Assistant Secretary of Commerce for Market Access and Compliance William Lash's Press Conference

U.S. Embassy Beijing
April 12, 2005

Posted on Apr 14, 2005

MR. LASH: Yes, it's a pleasure to be back here in Beijing. We had a good series of meetings with our counterparts at MOFCOM, meetings with the Ministry of Culture, American Industry, as well as students at UIBE. Throughout this visit, our focus has been on the importance of IPR and China. A topic we have spent much time on over the past four years. Last year when I was here, I used the term "Epidemic" when I was talking about piracy in China.

I pointed out that the U.S. has damages of 20 to 24 billion dollars a year from piracy in China. The epidemic has clearly spread. Piracy, we believe, is actually getting worse. We went back to -- we've never been to the silk market. I don't need to go to the silk market. We go to Hongqiao. We go to other stores, other vendors, some on the street. All at fixed locations and find that the breadth of piracy continues to grow, sophistication of piracy continues to grow. And the damage of piracy continues to grow.

The steps taken by the government for public education is very important. The honest citizens of China have a lot to gain by protecting IPR. It creates jobs. Creates innovation. Rewards competition. Pirates don't need education. Pirates need jail time. Pirates don't respect rules. Pirates respect force.

And I think it's important that we continue to work cooperatively with our colleagues in China to focus on eradicating piracy at the source. Put fear into the pirates to drive them off of the streets and into prisons where they belong. I could do a couple of brief examples if I could.

First a little magic trick, because everyone likes cards. The very famous American product, the very old Bee Playing Cards set. Bee Playing Cards have been made in Cincinnati, Ohio, for about one hundred years. Nothing fancy just simple, well-laminated cards. About two years ago, we found something in Hongqiao being sold, also Bee Playing Cards. Identical markings. Cases all the same. The difference is the counterfeit says "Bee Playing Cards ISO 9001 Quality System." But the drawback is the word "Quality" is spelled wrong. That made it a counterfeit.

Then we worked and found another set. The Beb Playing Cards, Beb, which has no meaning in English or Chinese to my knowledge -- identical packaging. Now, we've got three. Recently, I bought decks for my friends in America imported from China. Inside there were the Bin Wang Playing Cards and my favorite, the Drone Playing Cards. Each card identical to the original Bee. Each card claiming to be the original licensee and having the full rights of design. That was an easy case of piracy, Beb, for example.

We find pirates have also expanded. While in Beijing, my colleague found this jacket. We looked at it. The label was fine. Interesting, when you pull off the label, it says "North Face." The pirates are using that to evade enforcement. Again, another patch was ripped off, it says "North Face."

We have other examples like that. In Hongqiao, at a licensed store -- licensed – in a big location. License clearly displayed, we found this Kate Spade bag and this Coach bag all saying "U.S.A" or "New York." Again, the production shows it is certainly not a U.S. product. I tore it almost in half.

Last year involved New Balance shoes. New Balance, an American product, we found a knock-off "New Barlun." I’ve been to many universities. I've been a professor. I've written books. I could not find the word "Barland" anywhere. Identical markings.

Identical. No difference. Other than quality, you can tell there is very cheap inexpensive glue on the New Barlun shoes.

Last year, I had a golf club. That you might remember. And I gave out the address and phone number where I bought the golf club. Here’s another golf club, a Ping golf club, a famous U.S. brand. How did I know it was counterfeit? I only paid 200 RMB for it. And in the States this would be, you know, about a hundred bucks, eighty bucks?

Eighty to one hundred dollars. I paid 200 RMB for it. And then at the same exact location, by the way Friendship Golf, Juan Wan Min, 17 Juan Wi Street and it says very proudly cheaper price than the others. When you don't pay for the licensing and design, imagine what you could do. Pirates don't pay the full freight.

And again other products we managed to find in the same golf store, which expanded at the -- by that time, they would -- they gave you a receipt of this very kind. Also Timberland, this cost me 60 RMB. It's a company located in New England, U.S.A. -- sixty. These Polo shirts cost 35 RMB. I am not that good a shopper. Clearly there were more pirated goods coming in. And you can't have a successful IPR visit to Beijing without dealing with DVDs.

Interestingly enough, we find, for example, Sin City, which just came out a week ago in the U.S. with Bruce Willis, a counterfeit. Also, how do I know it's a counterfeit? Well, A) it's still in the theaters in the U.S., hasn't sold here. But reading the back, the description of the film says, "Film will -- will there is, main line in three stories. The sins of the most watched City speak is (Unintelligible) that Mickey played. Because it has with him the beautiful women of the one night stand dies into the cause of he (unintelligible) that rises. Be prepared to be big in the City to open the rule against killing." Whew.

That’s writing. And also "The Pacifier" by Vin Diesel. Again, better packaging than pirates in the past. But also points the thing out "In Theaters March 4th." I've never seen a movie in the top -- top five in the country in the U.S. be in DVD in a -- basically, a month in China. Even more challenging, the producer of this film, The Pacifier, is the son of Dan Glickman. Mr. Glickman is the President of the Motion Picture Association of America. The group is charged with trying to fight piracy. And I will give this to Mr. Glickman personally upon my return to Washington.

When I spoke with our colleagues about piracy on this visit we were told the new interpretations would be effective in helping to fight piracy. Well, I got an email last night from Zippo—a company that's been fighting piracy for several years in this country at great personal expense. And they explained that there had been a case in Wenzhao Province where the AIC had done a raid and confiscated 40,000 lighters. That's the good news. But because they valued these Zippo lighters at .5 to 1.2 RMB, it fell under the criminal threshold. I bought Zippo lighters in Hongqiao during this visit. Counterfeits plainly made in Bradford, Pennsylvania, U.S.A. Again, the price being paid even for the counterfeits was about six to eight dollars, minimum.

This artificially low evaluation by AIC in Wenzhao stymies real progress against fighting pirates. It's a slap in the face to companies that fight to do the right thing. And it mocked the judicial interpretation. When I met with our colleagues during this visit, I got several books including this one on Intellectual Property Protection in China. And the most important things I felt in this book were the facts on number -- the amount of total fines in China for IPR violations -- trademark, copyright, patent.

Now, I went through the entire number -- the entire number of fines -- amount of fines was about 30 million dollars. Sounds good until you realize that if you take U.S., European Union, and Japan, just those three economies together, our losses in piracy are well above 60 billion dollars in China. So, the total amount of fines in the country in 2003 equaled, by my calculation, 1/20th of one percent of the amount of damage caused by piracy.

We appreciate the efforts and the spirit of our colleagues. We appreciate the goals of law enforcement. And we most importantly appreciate the education being given to Chinese consumers. But we must go after pirates and give them something they will take seriously. If I'm told I'll be fined 1/20th of one percent of any criminal activity, that's not deterrence. That's not even a licensing fee. That's not even small change. Pirates will only respect force. Pirates will only respect prison time. Thank you. I'll be glad to take any of your questions.

QUESTION: You said last year -- last August that you might take a turn at the WTO for failure to crackdown on piracy. Are you still planning to do that? It sounds like you are given how agitated you are when talking about piracy.

MR. LASH: I hope I don't seem agitated.

AUDIENCE: Laughter.

MR. LASH: What it is is passion. No, what I said last year -- well, this year, that we're not ruling out any options when dealing with this issue. We continue to have constructive bilateral dialogues. We continue to work with our partners and educate them to the nature of the piracy, the damage of the piracy. And continue to help them with training and other opportunities. But we're not forgoing any options. Yes, sir.

QUESTION: From the Voice of America. How can the Chinese balance anti-piracy measures with keeping the social stability since many Chinese people rely on the counterfeit goods to make a living?

MR. LASH: Sure. Sure. A good example. This club has been borrowed by our own experts with the Embassy. I'm not a golfer. So, people I know who play golf, you know, competitively, looked at this club and said, "This is not a bad club. It has good balance. It had good weight." The only objection is stealing the name. If this was called the Beijing Blaster or the Great Wall driver, take your pick, and market it; people would open their market to Chinese products. We'd open our market very heavily in the United States to the, you know -- the Chinese product. It's a 106 billion-dollar trade deficit.

There's no problem with market access. What we object to is the theft of our identities. What we object to is the stealing of our brand names our R&D, our innovations. This is a wide open market. Converting this to a legitimate product, everything here. That jacket was a good jacket. My team bought it, put it on, hey, it looked warm. No one saw the patch. We never saw – we’ve covered pirate stores around the world. We've never seen patches sewn over name brands before. We have never seen that. We were duped.

But if that jacket was called, you know, again, the Beijing Bundler, whatever, consumers would have bought it. It was a good -- a decent product at a decent price. What it was not was a North Face. What it was not was a legitimate top rated product.

QUESTION: From the Spanish News Agency. Then if the product's so good and the quality is acceptable, why are they still putting the brand names? I mean are their customers not going to buy them or are these products bought only in China or are they being re-exported?

MR. LASH: I have dealt with companies from around the world. From Afghanistan, Saudi Arabia, Latin America, Chinese counterfeit products are everywhere. Not just jackets and sweaters and purses that fall apart -- golf clubs. How about auto? I've seen auto parts. I've seen counterfeit brake fluid. I was going to a meeting the other day in Beijing. I came very close to a bus. Our driver hit the brakes and I'm saying, "Please, have the real brake fluid in the car." One of the things that has to be done is converting some of the economy to a legitimate economy. Using -- you can sell and you can compete. You, simply, can't cheat. Developing your own brands. What China is doing is so many other products. In telecommunications around the world, they've been competitive using Chinese names.

In most of the products sold in the U.S. Again, legitimately selling under Chinese brands. That's appropriate. It's when someone believes they can charge a premium for a particular product. If I could pass off my New Barlun for a New Balance, I could extract a higher rate and that gets to the soul of the pirate. And also in these cases, the products are not all good quality. I’ve never torn a purse in half in the United States. I'm not that strong.

The fact is that some of the products are substandard clearly. You know if a consumer were to buy this, they would be a little disappointed after a week with the cardboard and the hard, artificial thin stitching. But imagine when it becomes medical devices, pharmaceuticals. That's where the question of not just piracy but quality. And the endangering of lives not just in China, not just in the U.S., but in the developing world. That's the part that's got to be fought. Yes, sir.

QUESTION: (Unintelligible) Chinese Business News. You complain of the fines here being too low. I wonder what is your suggested appropriate level of fines (unintelligible) with them?

MR. LASH: Sure. Again, well, the old -- the basic doctrine of criminal law around the world is that the punishment must fit the crime. I think there is a -- many of the pirates clearly are not being intimidated. When you're operating with a license in a store in Hongqiao, clearly you're not afraid of the police. When you're handing me your business card to Friendship Golf and telling me you've got cheaper prices and I come back. And you've expanded because last year it was just golf clubs and bags and shoes. Now, they have a full range of textile and apparel products.

Yeah, they’ve got to determine what it takes to deter people. It also increases the amount of people who are going to prison. That -- these reports talk a lot about cases being referred but not about actual jail time. Sentences actually being served. We need to see more vigorous enforcement and pirates being punished.

QUESTION: (Unintelligible).

MR. LASH: Again, that is for our colleagues in China to determine for themselves. They know what it takes to deter pirates. But again, if I'm stealing a thousand dollars worth of product, clearly you can't -- you must fine me well above that thousand dollars for me to be deterred. When I had that Zippo case I had mentioned in Wenzhao, where I had 40,000 units. Now, for the AIC to come in at 1.2 RMB per unit is not justice. It's barely comedy. Yes, ma'am.

QUESTION: Hi, I'm from AP. In your meetings this time, does the Chinese side say anything new in terms of what they might do to stamp out piracy? And also, did your discussions touch at all on China's rising textile exports?

MR. LASH: Sure.

QUESTION CONTINUED: Since January 1st?

MR. LASH: Oh, we’ve talked about -- we talked about both. We talked a lot about -- the Ministry of Culture talked -- the Ministry of Culture told me the problem's been solved. So, I guess I must have been shopping around the wrong city. That there was no problem. I think -- I invited the Ministry to go out and walk around Beijing and visit the stores. And see, yes, in fact, there are pirates here. You would be glad to know according to the Ministry of Culture, there are no pirated software on machines in Internet cafes. Astounding. Because that's also not -- not true, not accurate.

They questioned numbers. Again, there was not -- there was more of a question of blaming companies, according to the Ministry of Culture, than looking inward to see how they can strengthen enforcement. Regarding the -- the Ministry of Commerce -- the Ministry of Commerce was, again, far more engaged, knowledgeable and willing to work more constructively with our team to try to head off this problem

When we talked about textiles briefly. (Unintelligible), the new Safeguard Investigation. That's only investigation of Chinese textiles in three sectors; underwear, men's' knit tops and men's' pants. Well, that came because we saw a surge of 1,200 per cent increase in those three product lines the first quarter of this year. It would irresponsible economic and trade policy for any government not to do an investigation to see the causes and the outcomes and the future of this type of surge. Is it sustainable? This investigation and these safeguards are totally WTO consistent and part of China's WTO's accession agreements and the European Union had similarly imposed a -- started a safeguard investigation because they also were seeing similar surges of imports.

You know, I'll put it into context. If you see an increase in one quarter of 100 per cent, that's double. That's a pretty big number. When you see a surge of 1200 per cent, it is unprecedented. And that required investigation and our colleagues in China understand that. And they'll have a chance to comment, have counsel to go through the investigation. It will be a very fair and transparent process. Yes, sir.

QUESTION: Have you seen a lot of (unintelligible). There's been a lot of news reports, especially, and a lot of talk, that if an investigation on the textiles goes through and the orders are going to be instituted, it will -- it will lead to a trade war. Would that -- is that a fear that will spill over into the efforts to control the piracy?

MR. LASH: You know. I'd say first and foremost, I can't prejudge. No one can prejudge the outcome of the investigations, when they have barely started. They're going to notification. So, I can't comment on anything like that. But I also will point out one thing. This is a very important bilateral trade relationship. Both sides have a lot to gain by increased cooperation, increased dialogue, increased trade and commerce. So, I don't see -- all I see are issues that need to be addressed amongst colleagues, friends and partners. Yes, ma'am.

QUESTION: Back to the U.S. threat to take China to the WTO.

MR. LASH: First, I'll tell you, there's never been a threat. There is no threat to take them. There's always been a question of saying, "We will not forgo any options."

QUESTION: Okay. I'll rephrase my wording.

MR. LASH: No problem.

QUESTION: What was the -- China's response to this potential -- potential public conflict in front of the WTO then? And my second question is --

MR. LASH: We'll take them in order. And I'll answer that first question first. Again, all we've had have been discussions that they know how serious these issues are. And that we continue to work together, communicate and work collaboratively to fight piracy. It's in China's best interest and their economic future, to attract high-tech investment. To let her people develop first-rate brands like they have in telecommunications. To continue to work with the U.S. collaboratively and with their other partners collaboratively. As well as their role as a world leader to make sure that pirates are not injuring consumers in the industrialized world as well as in the developing world. Next question.

QUESTION: Right. We know that Avon was just given permission to do direct sales at the trial stage. Are you satisfied with the pace the government is opening up in terms of allowing direct sales? And what other companies are likely to get the right that Avon got?

MR. LASH: Well, again, there's -- the direct sales issue has been pending since 1998 when the ban on direct sales went into effect. We've made it very clear that in their WTO commitments, China must liberalize and open up direct sales. The Avon direct sales that are occurring right now on a trial basis, are only Tier One direct sales. We still fully expect China to comply with their obligations to allow direct sales at multiple tiers with public regulations that our colleagues and or partners can evaluate and open up to other companies.

These are creating opportunities not just for companies around the world but for Chinese entrepreneurs. One of the first steps towards independent -- towards economic liberty and towards independence is economic freedom. Giving people a chance to join the world of direct sales. That would be a good way of empowering millions, hopefully, of Chinese aspiring business people. Yes.

QUESTION: Except for government's efforts, do we see any possibility for marketing enterprises stopping the piracy and finding the ultimate solution in China? This is my first question. My second question --

MR. LASH: Well, one at a time, I got -- my brain is small. I have to compensate.

AUDIENCE: Laughter.

MR. LASH: We find great opportunities for companies in China. I was here today, this morning, at the Machine Tool Show at the American Pavilion. Big and small American companies were here talking with Chines consumers, Chinese companies. The whole experience will be a very positive market and very good opportunities. Again, our exports have increased to China this year.

What we really want to make sure of that is that as China continues to live up to the full range of WTO obligations, freely entered into by China, that American and Chinese firms can gain by the new transparency and new openness. Next question, ma'am.

QUESTION: My second question is; was there any progress in this year for granting market economy status to China?

MR. LASH: Under our Joint Commission on Commerce and Trade, JCCT, we have a working group focusing on market economy. And then in that group they review China's progress as well as the factors that we use as a government to determine whether market economy status can be granted. Market economy status is significant only for anti-dumping cases, first and foremost. There's nothing -- it does not negatively impact investment that I've seen in China, and negatively impact on trade with China.

But the factors include things like convertibility of currency, freedom of foreign investment, free-floating wage rates, factors of production and also other factors. Those are all things that are all under review while we continue to have very robust, very good constructive discussions with our colleagues in China under the JCCT working group on market economy status. Yes, sir.

QUESTION: I have one question. A few American companies have lowered the prices of their products in China, as a way to fight the piracy in China. Do you believe it's a very effective way to do that?

MR. LASH: I think every company has to make their own determination in China, or globally, how they want to compete, and how to fight piracy. Even if I were to make and sell a DVD for one RMB, I couldn't compete with the speed of the pirates or the packaging. The pirates put out a movie that -- this movie is not available in New York or LA or anywhere else in the U.S. legally. The pirates compete on speed. When we spoke with the Ministry of Culture, we talked about the necessity and the importance of improving the process for reviewing DVDs to be sold. Video games software to be sold. So that American companies, and other international companies, could help narrow the gap with the pirates on speed and market access. Because that speed of bringing -- we could never be as fast as a pirate. No company, no major film producer wants to release a film and a month later have it on DVD. But getting faster approval for when we decide to bring that product to market, that will be an important step in fighting piracy.

QUESTION: I'm from APTM. You mentioned earlier that you've seen lots of Chinese pirated products all over the world. Could you describe how that pipeline of piracy products is set up? How you could fight it and how you're doing with the fight against piracy in the United States?

MR. LASH: Sure. We take it in various steps. The manufacturing that occurs in China is, obviously, the root of much of the piracy. Once the piracy manages to ship or transship out of China to a major port -- it could be Dubai, it could be Hong Kong, it could be Singapore. Any major port, the pirates have used and I found pirated products literally in the jungles of Paraguay. I found them -- I've heard about them in Afghanistan. I've seen them in Saudi Arabia. I've seen them throughout Russia, Middle Eastern Europe and of course in my own country as well.

What we are doing as a country to fight piracy, we recognize very clearly and hope our colleagues in China recognize, that pirates are organized crime. They have labor, production, marketing, packaging, distribution and logistics. The governments are focusing typically on one small part of it. Each ministry, each agency. We've organized a program called STOP, Strategy Targeting Organized Piracy. Bringing together our Customs Officers, our Department of Justice prosecutors, and our commerce officers around the world and in Washington, D.C. All working together to help fight piracy.

Working with companies, the companies understand their rights. Working with consumers, they could be educated to help spot piracy. But most importantly, we share information about prosecutions. Because in America, I can tell you, the people engaged in this will be making a new product. Making big rocks into little ones. They would be in jail. They would not be stuck wearing New Balance shoes or fancy sweatshirts. They would be wearing an orange jumpsuit of a prisoner. The enforcement is what drives them and our penalties and our fines are quite severe. Hopefully, many of our counterparts recognize that the WTO requires effective IPR protection. Let's have one more question.

QUESTION: Two, if I may. The first question is on piracy in the U.S. Recently, I talked to a student that I know -- a college student. She told me that it is considered sort of old-fashioned to buy pirated DVDs nowadays because you can get it so easily from Internet downloads. And this is quite widespread in America as well. And if those are the things the U.S. Government acknowledges doing very well in solving that problem. What comments do you have on that?

MR. LASH: Sure. First, I can't comment on the opinion of one student. I was a professor. I taught thousands of students and I can tell you it's never considered old-fashioned not to steal. It's never considered old-fashioned to be honest. It's never considered old-fashioned to obey the law.

I know that when we're dealing -- number one, we've been dealing with it very carefully, is the motion picture industry. For example, it spends a lot of time monitoring. When they -- when an illegal site popped up -- immediately. For example, when the film "The Hulk" came out, a person made an illegal upload of "The Hulk"; he was arrested the next day. He's been put -- put up on trial. He's been fined.

The same thing is true that pirates will use new technologies but we retain -- become ever vigilant with new tools and new techniques. For the recording sector, we found that, again, people have been using illegal downloads. Nothing gets the attention of a parent, of a student or a university, better than a knock on the door from a lawyer with a lawsuit for $200,000.

When a university tells a student, "You're being expelled." Including people at our own military academies who have been expelled publicly. Public expulsion because they were using -- making illegal downloads. I talk with a lot of universities. I don't go talk to one student. I talk -- once I can -- I talk to a lot of students across the country and universities across the country.

And while they think that piracy is a challenge we all have to deal with, America's been incredibly aggressive on it. Our universities have been aggressive partners on it and so has industry.

QUEUSTION: But in spite of your aggressive efforts, it's a known fact that it's quite widespread in America. And it's not just coming from one student, he -- she knows a lot of other students.

MR. LASH: Well, I'll give you a point, though. As a lawyer, not just a policy maker, I have got to have better than a few anecdotes to see how widespread it is. Because anyone who says they know how widespread the piracy is, doesn't know. The fact is because of the new technologies and the reach of it, no one can really specify how widespread it is. Only things they can specify are responses, the public responses.

And if you talk to universities where people have the broadband penetration, you're finding that piracy is dropping. It is dropping because universities don't want to be sued. It is dropping because students don't want to be expelled. And it's not a question of values or someone telling someone else, the fact is that they're dropping because they know the risk of apprehension and more importantly, severe punishment, is coming. Thank you all very much for you time. It's a pleasure being here. Thank you.