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R 230844Z MAR 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 5916
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UNCLAS SECTION 01 OF 04 GUANGZHOU 000376 
 
SIPDIS 
 
USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE, RIGOLI 
STATE FOR EB/TPP MASSINGA, FELSING 
STATE PASS COPYRIGHT FOR TEPP 
STATE PASS USPTO FOR DUDAS, BROWNING, ANTHONY, THURWACHTER, COHEN, 
WONG 
STATE PASS USTR FOR ESPINEL, READE, MCCOY, WINTER, CELICO 
USDOJ FOR SUSSMAN 
DHS/CPP FOR PIZZECK 
USPACOM FOR FPA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: KIPR ECON ETRD WTRO CH
SUBJECT: USTR's Second IPR Provincial Review to South China 
Highlights Regional Differences 
 
REFERENCE: A) Guangzhou 51; B) 06 Guangzhou 32379; C) 06 Guangzhou 
29875 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (SBU) SUMMARY: A USTR-led delegation traveled to four cities in 
Fujian and Guangdong provinces March 12-15 to engage local leaders 
on IPR issues and raise specific areas of concern. Provincial and 
municipal-level officials seemed engaged in IPR issues and often 
said the right things, but their commitment to enforcement and 
transparency varies significantly. Copyright enforcement -- in 
CDs/DVDs, software, textbooks, and the internet -- is a priority for 
provincial officials but also presents the biggest challenges. In 
Xiamen, home of one of China's largest ports, Customs enforcement is 
a top concern for the local government. In Putian, the center of 
China's shoe manufacturing industry, local protectionism continues 
to stand in the way of real enforcement. USTR urged local officials 
to improve transparency, transfer more cases to the police, target 
internet piracy, and assist foreign SMEs. The visits are part of 
USTR's provincial review of China, announced in the Special 301 
Report issued in April 2006, and follow a similar trip in August 
¶2006.  END SUMMARY. 
 
Background on the Provincial Review 
----------------------------------- 
 
¶2. (SBU) In an effort to pinpoint the problems in China's IPR 
enforcement system and develop more effective solutions, USTR has 
focused on regional IPR enforcement. The 2006 Special 301 Report 
names Guangdong as the center of large-scale counterfeiting in China 
for goods ranging from low-cost consumer items to electronics. In 
Fujian, the report highlights widespread production of counterfeit 
athletic shoes, among other products. In August 2006, USTR led an 
interagency delegation to Guangzhou, Dongguan, and Shenzhen in 
Guangdong Province and Fuzhou in Fujian Province (ref C). USTR's 
planned second trip to Guangdong and Fujian in December 2006 was 
canceled at the last moment because provincial authorities, under 
order from the central government, denied all of the meetings. 
 
¶3. (SBU) This time the USTR-led delegation visited Xiamen, Putian, 
and Fuzhou in Fujian Province and Guangzhou in Guangdong Province. 
Chinese authorities approved the meetings only days before the trip 
began and downgraded the official level of most of the meetings by 
two grades. The ranking official at the August 2006 meetings was the 
deputy secretary general; in this instance it was deputy division 
chief except in Guangdong, where the head of the provincial 
Intellectual Property Office chaired the first part of the meeting. 
Attending the meetings on the Chinese side were the Intellectual 
Property Office (IPO), Copyright Bureau, Culture Bureau, 
Administration of Industry and Commerce (AIC), and Foreign Affairs 
Office (FAO). In addition, a Customs official attended the Xiamen 
meeting, a Public Security Bureau (PSB) official attended the Putian 
and Fuzhou meetings, and a PSB and Technical Supervision Bureau 
(TSB) official attended the Guangdong meeting. On the U.S. side was 
Stanford McCoy, USTR's Chief Negotiator on IPR, Todd Thurwachter, an 
IPR Attache in Embassy Beijing, and Conrad Wong, USPTO Attorney 
Advisor and future IPR Attache in Consulate Guangzhou.  Econoff and 
Econ Assistant accompanied. 
 
Guangdong: Medicines, Internet, and Landlord Liability 
----------------------------------------- 
 
¶4. (SBU) McCoy opened the meeting with Guangdong Province officials 
by highlighting some of the positive developments in Guangdong since 
his August 2006 visit: a successful campaign against stores selling 
fake drugs, including Lipitor and Viagra; AIC's apparent interest in 
using landlord liability laws to clean up local markets; the opening 
of IPR complaint service centers; and enforcement actions by 
Copyright to shut down websites that provide pirated textbooks. He 
also noted continuing areas of concern: 81 percent of counterfeit 
goods seized by U.S. Customs in 2006 originated in China -- with 
Shenzhen's Yantian and Shekou among the top five ports of lading; 
the mechanics of both administrative and criminal enforcement 
continue to lack transparency; increasing numbers of internet sites 
sell fake products; a need for enforcement actions at universities 
to coincide with the beginning of school terms; and infringers use 
 
GUANGZHOU 00000376  002 OF 004 
 
 
express mail carriers to ship goods abroad. 
 
¶5. (SBU) Guangdong PSB'S Li Shanxiong stated that the PSB focused on 
important industries such as pharmaceuticals and textiles, and noted 
cooperation with U.S. comapanies such as Pfizer and Proctor & 
Gamble. (McCoy acknowledged that both companies had complimented 
these efforts.) Guangdong AIC's Wu Lichao did not elaborate on plans 
to use landlord liability laws to clean up markets, but said his 
agency will follow the precedent established in Beijing's Silk 
Street case. Copyright's Guo Xiuwen said her office is currently 
implementing a program which verifies that large-scale enterprises 
use legitimate software, and will target SMEs during the next phase. 
Through its actions, Copyright closed seven pirate music websites in 
2005 and has convinced many popular websites to stop providing 
illegal music and software and many have established copyright 
protection divisions as a result. Illegal internet gaming sites will 
be the target of the next campaign.  On textbook piracy, she 
referred to a past campaign in 2003. Culture's Chen Ang said 
Guangdong has China's largest volume of A/V products and noted that 
his agency has increased its staff from 400 to 1,300 to improve IPR 
enforcement. He cited close cooperation with MPA and IFPI and said 
local offices are encouraged to transfer cases to the PSB. McCoy 
encouraged Guangdong officials to target counterfeit CD/DVD 
manufacturers for criminal enforcement in the future. Culture stated 
that it was considering intensifying work on criminal transfers, 
which were already emphasized. 
 
¶6. (SBU) IPO's Zhu Wanchang said Guangdong has eight municipal-level 
courts that accept IPR cases. IPR protection at trade fairs is a 
priority for his office. (According to David Buxbaum, head of 
AmCham-South China's IPR Committee, China's trade fair regulations 
do not state clearly how companies can pursue infringement cases 
outside of fairs -- an important avenue for rights holders.) TSB's 
Liang Lixin said the TSB Guangzhou special investigation office, 
which handles IPR cases, has gone from a staff of 30 to 130 in 
recent years. TSB has seen a double-digit increase in case transfers 
to the PSB, in part because local offices receive monetary awards of 
RMB 2 million (USD 260,000) for doing so. MORO's Zhou Lijun said 
Guangdong has established IPR complaint centers in Guangzhou, 
Shenzhen, Zhanjiang, and Shantou. Rights holders can also lodge IPR 
complaints on MORO's website, which MORO is then required to refer 
to relevant agencies in a timely manner. 
 
Fujian: Footwear and Copyright 
------------------------------ 
 
¶7. (SBU) McCoy opened the meeting with Fujian Province officials by 
commending recent positive steps: a criminal case in Xiamen 
involving internet sales of infringing music and movies; a 
successful campaign against counterfeit medicines in Fuzhou and 
Xiamen; national-level regulations governing case transfers between 
Customs and PSB authorities; and the decision by central authorities 
to make permanent the 100 Day Campaign against pirated A/V products. 
He also noted continuing areas of concern in Fujian: Xiamen is among 
the top five ports of lading for counterfeit goods seized by U.S. 
Customs; Putian is a major source of counterfeit footwear; Xiamen 
PSB has shown a lack of initiative in investigating retail copyright 
criminal cases; and university campuses remain a center of textbook 
piracy. McCoy also encouraged Fujian officials to be sensitive to 
the complaints of small foreign companies. As an example, he noted 
that U.S. art printing companies have identified Fuzhou's Minhou 
County as home to a large number of infringing printers. 
 
¶8. (SBU) IPO's Lin Jinyuan welcomed more data from the U.S. 
government regarding IPR infringement in Fujian. He said Fujian IPR 
agencies have improved interagency coordination and are transferring 
more cases to the PSB. He also touted Fujian's recently established 
IPR complaint centers and noted that the Fujian high court and six 
cities have IPR tribunals. A Copyright official said all municipal 
and county government offices now use legitimate software. 
Copyright verifies that computer manufacturers install legitimate 
software, and will inspect large enterprises this year to confirm 
they use legitimate software.  He stated that enterprises that fail 
future inspections will be placed on a public blacklist, and 
end-user piracy cases will be transferrred to criminal authorities 
if criminal thresholds are met. Copyright is also planning a special 
campaign against textbook infringement in 2007 to coincide with the 
 
GUANGZHOU 00000376  003 OF 004 
 
 
beginnings of the spring and fall semesters. With respect to poster 
production in Minhou County, Copyright has not received complaints 
from right holders.  PSB's Zhu Guichang said the Economic Crimes 
Investigative Division has a special team devoted to IPR crimes and 
has seen good cooperation with administrative bureaus. McCoy praised 
the provincial PSB for pushing local PSB offices to conduct raids, 
citing Nike's experience in Putian as an example.  Fujian officials 
also stated that they send IPR officials to major Guangdong trade 
fairs, providing a possible avenue for right holder complaints. 
 
Xiamen: Customs Enforcement 
--------------------------- 
 
¶9. (SBU) Xiamen Customs has jurisdiction over approximately half of 
Fujian province, including the port cities of Quanzhou and 
Zhangzhou, and has a special division that handles IPR enforcement. 
According to Xiamen Customs' Zhang Wei, the International Customs 
Association presented awards to two Xiamen Customs officials in 
¶2006. He said Xiamen Customs believed that transfer to criminal 
authorities was one of the most effective means of addressing 
copyright infringements, and that integration of civil, criminal, 
and administrative remedies was critical to fighting copyright 
infringements. Wei added that his office has worked closely with 
foreign rights-holders such as Nike, Microsoft, QBPC, and the 
International Olympic Committee. Though Xiamen Customs does not 
always have sufficient staffing, he said training is always 
provided. McCoy praised the close cooperation between U.S. companies 
and Customs officials and encouraged Xiamen Customs to fully exploit 
China's 2006 regulations on the transfer of cases from Customs to 
PSB. In response, Zhang said his office has already transferred 
cases, including one involving Nike. (Nike's Wei confirmed this and 
said it is an encouraging step. However, he commented that the time 
delay between seizure and investigation gives counterfeiters time to 
disappear.) 
 
¶10. (SBU) McCoy also highlighted the importance of internet piracy 
enforcement, and noted a 2006 case in Xiamen's Huli district in 
which two men who operated a website providing illegal music 
downloads were sentenced to prison. Xiamen Copyright's Wang Weihua 
said his office has a working group that deals exclusively with 
internet piracy and operates a telephone hotline for tips on 
internet piracy cases. Xiamen Copyright sends representatives to an 
annual summit of China's internet search engine companies, which has 
been held in Xiamen in recent years. Culture's Lei Longtong said his 
office transfers cases involving over 1,000 infringing CD/DVDs to 
the PSB. McCoy encouraged authorities to step up enforcement on 
university campuses, particularly during the beginning of semesters. 
 McCoy also noted that the local PSB had declined to pursue industry 
complaints against large-scale retailers of pirated optical media on 
grounds that such cases should be raised with Culture authorities. 
 
Putian: Shoes and More Shoes, but Little Action 
--------------------------------------- 
 
¶11. (SBU) McCoy opened the meeting with Putian officials by saying 
that almost half of U.S. Customs seizures of counterfeit products 
are of footwear, noting that Putian is a center of China's footwear 
industry. Putian IPO's Chen Kaiping cited a 2006 campaign against 
fake shoes and added that infringing factories in Putian are 
small-scale, rural "workshop" operations and thus difficult to 
track. He noted that local government had an interest in pursuing 
illegitimate enterprises because they did not follow labor laws. 
Putian's IPR enforcement officials have three areas of focus: 
verifying that OEMs produce legitimate brands, confirming that 
trademarks are legal, and monitoring import/export channels. PSB's 
Wu Jiangshan said the Mountain Eagle campaign remains a focus and 
his office publicizes big cases. When McCoy asked him to provide 
information on some of these cases to Consulate Guangzhou, he was 
noncommittal.  He stated that local authorities received good 
cooperation from foreign right holdrs such as Nike, Adidas, and 
Puma.   McCoy also raised a case involving Anheuser-Busch, in which 
an unlicensed bottler (Jinshi) is allegedly using Budweiser's 
Chinese name and visual elements confusingly similar to 
Anheuser-Busch trademarks on its labels. The officials promised to 
raise the issue with the Putian AIC, which was not present. 
 
¶12. (SBU) Following the meeting, Nike representatives led the 
 
GUANGZHOU 00000376  004 OF 004 
 
 
delegation on a tour of Putian and pointed out several large 
factories that had been the subject of local enforcement actions led 
by provincial officials, contradicting local officials' assertions 
that the problem was mainly in small worksops. A large factory with 
apparently modern facilities, Rino, is currently the defendant in a 
civil case brought by Nike in the Fujian High Court. In preparing 
for that case, Nike successfully requested two separate preliminary 
injunctions from the Fujian high court: one for search and seizure 
and the other for cease and desist. (AmCham-South China's Buxbaum 
commented to the delegation that court injunctions in IPR cases are 
extremely useful and foreign rights-holders do not use them enough.) 
 
 
¶13. (SBU) The Nike reps pointed out other factories that produced 
fake Nike shoes in nighttime shifts, when authorities were least 
likely to inspect. They suspected Nike factory staff have cooperated 
with some of the infringers. Because Putian officials are 
notoriously corrupt, Nike always contacts provincial authorities 
first, who then typically work with Fuzhou City officials to conduct 
raids. (In 2005, a Putian PSB official allegedly asked the Nike reps 
for a RMB 100,000 payment (USD 13,000) for each infringer shut 
down.) Enforcement authorities still do not provide Nike with lists 
of seized goods after raids done in Putian.  Nevertheless, they said 
administrative fines -- which typically range between RMB 200,000 
and 500,000 (USD 26,000 and 65,000) -- have a deterrent effect on 
infringers. 
 
Comment: Local Enforcement is a Mixed Bag 
----------------------------------------- 
 
¶14. (SBU) Though government officials largely stuck to their talking 
points during the meetings, they also provided valuable insights 
into their priorities and recent actions. Guangdong and Fujian 
province officials are targeting copyright infringement and are 
adding resources to relevant offices. Nevertheless, it seems 
unlikely that local officials have the training and initiative to 
tackle large-scale counterfeit rings, particularly those operating 
over the internet and in multiple jurisdictions. On the municipal 
level, Xiamen has a proactive Customs office and U.S. companies have 
told us they are cooperative. Nevertheless, street-level counterfeit 
markets, though not as prevalent as in Guangzhou, continue to exist: 
we visited a street of well-marked shops selling golf equipment that 
they readily admitted was counterfeit. Putian authorities, on the 
other hand, provided almost no useful information and seemed 
entirely uninterested in a future dialogue. Industry complaints of 
severe local protectionism in Putian seem to be justified. 
 
¶15. (SBU) The meetings were also an excellent venue for us to state 
clearly for the Chinese side our areas of concern, building upon 
information gathered from industry and the August 2006 provincial 
review, and laying down markers for future interactions with key 
local governments. In these large meetings with numerous agency 
representatives, it is crucial to step in early to make these points 
-- before the Chinese side has a chance to launch into long, 
sometimes uninformative presentations. By clearly stating areas of 
concern early, as well as praising recent successes, the Chinese 
side was more likely to tailor their remarks to our interests. 
 
¶16. (U) USTR has cleared this cable. 
 
ROCK