One way for reducing piracy




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BEIJING -- China is beginning to make some progress on containing the
epidemic of piracy and counterfeiting that foreign businesses have long
complained robs them of sales in a crucial market. But some of its trading
partners, seeking faster action, are calling for a harsher approach.

Foreign-company executives, surveys and government officials all note
improvements. The biggest change has been at the top: Senior leaders
including Premier Wen Jiabao now declare that improving the protection of
intellectual property is a "strategic policy" for the nation. That is
because they want Chinese companies to climb out of low-end manufacturing
and develop their own technologies and brands -- which will need protecting.
Software producers like Microsoft Corp. have seen some of the clearest early

Enforcing such a shift on the ground isn't happening as quickly, however,
and the scale of the problem is still enormous. Hollywood studios and makers
of luxury goods continue to fret about the widespread availability of
illegal knockoffs of their wares on Chinese streets.

The mixed results have caused a split in the trade community on how to
proceed, with some U.S. and European officials increasingly arguing a more
combative approach is needed to ensure further action.

The piracy issue is likely to be on the table next month when Treasury
Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke visit
Beijing for the first round of a new U.S.-China dialogue intended to address
outstanding economic tensions. The talks are also expected to address U.S.
calls for China to open its markets further to American financial-services
companies, as well as U.S. demands that Beijing allow the yuan to rise
against the dollar.

Still, some companies are saying the direction of change is now clear enough
to allow them to invest for the future in the confidence that improvements
will continue. Pharmaceutical giants AstraZeneca PLC and Novartis AG this
year each committed to spending $100 million on research and development in
China. Drug companies depend on selling patented products, and both
companies cited China's strengthening protection of such rights in support
of their decision to invest.

"The positive momentum leads us to believe that things can only get better,"
said Keith Feldman, general manager of the international home-entertainment
unit of News Corp.'s Twentieth Century Fox studio. He said the improving
enforcement of intellectual-property rights is one reason Fox decided to try
to start selling DVDs in China, even though it must still compete with
illegal copies that can sell for less than a dollar.

"There's no question they have made progress," Secretary of Commerce Carlos
Gutierrez said in an interview this month during a visit to Beijing.

Surveys this year by the American Chamber of Commerce in China and the
U.S.-China Business Council found that roughly a third of each of their
members reported an improvement in enforcement of trademarks, patents and

Many of the changes started to happen after the government put together a
high-level task force on the issue in early 2005. Headed by Vice Premier Wu
Yi, the group in March produced an "action plan" committing the government
to several changes in legislation and practice.

One shift brought about by the plan has been a requirement that all new
computers sold in China come with legitimate operating-system software
already installed. Previously, most computers in China were sold as empty
boxes, and retailers often added illicit copies of software like Microsoft's
Windows and Office. Microsoft executives say they have seen a significant
pickup in sales since the new rule went through early this year.

China hasn't been able to make much progress in controlling the many
thousands of producers of illicit goods located across the country, ranging
from DVD factories hidden in chicken farms to car-parts plants that produce
knockoffs on the night shift.

Laws on the books prohibiting such activity are poorly enforced. Moreover,
financial penalties aren't heavy, and few piracy or counterfeiting cases are
criminally prosecuted, allowing many violators to stay in business after
repeated crackdowns. That is why the top priority for foreign businesses has
become tougher law enforcement and more criminal sanctions.

U.S. and European officials are also feeling increased political pressure to
do something about what critics call China's unfair trade practices. That is
creating division among businesspeople and government officials on the best
way to tackle one of the most significant trade issues they confront.

Some want to continue an approach they credit for much of the recent
progress: stressing to Chinese policy makers how piracy endangers China's
own prosperity, rather than how much it hits the bottom lines of
multinational companies. The more hawkish, however, feel negotiations have
produced too much talk and not enough action and increasingly want to use
international trade law to force more changes.

"There is no division on the goals: tougher enforcement, revision of the
criminal code and more criminal sanctions. But there is some division on
tactics, on how we reach those goals," said Myron Brilliant, vice president
for Asia at the U.S. Chamber of Commerce.

A congressional commission in October called on the Bush administration to
take a case against China's intellectual-property practices at the World
Trade Organization -- an action considered the weapon of last resort in
international trade disputes.

U.S. trade officials say they have been preparing for a case but for the
moment want to continue with negotiations.

A WTO case -- in essence, a highly public and official statement that China
is violating treaties it signed -- could cost the plaintiff a lot of
goodwill in Beijing. Chinese Minister of Commerce Bo Xilai said this month
that a WTO case by the U.S. would have a "very negative impact" on its
relationship with China. China will make further improvements, he said, but
the process will take time. Chinese officials have told visiting negotiators
that a WTO dispute would weaken those within their government who are
pushing for more action to protect on intellectual property.

---- Michael Phillips in Washington and Jason Dean and John W. Miller in
Beijing contributed to this article


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