7.562 above on the
intentions of the TRIPS negotiators when they used the term "commercial scale".

560 It was suggested that, in that connection, the negotiating group should take into account definitions
established in national legislation, those under preparation in the WIPO Committee of Experts on Measures
Against Counterfeiting and Piracy and the existing obligations of relevance in intellectual property conventions:
see the minutes of the meeting in document MTN.GNG/NG11/7, paras 23 and 33, in Exhibit CHN-71.
561 A participant suggested that, in determining the types of infringement to be covered by a framework
on trade in counterfeit goods, the criteria suggested in th e WIPO draft model legislation should be employed:
see the minutes of the meeting in document MTN.GNG/NG11/8, at para. 52, in Exhibit CHN-55.
562 See GATT document MTN.GNG/NG11/W/5/Add.6.
563 GATT document MTN.GNG/NG11/W/31.
564 European Communities' response to Third Party Question No. 8.

(viii) Article 41.5 of the TRIPS Agreement
7.591 China submits that Article 41.5 of the TRIPS Agreement makes clear that none of the
enforcement provisions can be read to require Me mbers to set out low-scale – and therefore high
resource – thresholds for the criminaliza tion of intellectual property infringement. 565 It later clarified
that low-scale thresholds implied high amounts of resources because the first sentence of Article 61 is
only satisfied by criminal measures that are actually applied.566
7.592 The United States does not claim that China has an obligation to prosecute all counterfeiting
and piracy falling within the scope of the first sentence of Article 61.567
7.593 Article 41.5 provides as follows:
"It is understood that this Part does not create any obligation to put in place a judicial
system for the enforcement of intellectual property rights distinct from that for the
enforcement of law in general, nor does it affect the capacity of Members to enforce
their law in general. Nothing in this Part creates any obligation with respect to the
distribution of resources as between enforc ement of intellectual property rights and
the enforcement of law in general."
7.594 The Panel considers that Article 41.5 is an im portant provision in the overall balance of rights
and obligations in Part III of th e TRIPS Agreement. Both sentences apply to "this Part", which
includes Article 61.
7.595 The first sentence of Article 41.5 does not appear to be relevant to this dispute. China has
administrative agencies dedicated to intellectual pr operty enforcement that are separate from its law
enforcement agencies in general. It is under no oblig ation to put in place a separate judicial system
for IPR enforcement.
7.596 The second sentence of Article 41.5 relates to th e deployment of resources for enforcement.
In the Panel's view, that plays an important role in relation to Article 41, in particular, paragraph 1
568,
and the actual exercise of authority to enforce intellectual property right s throughout Part III.
However, the Panel's findings in this dispute regard ing the first sentence of Article 61 are confined to
the issue of what acts of infringement must be criminalized and not those which must be prosecuted.
7.597 China refers to the second sentence of Article 61 on remedies and notes that it contains an
element of flexibility in its reference to "the le vel of penalties applied for crimes of a corresponding
gravity". China argues that if Members are not required to impose meaningful punishment for low-
level crimes, they should not be required to enforce intellectual property crimes at a low level
either.569 The Panel simply recalls its comment in para graph 7.596 and confirms that it has not made
a finding on any duty to prosecute.
7.598 China asks the Panel to note that its criminal law allows for the possibility of private
prosecution of certain crimes. It speculates that defining a crime with too low a threshold "could
unleash a large volume of private enforcement actions and impose a significant burden on the judicial

565 China's first written submission, paras 98-101.
566 China's rebuttal submission, paras 122-124: see also European Communities' response to Third
Party Question No. 10. Australia makes a similar point in relation to the second sentence of Article 61: see its
567 United States' rebuttal submission, paras 47-48.
568 Article 41.1 of the TRIPS Agreement is quoted at paragraph 7.170 above.
569 China's rebuttal submission, paras 108-110.

system".570 However, in response to questions, China w as unable to substantiate its concern. In
particular, it lacked any data relevant to its e xperience after it lowered thresholds for the crimes
infringing intellectual property crimes in 2004. 571 Therefore, the Panel does not need to consider that
issue further.
7.599 In light of the above, the Panel confirms its interpretation of "on a commercial scale" set out
at paragraph 7.577 above. The Panel will now apply that interpretation to the measures at issue.
(ix) Conformity of the measures at issue with respect to the level of the thresholds
7.600 The Panel recalls its finding at paragraph 7.54 5 above regarding the interpretation of the
phrase "wilful trademark counterfeiting or copyright piracy 'on a commercial scale'", as used in
Article 61 of the TRIPS Agreement. The Panel recalls , in particular, that this is a relative standard,
which will vary when applied to different fact situations.
7.601 The Panel notes that it is the standard in the treaty obligation that varies as applied to different
fact situations, and not necessarily the means by wh ich Members choose to implement that standard.
The Panel recalls that the third sentence of Article 1.1 of the TRIPS Agreement, quoted and discussed
at paragraphs 7.512 and 7.513 above, provides as follows:
"Members shall be free to determine th e appropriate method of implementing the
provisions of this Agreement within their own legal system and practice."
7.602 This provision confirms that the TRIPS Ag reement does not mandate specific forms of
legislation.
572 The Panel may not simply assume that a Member must give its authorities wide
discretion to determine what is on a commercial scale in any given case, and may not simply assume
that thresholds, including numerical tests, are inc onsistent with the relative benchmark in the first
sentence of Article 61 of the TRIPS Agreement. As long as a Member in fact provides for criminal
procedures and penalties to be applied in cases of wi lful trademark counterfeiting or copyright piracy
on a commercial scale, it will comply with this obliga tion. If it is alleged that a Member's method of
implementation does not so provide in such cases, th at allegation must be proven with evidence.
Therefore, the Panel will assess whet her the evidence shows that China fails to provide for criminal
procedures and penalties to be applied in any such cases.
7.603 The Panel begins with the first limb of the clai m. In the first limb of the claim, the United
States challenges the levels at which certain thresholds are set. Having chosen to challenge the level
of a series of numerical thresholds as compared to a relative standard, it is necessary for the
United States to demonstrate that the levels are highe r than that standard as applied in certain factual
situations. That calls for quantitative evidence. Later, the Panel will address the second limb of the
claim, in which the United States challenges the factors taken into account by the criminal thresholds.
That calls for qualitative evidence.

570 China's first written submission, para. 38, referring to Article 170 of the Criminal Procedure Law, as
restated in Article 5 of Judicial Interpretation No. 6 [2007].
571 China's response to Question No. 14.
572 The United States accepts this: s ee its rebuttal submission, paras 42-44; response to Question
No. 54.

7.604 The parties agree that the standard of "a commercial scale" will vary by product and market
and that the conformity of China's criminal thre sholds with that standard must be assessed by
reference to China's marketplace. 573
7.605 The Panel recalls that a previous Panel had o ccasion to apply certain relative standards in the
TRIPS Agreement in quantitative terms. The Panel in US – Section 110(5) Copyright Act interpreted
the phrase "certain special cases" inter alia in terms of a narrow scope or reach, and the phrase "a
normal exploitation of the work" inter alia in an empirical or quantitative sense, as those phrases are
used in Article 13 of the TRIPS Agreement. 574 As in the present case, the parties in that dispute
agreed that conformity had to be assessed wholly or primarily in relation to the respondent's market.
The Panel in that dispute adopted the following approach in assessing the conformity of a measure
with Article 13:
"We note that while the WTO Member s are free to choose the method of
implementation, the minimum standards of protection are the same for all of them. In
the present case it is enough for our purposes to take account of the specific
conditions applying in the US market in assessing whether the measure in question
conflicts with a normal exploitation in that market, or whether the measure meets the
other conditions of Article 13."
575 (footnote deleted)
7.606 In the present dispute, the Panel considers this approach appropriate as well. The Panel needs
to consider the specific conditions applying in China's marketplace in assessing whether the measures
in question, which exclude certain acts of infri ngement from particular liability, conform to the
relative standard in Article 61.576 This applies a fortiori as the relative standard is set in terms of what
is "on a commercial scale", which varies not only by market but also by product within the same
market.
7.607 The nature of the measures at issue and the app licable treaty obligation under consideration in
this Section of this Report can be contrasted with those considered in Section VII:A. It was not
necessary for the United States to demonstrate the pa rticular class of works to which the Copyright
Law denies copyright protection because it was clear that the measure at issue denies all copyright
protection to some works and the relevant obligatio n in the TRIPS Agreement does not permit denial
of all copyright protection to any such works. In contrast, the measures that establish the criminal
thresholds set forth levels that deny crimin al procedures and penalties in some, but not all, cases of
wilful trademark counterfeiting and copyright piracy, and the relevant obligation permits the denial of
criminal procedures and penalties in some such cases.
7.608 The United States argues that the criminal thr esholds exclude certain commercial activity.
The United States relies, in particular, on the text of the measures establishing the criminal thresholds
themselves.577

573 United States' first written submission, fn. 78 and para. 118; rebuttal submission, para. 17;
responses to Questions Nos. 16 and 66; China's first written submission, paras 133-137; response to Question
No. 16.
574 See Panel Report in US – Section 110(5) Copyright Act, paras 6.113 and 6.178.
575 Ibid., para. 6.189.
576 The Panel Report in Canada – Pharmaceutical Patents also considered the meaning of "normal"
exploitation (in that case, of a patent) but in abstract te rms. However, it did so in an assessment of an exception
that was challenged on the basis of the nature of the acts that the measures excused from liability, not their
magnitude or extent. Both parties also addressed the mean ing of "normal" in that case in abstract terms: see
paras 7.51-7.59.

7.609 The Panel has reviewed the measures and agrees that, on their face, they do exclude certain
commercial activity from criminal procedures and pe nalties. For example, some of the criminal
thresholds are set in terms that refer expressly to commercial activity, such as "illegal business
operation volume", which is defined in terms of "manufacture, storage, transportation, or sales" of
infringing products, and "illegal gains" which is defined in terms of pr ofit. However, based solely on
the measures on their face, the Panel cannot distinguis h between acts that, in China's marketplace, are
on a commercial scale, and those that are not.
7.610 Certain thresholds are set in monetary terms, ranging from ¥20,000 profit to ¥50,000 turnover
or sales. The measures, on their face, do not indi cate what these amounts represent as compared to a
relevant commercial benchmark in China.
578 Each of these amounts represents a range of volumes of
goods, which vary according to price. Another factor to take into account is the period of time over
which infringements can be cumulated to satisfy these thresholds. One threshold is set not in
monetary terms but rather at 500 张 (份) ("copies" for the sake of simplicity). Whilst it is reasonably
clear to the Panel how many goods that comprises with respect to certain traditional media, this is not,
on its face, related to any relevant market benchmark in China either.
7.611 The Panel has noted the United States' repeated assertions that certain amounts constitute
counterfeiting or piracy on a commercial scale. Th e most recurrent example concerns 499 copyright-
infringing "copies", although it is not related to th e same product in all examples or, sometimes, to
any product.579 The only facts in these examples are amounts equal to, or slightly less than, those in
the measures themselves. Those amounts, in comb ination with the moneta ry thresholds and the
factors used in the thresholds, demonstrate the class of acts for which China does not provide criminal
procedures and penalties to be applied. Those numbers and factors do not, in themselves, demonstrate
what constitutes a commercial scale for any product or in any market in China.
7.612 China asserted the relevance of the scale of comme rce in China in its first written submission
and referred to Economic Census statistics (considered below).580
7.613 The Panel asked both parties after the first s ubstantive meeting whether "commercial scale"
varies according to characteristi cs of markets, products and ope rators within a market, how
"commercial scale" can be related to these considerations and what type of data could be relevant.581
7.614 In response to the Panel's question, the Un ited States referred to the interpretation of
"commercial scale" that it had proposed in its fi rst written submission, which included all commercial
activity by definition. The United States agreed that "commercial scale" must be viewed with
reference to the marketplace, and acknowledged that the scale of what is commercial necessarily will
vary by product and market. It acknowledged that what is "commercial scale" can vary from situation
to situation according to a number of factors. It asserted that China's criminal thresholds fail to
capture commercial scale in certain market situations. 582 Nevertheless, the United States did not
provide data regarding products a nd markets or other factors that would demonstrate what constituted
"a commercial scale" in the specific situation of China's marketplace.

578 The parties agree that the thresholds should be a ssessed in the form in whic h they appear in China's
measures, namely Renminbi (¥), which is the local currency used in China's marketplace: see their respective
responses to Question No. 5.
579 United States' first written submission, para. 139; response to Question No. 25; rebuttal
submission, para. 112; response to Question No. 64.
580 China's first written submission, paras 133-137.
581 Question No. 16.
582 United States' response to Question No. 16.

7.615 In its rebuttal of China's assertion regarding the scale of commerce in China, the United States
noted that the "commercial scale" standard was a relative one. 583 It commented on the Economic
Census statistics submitted by China but at the same time dismissed their relevance as they are
aggregate statistics related to undefined average economic units. It also recalled an earlier assertion
that the Chinese market, including the market fo r many copyright and trademark-bearing goods, is
fragmented and characterized by a profusion of small manufacturers, middlemen, distributors, and
small outlets at the retail level.584
7.616 The Panel has reviewed the evidence in support of this assertion.585 The evidence comprises a
quote from a short article from a US newspaper, the San Francisco Chronicle , titled "30,000-Store
Wholesale Mall Keeps China Competitive" regarding the number of stores in a particular mall in
Yiwu and the physical dimensions of some stalls 586 ; a statistic quoted from an extract from a
management consultant report titled "The 2005 Global Reta il Development Index" that the top ten
retailers in China hold less than 2 per cent of the market, and another statistic that the top 100 retailers
have less than 6.4 per cent 587; and a quote from an article in Time magazine titled "In China, There's
Priceless, and for Everyt hing Else, There's Cash" that a shopping mall in Luohu spans six floors of
small stores.588
7.617 The Panel finds that, even if these sources were suitable for the purpose of demonstration of
contested facts in this proceeding, the information that was provided was too little and too random to
demonstrate a level that constitutes a commercial scale for any product in China.
7.618 The United States referred to Canada's third pa rty written submission, which had provided an
estimate of China's gross domestic product per capita. 589 It did not explain specifically how this
figure was comparable to China's numerical thresholds.
7.619 The Panel considers GDP per capita a reliable i ndicator of average national income but not a
sufficient indicator of a commercial scale, as it is calculated with a denominator of total population.590
The Panel also notes that GDP is a far more aggr egated figure than those in the Economic Census
statistics that the United States dismissed.
7.620 China submits that the United States must pr ovide evidence that China's laws actually
function to exclude a category of infringement that meets the "commercial scale" standard.
Hypothetical examples do not qualify as sufficient evidence.
591
7.621 In response, the United States asserts that it, and a number of third parties, have provided
"numerous, concrete illustrations" of commercial-scale piracy and counterfeiting that take place
underneath China's thresholds.592 It refers to a "Report on Copyright Complaints, Raids and Resulting

584 United States' rebuttal submission, paras 106-107.
585 The evidence was submitted with the United States' first written submission, para. 122.
586 Exhibit US-28.
587 A.T. Kearney: "Destination: China" in The 2005 Global Retail Development Index in Exhibit
US-29.
588 Exhibit US-30. An article from the London Daily Telegraph is also submitted in Exhibit US-31.
589 United States' rebuttal submission, para. 108, referring to Exhibit CDA-1.
590 As noted in China's rebuttal submission, para. 142.
592 United States' second oral statement, para. 28, elaborating on its rebuttal submission, paras 9-10.

Criminal Actions in China" prepared by a co alition of trade associations in 2008 (the "CCA
Report").593
7.622 The Panel has reviewed the CCA Report to determine whether it bears out the United States'
assertion. The CCA Report was originally submitte d as a case example intended to show that the
criminal thresholds create a "safe harbour" (an assertion not borne out by the data 594) and also to show
that significant quantities of retail sales of infringi ng product take place in China at levels below
China's thresholds.595
7.623 The Panel notes that the question whether retail sales of infringing product take place below
the thresholds is not dispositive of the claim, as the first sentence of Article 61 does not require
Members to provide for criminal procedures and penalti es to be applied to all such cases. Further, the
CCA Report sets out for each raid "total units seized (DVD, CD, VCD)". For some raids, the total
units seized were as few as five. Therefore, while the aggregate number of seizures below China's
thresholds may or may not be "significant", the seizure data does not permit any deduction as to the
scale of operations of the individual raided retail outlets. The total units seized in many cases may be
only part of, or even incidental to, a commercial operation. The seizure data illustrates the scale of
infringing stock on hand (as it is intended to do) but it does not show the scale of the individual retail
businesses or what constitutes a commercial scale for those products in that market.596
7.624 China provided official statistics from its Economic Census. 597 The statistics include figures
for average annual revenue for enterprises engaged in different industrial sectors in China. Annual
revenue appears to be a concept capable of co mparison with "illegal bus iness operation volume" as
defined in Judicial Interpretation No. 19 [2004] a nd set out at paragraph 7.401 above. The statistics
show that the illegal business operation volume thres hold of ¥50,000 for counterfeiting one registered
trademark in violation of Article 213 of the Criminal Law is equivalent to 0.41 per cent of the average

593 The Report, contained in Exhibit US-41, was prepared by the "China Copyright Alliance", a
coalition of six trade associations that represent several creative industry sectors.
594 The CCA Report was submitted as a case example of how the thresholds allegedly create a "safe
harbour" for commercial scale trademark counterfeiting and copyright piracy and provide "clear guideposts" as
to how to avoid the risk of criminal prosecution. It was alleged that the CCA Report shows that when the
numerical thresholds are shifted down, commercial operation s are adjusted and restructur ed to ensure that they
remain at levels that fall under the thresholds. The CCA Report covers the period January 2006 to November
2007 - the period during which a threshold under Article 217 of the Criminal Law was lowered from 1000
copies to 500 copies (see paragraphs 7.411 and 7.412 above). The CCA Report highlights a congruence in the
percentage of seizures below the threshold before and after it was lowered. However, when further data was
provided regarding the percentage of seizures below 500 copies before the threshold was lowered, when it was
an irrelevant number, the Panel was able to observe a (som ewhat lesser but still strong) congruence between
that percentage and the percentage of seizures below the same level when it was the threshold. Therefore, the
Panel does not find that the data in the CCA Report supports the conclusion that the commercial operations of
infringers are related to the levels of the thresholds. See United States' first written submission, paras 151-161.
The further data was provided by the United States in response to Question No. 1 posed by China.
595 United States' first written submission, para. 157; rebuttal submission, paras 93-97.
596 The United States alleged in response to an unrelated question that if a person engaged in legitimate
commercial activities is also engaged in infringing ac tivities, the existence of the legitimate commercial
platform to support the infringing activities would be a pertinent consideration in assessing whether the
infringing activities are "on a commercial scale": see United States' response to Question No. 62. However,
the Panel notes that the phrase "on a commercial scale" qualifies the terms "trademark counterfeiting or
copyright piracy" and a legitimate commercial platform does not fall within the scope of either of those terms.
597 China Economic Census Yearbook 2004 , edited by the Executive Office of the First National
Economic Census Leading Group of the State Council, published in Chinese and English by the China Statistics
Press. Extracts from the Volume of Secondary Industry (Section One) and the Volume of Synthesis, including
interpretation of main indicators and rules on classification, are reproduced in Exhibit CHN-79.

annual revenue of enterprises engaged in light industry; 0.8 per cent of the average annual revenue of
small-size enterprises; and 0.84 per cent of the average revenue of Chinese retail businesses.598
7.625 The Economic Census statistics also refer to a concept of the "Individual Operation
Household" which is defined as the smallest unit of commerce in Chinese economic statistics. The
statistics show that the illegal business operation volume thres hold of ¥50,000 for counterfeiting one
registered trademark is equivalent to 22.56 pe r cent of the average annual revenue of Individual
Operation Households and 29.44 per cent of the average annual revenue of Individual Operation
Households engaged in retail.599
7.626 The Panel notes that these calculations are percen tages of an average and may be relevant to
establishing what is a typical or usual level of co mmercial activity in a general sense. However, the
statistics are highly aggregated and do not refer to any particular products, according to which the
benchmark of "a commercial scale" necessarily varies . Moreover, the statistics regarding individual
operation households engage d in retail do not address the basic question of whether retail sales by
individual operation households are typical or usual in China. Therefore, the Panel does not consider
that these statistics are sufficient for it to form a view as to whether the illegal business operation
volume thresholds capture all trademark counterfe iting or copyright piracy on a commercial scale in
China.
7.627 The United States also submitted other press arti cles to illustrate points in its first written
submission, particularly regarding the calculation of certain thresholds. China objected at the outset
arguing that "[t]he Panel can afford little or no weig ht to such anecdotal and potentially misinformed
reports".600 The United States was puzzled by China's con cern at its recourse to newspapers or other
media. It recalled its prior attempts to obtain in formation from China pursuant to Article 63.3 of the
TRIPS Agreement. China had declined to provide information and stated instead that its competent
domestic IPR authorities had also made relevant info rmation publicly available through their official
websites, newspapers, magazines and other prope r channels. The United States added that the
information in newspapers and magazines is "d rawn from a variety of well-established and well-
regarded sources".601
7.628 The Panel has reviewed the press articles and notes that none of them are corroborated, nor do
they refer to events or statements that would not require corroboration. Whilst the publications are
reputable, most of these particular articles are brie f and are quoted either for general statements or
random pieces of information. Most are anecdotal in tone, some repeating casual remarks about
prices of fake goods, anonymous statements or speculation. They have titles including "Fake Pens
Write Their Own Ticket", "Chasing copycats in a tiger economy", "Hollywood takes on fake Chinese
DVDs", "Film not out yet on DVD? You can find it in China" and "Inside China's teeming world of
fake goods".602 Most of the press articles are printed in US or other foreign English-language media
that are not claimed to be authoritative sources of information on prices and markets in China. There
are four press articles from Chinese sources, one from Xinhua News Agency and three from the
English-language China Daily. Two are quoted simply to demonstr ate the existence of certain goods
in China 603 ; another quotes a vague statement from unnamed "market insiders" on how illegal
publishers tend to work604; and the other quotes an "insider" for the maximum and minimum prices of

598 See China's response to Question No. 17.
599 Ibid.
601 United States' rebuttal submission, para. 98 and fn. 102.
602 Exhibits US-24, US-30, US-31, US-33, US-34, US-37.
603 A Xinhua News Agency article refers to goods with high turnover and relatively low cost, in Exhibit
US-26, and a China Daily article refers to the existence of HDVDs, in Exhibit US-39.
604 Exhibit US-38.

a range of pirated and genuine goods. 605 One other alleged "recent news account" is not attributed to
any source at all.606
7.629 The Panel emphasizes that, in the absence of mo re reliable and relevant data, it has reviewed
the evidence in the press articles with respect to a central point in this claim that is highly contested.
The credibility and weight of that evidence are therefore critical to th e Panel's task. For the reasons
set out above, the Panel does not ascribe any weight to the evidence in the press articles and finds that,
even if it did, the information that these press artic les contain is inadequate to demonstrate what is
typical or usual in China for the purposes of the relevant treaty obligation.607
7.630 There is no indication that probative evidence on this point would be difficult to obtain.
Indeed, it can be noted that more specific informa tion on prices and markets in China is contained in
various US exhibits, notably information on pri ces of products in a report on Cinema and Home
Entertainment in China prepared by Screen Digest and Nielsen NRG 608 (submitted in support of the
claim regarding the Copyright Law) and in anne xes to a letter from Nintendo of America to the
United States Trade Representative. 609 The United States did not refer to this evidence in its
submissions. Further, in response to a question from the Panel, the United States had no apparent
difficulty in providing a tr anslation of a Chinese judicial decision that had been mentioned in one of
the press articles.610
7.631 The information in the exhibits would not necessar ily have been sufficient and, even if it
were, it would not be appropriate for the Panel to tr awl them for evidence to which the United States
did not refer to make the United States' case for it. As the Appellate Body Report in US – Gambling
states:
"A prima facie case must be based on 'evidence and legal argument' put forward by
the complaining party in relation to each of the elements of the claim. A
complaining party may not simply submit evidence and expect the panel to divine
from it a claim of WTO-inconsistency. Nor may a complaining party simply allege
facts without relating them to its legal arguments."611
7.632 For the above reasons, the Panel finds that the United States has not made a prima facie case
with respect to the first limb of its claim under the first se ntence of Article 61 of the TRIPS
Agreement. The Panel will now turn to the second limb of the claim.

605 Exhibit US-32.
606 United States' first written submission, para. 136, citing the price of a Spider Man 3 DVD.
607 The Panel's approach is consistent with the appr oach of other international tribunals, notably the
International Court of Justice: see Rosenne, S., The Law and Practice of the International Court 1920 – 2005 ,
(M. Nijhoff, 2006), Volume III at para. 257, and Highet, K., "Evidence and Proof of Facts", in Damrosch, L.,
The International Court of Justice at a Crossroads , (Transnational, 1987) cited in the Panel Report in Australia
– Automotive Leather II at para. 9.65, fn. 210. The Panel's approach in the present dispute is also consistent
with the approach in the Arbitrator's Award in EC – The ACP-EC Partnership Agreement II , at paras 57-58.
Whilst the Appellate Body Report in Brazil – Retreaded Tyres referred to a newspaper article in a footnote, it
did so after referencing two substantial reports on point, and the point was not central to the findings in that
dispute: see Appellate Body Report, para. 207, fn. 393, citing the Panel Report, para. 7.201, fn. 1358.
608 United States' first written submission, para. 200, citing Exhibit US-49.
609 United States' first written submission, paras 146 and 153, citing Exhibit US-36.
610 Exhibit US-61 referred to in the United States' first written submission, para. 120 and a newspaper
article in Exhibit US-25.
611 Appellate Body Report in US – Gambling, para. 140 (footnotes omitted).

(x) Other indicia – physical evidence
7.633 With respect to the second limb of this claim, the United States alleges that China's value and
volume thresholds are tied to finished goods and th erefore ignore other indicia of commercial scale
operations, such as the presence of unfin ished products and fake packaging. 612 The Panel will assess
whether these other indicia can be taken into account by China's thresholds and, to the extent that they
cannot, whether the term wilful trademark counterfe iting or copyright piracy "on a commercial scale"
requires China to take these other indicia into account.613
7.634 This argument is premised on an assertion that Chin a's criminal thresholds "focus[] solely on
business volume, copy, and profit thresholds that can only be met by counting finished goods".614 It is
not clear why the United States considers that thr esholds expressed in these terms are tied exclusively
to finished goods. Its concern may relate to th e definition of "illegal business operation volume" in
Article 12(1) of Judicial Interpretation No. 19 [2004] 615 and to the use of the term 张 ( 份) in one
threshold616 but this is not explained. It is not cl ear how its concern relates to "illegal gains". 617 In
sum, the United States does not sufficiently relate its assertion to the measures at issue.
7.635 Further, the United States has challenged Chin a's criminal thresholds as established by the
Criminal Law, "in particular" certain Articles establishing the substantive crimes of infringing
intellectual property rights and rele vant Judicial Interpretations. 618 However, the United States has
not properly addressed any other provis ions of the Criminal Law, such as the general provisions, that
could have a bearing on questions of evidence. Having cast the entire Criminal Law as a relevant
measure, it is incumbent on the United States to explain how the thresholds established by that Law
operate. A complainant cannot avoid the burden of pr oof with respect to other apparently relevant
provisions of the Law at issue, particularly when it identified that whole Law in its request for
establishment of a panel, simply by neglecting to address those provisions, leaving it to the respondent
to assert their relevance.
7.636 Instead, the United States provided a copy of Artic les 1 to 12 of the Criminal Law, without
comment, and responded only briefly to the arguments of the respondent on the offences of
preparation for a crime and attempted crime establis hed by Articles 22 and 23 of the Criminal Law.
When asked whether Articles 22 and 23 of the Crimin al Law permit courts to take into account other
physical evidence, such as unfinished products and packaging (which the Unit ed States asserts that
they cannot), the United States stated as follows:
"The United States is not aware of the extent to which the offenses of preparation and
attempt permit courts to convict an offe nder based on physical evidence other than
the infringing products themselves, such as unfinished products and packaging, for
the purpose of meeting the thresholds."
619
7.637 The Panel recalls its findings at paragraphs 7. 434 to 7.437 above regarding the offences of
preparation for a crime and attempted crime establis hed by Articles 22 and 23 of the Criminal Law.
The United States does not dispute that these genera l provisions apply to the substantive crimes of
infringing intellectual property rights, and acknowle dges that certain courts (whose decisions were

612 United States' first written submission, paras 113 and 143 to 147.
613 See paragraph 7.496 above.
614 United States' first written submission, para. 143. The same submission also referred to China's
reliance on "value and volume" thresholds tied to finished goods: see para. 113.
615 See paragraph 7.401 above.
616 See paragraph 7.411 above.
618 See the request for establishment of a panel, attached as Annex D-1 to this report.
619 United States' response to Question No. 8.

submitted by China) have applied them accordingly. 620 Therefore, the United States does not
sufficiently explain the operation of the measures at issue to support its assertion.
7.638 To the extent that the crimes of preparati on for a crime and attempted crime provide for
criminal prosecution and sanctions, it is not dispositi ve of the issue whether they may be taken into
account in relation to the crimes set out in Articles 213, 214, 215, 217 and 218 of the Criminal Law.
China's obligation under the first sentence of Artic le 61 is to provide for criminal procedures and
penalties to be applied. That obligation is indi fferent as to the means by which China provides for
such procedures and penalties to be applied, whether by means of substantive crimes only or by
means of accessorial liability in some cases.
7.639 The United States cited in support of its concerns regarding physical evidence data collected
by Nintendo of America in an anti-counterfeiting ca mpaign in China. The data shows that some
seizures of infringing products included pro duct components, packaging and materials and
implements.
621
7.640 The Panel notes that the Nintendo data does not show whether China provides for criminal
procedures and penalties to be applied to cases where the authorities find only product components,
packaging and materials and implements, nor does the United States sufficiently relate the seizure
data to that issue.
7.641 The Panel notes that Nintendo emphasized its concerns regarding product components,
packaging and materials and implements through a discussion of three criminal cases. China
submitted the judgement of a court in one of these cases. 622 The judgement shows that the court did
take into account both finished and semi-finish ed infringing products in its evaluation of the
substantive crime under Article 213 of the Criminal La w. That case was decided before the entry into
force of Judicial Interpretation No. 19 [2004], but it is not clear if the interpretation of the thresholds
in that Judicial Interpretation was the reason wh y the authorities in the two later cases did not
(allegedly) take unfinished products into account.
7.642 The United States argues that the court should have taken into account unfinished products
that do not in fact infringe, and materials and implements. 623 However, given that the court did take
account of all products that were trademark-infringing, and not simply finished products, it is not clear
why or if the United States considers that the possession of non-infringing items should have been
sufficient for conviction of an intellectual property crime.
7.643 China submits another judgement that, in its view, shows that a court took into account
unfinished components in its evaluation of a subs tantive crime under Article 213. The court also
considered machines and scales as evidence that the components were to be used to produce
counterfeit products.624
7.644 The United States dismisses this judgement, arguing that the reasoning is confused and that
the case is an "outlier".625 However, the United States does not deny that the court took the unfinished
components into account and, given that it has provi ded no information on judicial decisions on point,
it is unable to substantiate its assertion that the case is in any way exceptional. The United States does

621 United States' first written submission, para. 146, citing Nintendo data in Exhibit US-36.
622 Exhibit CHN-16.
624 Exhibit CHN-15, to which China referred in its rebuttal submission, para. 32.

point out that one other judicial decision submitted by China shows that a court did not count semi-
finished products, packaging and tools626, which the Panel has noted.
7.645 China submits that the inchoate crimes of prepar ation of a crime, and attempted crime, apply
to all substantive crimes in Part Two of the Criminal Law, including the crimes of infringing
intellectual property rights. China argues that these in choate crimes allow courts to take into account
unsold goods, with respect to crimes of selling, a nd unfinished products, with respect to crimes of
production.627
7.646 The Panel recalls its findings at paragraphs 7.436 and 7.437 a bove regarding the construction
of the measures at issue. These are confirmed by the judicial decisions submitted in evidence
showing courts applying either or both of the gene ral provisions in Articles 22 and 23 of the Criminal
Law to various crimes of infringing intellectual property rights.628 Specifically, one of the courts gave
its reason for applying Article 23 and, hence, sente ncing the infringer to a lesser penalty, which was
that the infringer had not finished production at the time he was apprehended.629
7.647 The United States submits that Articles 22 and 23 of the Criminal Law do not apply to
evidence of completed crimes, such as "worn m oulds" for pressing pirated products or counterfeit
marks or other materials and implements of such an operation.630
7.648 China replies that its authorities consider mate rials and implements and other reliable indicia
in determining criminal infringement, and would cons ider as relevant evidence a "worn mould" that
showed with reasonable certainty that it had produced sufficient number of items to cross the criminal
threshold. China refers to a judicial decision in which the court considered the presence of materials
and implements.631
7.649 The Panel notes that in the case referred to by China the court took into account packaging
and tools as evidence of the intended use of produc t components seized on site, so that the value of
the product components was included in the assess ment of illegal business operation volume. The
tools, though relevant, did not substitute for the thresholds.
7.650 In any event, the Panel considers that the United States' allegation regarding physical
evidence relates to the evidence sufficient to initiate a criminal prosecution more than to the definition
of the crime itself. Article 61 of the TRIPS Agre ement does not address evidence. The first sentence
of Article 61 addresses the infringing activity in respect of which the minimum standards must apply.
Evidence, including in criminal procedures, is mentioned in Article 41.3, but that provision has no
bearing on this claim.
7.651 Section 5 of Part III of the TRIPS Agreement, on criminal procedures, can be contrasted with
Section 2, on civil and administrative procedures a nd remedies, which makes mention of evidence in
Article 42 and contains a dedicated provision addressi ng certain specific issues regarding evidence in

626 Exhibit CHN-9, to which the United States referr ed in its rebuttal submission, para. 93. The case
concerns the order, manufacture and sale of several t housand units of counterfeit alcoholic beverages over the
course of six months. At the time of arrest, 1,480 units of manufactured counterfeit alcoholic beverage and
more than 4,000 bottles of semi-finish ed beverage were seized, with a la rge amount of packaging materials and
tools for manufacturing counterfeit products. The judicial decision makes no mention of the semi-finished
products, packaging materials or tools in the calculati on of the thresholds of illegal business operation volume
for the purposes of conviction under Article 213 of the Criminal Law.
627 China's rebuttal submission, paras 39-41, referring to Exhibits CHN-12, CHN-14, CHN-175.
628 Exhibits CHN-12, CHN-14 and CHN-175.
629 Exhibit CHN-175.
631 China's rebuttal submission, para. 32, referring to Exhibit CHN-15.

Article 43. Even Article 43 does not address the deta iled issue of sufficiency of evidence. Rather,
Section 2 leaves such questions to the judicial author ities who weigh that issue in the exercise of their
authority to order the remedies set out in Articles 44 to 46. Given the brevity of Section 5, which
devotes two sentences to acts of infringement and two sentences to remedies (or penalties), it would
be surprising if it was intended to create a br oader obligation addressing issues of evidence and
procedure. The terms used in Article 61 do not s uggest that it was so intended. The different
phrasing of the obligation to "provide … to be appl ied" in the first sentence does not have a bearing
on this issue.
7.652 For all of the above reasons, the Panel does not consider that the United States has made a
prima facie case with respect to other indicia of infringement, such as physical evidence including
product components, packaging and materials or implements.
(xi) Other indicia – impact on the commercial marketplace
7.653 With respect to the second limb of this claim, the United States also alleges that China's
thresholds are tied to finished goods and therefore ignore other indicia of commercial scale
operations, such as the impact that the piracy or counterfeiting has on the commercial marketplace
and by extension, right holders.
632 The Panel will assess whether impact on the commercial
marketplace can be taken into account by China's thresholds and then whether the term wilful
trademark counterfeiting or copyright piracy "on a commercial scale" requires China to take into
account impact on the commercial marketplace.633
7.654 The United States raises a concern in support of this argument related to the Internet and
digital technological advancements that can perm it commercial piracy and counterfeiting that creates
major damage to a market. 634 The United States mentions the example of HDVDs (high-definition
digital video discs) that can hold up to ten episodes of a TV series or several films.635
7.655 The Panel notes that the United States has not atte mpted to substantiate its assertion regarding
HDVDs. This example appears to be based on the view that the term 张 ( 份) in the thresholds
("copies" for the sake of simplicity) refers only to physical discs and cannot be applied in any other
way in a novel situation. There is no evidence on th e record indicating that the thresholds have ever
been applied to HDVDs, so this example is merely speculation based on the indirect reference to flat
objects in the word 张 and to copies in the word 份.636 This example can be compared to an assertion
that a copyright law does not provide protection to computer programs simply on the basis that the
legislation refers to the term "literary and artis tic works" and computer programs are not obviously
literary or artistic. Some evidence is required that the authorities could not or would not apply that
measure in the appropriate manner to new technology. 637 The Panel notes China's assertion that, at
such time as this issue arises for consideration, its authorities can apply the threshold in terms of the
number of films or episodes on each disc.638
7.656 More generally, the argument with respect to new technology appears to be premised on the
view that a determination of whether trademark counterfeiting or copyright piracy is "on a

632 United States' first written submission, paras 143 and 148 to 149; rebuttal submission, para. 112.
633 See paragraph 7.496 above.
635 The United States refers to a China Daily article reproduced in Exhibit US-39.
636 See note 387 above.
637 The Panel notes that, in this regard, the parties did not refer to subparagraph (17) of the first
paragraph of Article 10 of the Copyright Law which provides for other rights for a copyright owner due to new
technology. The United States' first written submission, pa ra. 64, referred to this in relation to the Copyright
Law.
638 China's rebuttal submission, para. 25; response to Question No. 6.

commercial scale" must be able to take into accoun t the impact of piracy or counterfeiting on right
holders. However, the Panel recalls its findings at paragraph 7.577 above regarding the interpretation
of the term "on a commercial scale". Read in c ontext, that term refers to "wilful trademark
counterfeiting or copyright piracy", which are acts of infringement. The benchmark of a typical or
usual commercial activity is relevant to the assessme nt of whether counterfeiting or piracy is covered
by Article 61. The impact is neither part of the act of infringement nor the benchmark of "on a
commercial scale". Therefore, it does not appear to be a relevant consideration.
7.657 The Panel emphasizes that the terms used in th e first sentence of Article 61, in particular
"commercial", are technology-neutral. A "commercial scale" can apply to various forms of commerce
and, hence, various means of infringement. The specific forms of commerce are not static but adapt
to changing forms of competition due to technologi cal development and the evolution of marketing
practices.639 The Panel sees no reason why those forms of commerce should be limited to the forms
of commerce that existed at the time of negotia tion of the TRIPS Agreement. Accordingly, the
application of the term "commercial scale" can adjust to different situations, and refer to a different
relative magnitude or extent, degree or proportion, depending on the facts. 640 However, subsequent
technological developments do not alter the considera tions relevant to the interpretation of the terms
used in Article 61.
7.658 The United States also mentions an example of a "high-value niche market item" such as a
specialized software application. This example refers to a Seattle Times newspaper article titled
"Inside China's teeming world of fake goods" .641 The Panel accepts that the market for certain
products may be small, but considers that a singl e, anecdotal newspaper article is insufficient
evidence to demonstrate what is a commercial scale for such a product. To the extent that this article
concerns the impact on the right holder, it has been addressed in the second limb of the claim.
7.659 The Panel observes a link between this argumen t and the issue of large-scale infringement
with no commercial purpose. The United States originally submitted that the term "commercial scale"
included the following:
"Thus, the concept of 'commercial scale' extends … to those whose actions,
regardless of motive or purpose, are of a sufficient extent or magnitude to qualify as
'commercial scale' in the relevant market."
642
7.660 The United States indicated that this was not the focus of its submission, and confirmed that
in this dispute it does not challenge the thresholds on the basis that they require a "profit-making
purpose".643 In response to a question from the Panel, the United States confirmed that its own
Copyright Law was only amended in 1997 to deal with the problem of massive infringement, such as
via the Internet, even if the infringing activity is not necessarily pursued for financial gain.644

639 See also the Panel Reports in Canada – Pharmaceutical Patents (at para. 7.55) and US –
Section 110(5 Copyright Act (at para. 6.187) with respect to the phrase "normal exploitation" in Articles 30 and
13 of the TRIPS Agreement, respectively.
640 The United States' concern regarding the volume of distribution by means of digital technology and
the Internet is therefore relevant to the assessmen t of a "commercial scale": see United States' rebuttal
submission, para. 112.
641 United States' first written submission, para. 148, referring to Exhibit US-37.
642 United States' first written submission, para. 110.
643 United States' first written submission, paras 110 and 133, fn. 96; response to Question No. 59. See
paragraphs 7.449 to 7.450 above, showing that Articles 213, 214, 217 and 218 of China's Criminal Law take
account of a profit-making purpose.
644 United States' response to Question No. 67.

7.661 For all the above reasons, the Panel does not c onsider that the United States has made a
prima facie case with respect to impact on the commercial marketplace.
7.662 The Panel wishes to emphasize that its findings sh ould not be taken to indicate any view as to
whether the obligation in the firs t sentence of Article 61 of the TRIPS Agreement applies to acts of
counterfeiting and piracy committed without any purpose of financial gain.
(xii) Miscellaneous factors
7.663 The United States asserted that the breadth of th e term "on a commercial scale" presumes that
a wide range of considerations shoul d be probative of "commercial scale". 645 However, it did not
submit argument in support of any other considerations besides those discussed above.
7.664 The Panel recalls its finding at paragraph 7.602 above that, if it is alleged that a Member's
method of implementation does not provide for crim inal procedures and penalties to be applied in
cases in accordance with the first sentence of Article 61 of the TRIPS Agreement, that allegation must
be proven with evidence.
7.665 The United States briefly mentioned various factors and examples, most raised by third
parties, and apparently considers that these may be relevant to a determination of a "commercial
scale".646 It gave the example of "the manufacture of prototypes to test the infringer's production
equipment"647 but did not explain why this would not a ttract criminal liability under the Criminal
Law, including its general provisions, or why it would constitute trad emark counterfeiting or
copyright piracy. It did not explain why "mar keting and soliciting of business" would not attract
criminal liability under the Criminal Law, includi ng its general provisions, or why it would constitute
trademark counterfeiting or copyright piracy. It did not explain why a "previous history of
infringement" could not be covered by the threshold of "other serious circumstances".
7.666 Further, Japan, supported by the European Co mmunities, and with whom the United States
agreed, referred to a possible "organizational element" that can be taken into account in determining a
commercial scale. 648 The Panel notes that Japan included this factor in its interpretation of
"commercial scale" on the basis of a definition of "commerce" as a countable noun in French and
Spanish that means, basically, a sh op. However, the English langua ge does not include the word "a
commerce" in that sense. As the English versi on of the TRIPS Agreement is equally authentic 649, the
Panel does not consider this aspect of Japan's interp retation correct. Further, if a typical or usual
commercial activity included an element of organizati on, in terms of cooperation with other parties,
the United States has not explained why the general provisions of China's Criminal Law (discussed at
paragraphs 7.439 to 7.446 above) that allow aggr egation of infringing acts by different persons
cooperating in a joint crime, are inadequate, beyond the issue of the level of the thresholds, or why the
cumulation of infringements over time, or cumulati on of infringing products on different premises
within the definition of "illegal business operation volume" would be inadequate.
7.667 Therefore, the United States did not relate these factors sufficiently to the measures at issue or
to its claim to discharge its burden of proof.

645 United States' first written submission, para. 113; see also rebuttal submission, para. 38.
646 United States' response to Question No. 16; rebuttal submission, fn. 35 and fn. 36.
647 United States' response to Question No. 62.
648 See note 415 and United States' rebuttal submission, para. 38.
649 See the final clause of the WTO Agreement.

7.668 The Panel recalls its findings at paragraphs 7. 652, 7.661 and 7.667 above and finds that the
United States has not made a prima facie case with respect to the second limb of its claim under the
first sentence of Article 61 of the TRIPS Agreement.
(xiii) Conclusion with respect to the claim under the first sentence of Article 61
7.669 In light of the Panel's findings at paragraphs 7.632 and 7.668 above, the Panel concludes that
the United States has not established that the crimin al thresholds are inconsistent with China's
obligations under the first sentence of Article 61 of the TRIPS Agreement.
4. Claim under the second sentence of Article 61 of the TRIPS Agreement
(a) Main arguments of the parties
7.670 The United States claims that, as China's crimin al measures do not comply with the first
sentence of Article 61 of the TRIPS Agreement, they are accordingly also inconsistent with China's
obligations under the second sentence of that Article. In the United States' view, China can not make
the necessary remedies "available" or sufficient to deter piracy and counterfeiting.650
7.671 China responds that the obligation in the sec ond sentence of Article 61 is supplementary to,
and contingent on, that of the first sentence of th at Article. The obligation in the second sentence is
only triggered in the event that a Member has an obligation under the first sentence to provide
criminal procedures and penalties.651
(b) Main arguments of third parties
7.672 Australia argues that Article 61 creates an oblig ation of result, namely to put in place
penalties that are sufficient to actively discourage ot hers from engaging in such acts. A Member must
actively prosecute and punish such acts. The quest ion whether punishments are sufficient to provide
such a deterrent is assessed in light of the circum stances in a Member's territory but it is open to
another Member to challenge the adequacy of a Me mber's remedies to achieve the deterrent effect
under the DSU.652
7.673 Brazil notes that the second sentence of Article 61 re fers not only to imprisonment but also to
monetary fines. In China, low-level infringement s eems to be punishable at least with monetary fines
following administrative proceedings. It seems to be overly formalistic to assume that because a
domestic legal system qualifies monetary fines as ad ministrative penalties, the core substantive issue
of the deterrence capability of the remedy should be put aside.653
7.674 Canada submits that China's thresholds may ma ke available administrative remedies, but they
preclude the application of criminal penalties in ca ses that fall below the thresholds for criminal
liability. The thresholds create "safe harbours" in which professional infringers are free to carry out
wilful trademark counterfeiting and copyright piracy w ithout risk of imprisonment or monetary fine.
Rather than deterring infringement, the thresholds provide infringers clear parameters for committing
wilful trademark counterfeiting or copyright piracy with immunity.654

650 United States' first written submission, paras 164-166.
651 China's first written submission, paras 144-147.
652 Australia's third party written submission, para. 25.
653 Brazil's third party written submission, paras 39-42.
654 Canada's third party written submission, para. 12.

(c) Consideration by the Panel
7.675 The Panel observes that the United States has made this claim contingent upon the outcome of
its claims under the first sentence of Article 61 of the TRIPS Agreement. Additional findings
regarding this claim under the second sentence of Ar ticle 61 would not contribute further to a positive
solution to this dispute. Therefore, it is unnecessary for the Panel to rule on this claim.
5. Claim under Article 41.1 of the TRIPS Agreement
(a) Main arguments of the parties
7.676 The United States claims that China has failed to make the procedures and penalties required
by the first and second sentences of Article 61 "available" as required by Article 41.1 of the TRIPS
Agreement.655
7.677 China responds that the United States has faile d to show that China breaches its obligations
under Article 61 and therefore fails to show that China breaches its obligations under Article 41.1.656
(b) Main arguments of third parties
7.678 Argentina submits that China's measures do not app ear to be inconsistent with Article 41.1 of
the TRIPS Agreement. Article 41.1 should be read in light of Article 1.1, which provides flexibility
in implementation; Article 41.2 which requires Me mbers to ensure that enforcement procedures are
fair and equitable; and Article 41.5 which renders the obligation in Article 41.1 relative, not
absolute.657
7.679 Canada refers to its arguments regarding the clai ms under Article 61. Further, the fact that "a
plethora of counterfeit and pirated goods continues to be produced, reproduced and distributed in
China, and exported from China", makes it clear that China does not provide effective action against
wilful acts of infringement on a commercial scale and does not provide remedies that deter further
infringements, contrary to Article 41.1.658
(c) Consideration by the Panel
7.680 The Panel observes that this claim is consequent upon the outcome of the claims regarding the
criminal measures under Article 61 of the TRIPS Ag reement. Additional findings regarding this
claim under Article 41.1 of the TRIPS Agreement would not contribute further to a positive solution
to this dispute. Therefore, it is unnecessary for the Panel to rule on this claim.
6. Conclusions with respect to the criminal thresholds
7.681 The Panel recalls its conclusion at paragra ph 7.669 above that the United States has not
established that the criminal thresholds are incons istent with China's obligations under the first
sentence of Article 61 of the TRIPS Agreement.
7.682 The Panel exercises judicial economy with r espect to the claims under Article 41.1 of the
TRIPS Agreement and under the second sentence of Ar ticle 61 of the TRIPS Agreement (with respect
to the criminal thresholds).

655 United States' first written submission, paras 167-169.
656 China's first written submission, paras 148-150.
657 Argentina's third party written submission, paras 30-37.
658 Canada's third party written submission, para. 13.

VIII. CONCLUSIONS AND RECOMMENDATION
8.1 For the reasons set out in this Report, the Panel concludes as follows:
(a) the Copyright Law, specifically the first sente nce of Article 4, is inconsistent with
China's obligations under:
(i) Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1
of the TRIPS Agreement; and
(ii) Article 41.1 of the TRIPS Agreement;
(b) with respect to the Customs measures:
(i) Article 59 of the TRIPS Agreement is not applicable to the Customs
measures insofar as those measures apply to goods destined for exportation;
(ii) the United States has not establishe d that the Customs measures are
inconsistent with Article 59 of the TRIPS Agreement, as it incorporates the
principles set out in the first sentence of Article 46 of the TRIPS Agreement;
and
(iii) the Customs measures are inconsiste nt with Article 59 of the TRIPS
Agreement, as it incorporates the principle set out in the fourth sentence of
Article 46 of the TRIPS Agreement; and
(c) the United States has not established that the criminal thresholds are inconsistent with
China's obligations under the first sentence of Article 61 of the TRIPS Agreement.
8.2 The Panel exercises judicial economy with respect to:
(a) the claim under Article 5(2) of the Berne Convention (1971), as incorporated by
Article 9.1 of the TRIPS Agreement; and th e claims under Article 61 of the TRIPS
Agreement (with respect to the Copyright Law); and
(b) the claims under Article 41.1 of the TRI PS Agreement and under the second sentence
of Article 61 of the TRIPS Agreement (with respect to the criminal thresholds).
8.3 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations
assumed under a covered agreement, the action is considered prima facie to constitute a case of
nullification or impairment. China did not succeed in rebutting that presumption. Accordingly, the
Panel concludes that, to the extent that the Co pyright Law and the Customs measures as such are
inconsistent with the TRIPS Agreement, they nullify or impair benefits accruing to the United States
under that Agreement.
8.4 In light of these conclusions, the Panel recomme nds pursuant to Article 19.1 of the DSU that
China bring the Copyright Law and the Customs measu res into conformity with its obligations under
the TRIPS Agreement.
Concluding remark
8.5 In this dispute, the Panel's t ask was not to ascertain the existence or the level of trademark
counterfeiting and copyright piracy in China in gene ral nor to review the desirability of strict IPR

enforcement. The United States challenged three specific alleged deficiencies in China's IPR legal
system in relation to certain specific provisions of the TRIPS Agreement. The Panel's mandate was
limited to a review of whether those alleged defi ciencies, based upon an objective assessment of the
facts presented by the parties, are inconsistent with those specific provisions of the TRIPS Agreement.