U.S. and Hong Kong (1998)

1998 Trade Policy Agenda and the 1997 Annual Report of the President of the United States on the Trade Agreements Program.

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VII. Bilateral Negotiations

Asia and the Pacific

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Hong Kong (Special Administrative Region)

Intellectual Property Rights (IPR)

IPR piracy in Hong Kong has become an increasing problem with increased production of illegal CDs and retail piracy. During the last year, Hong Kong authorities have begun to adopt a more serious approach to battling IPR piracy. The number of raids of retail outlets are increasing, and Hong Kong now requires registration of optical media production lines. At the end of the year, the government introduced legislation increasing available sanctions against piracy and increasing the authority to search premises of suspected pirates. Nevertheless, piracy rates in the Hong Kong Special Administrative Region (HKSAR) are increasing. Prosecutors have been slow in pursuing cases and until recently customs officials have resisted cooperating with PRC customs officials on IPR enforcement at the border.

In June, the SAR Government passed a new copyright law that addressed concerns on issues such as software decompilation and parallel imports and also granted customs enhanced authority to forfeit suspected pirated goods. Nevertheless, problems remain and in January 1998, the government introduced new anti-piracy legislation for legislative consideration.

Yet the disturbing news for 1997 is that Hong Kong's CD-based piracy problem is not entirely an issue of controlling the border with China. Industry cites increasing evidence of production sources located in Hong Kong itself -- industry sources estimate nearly 100 optical media production lines are located in the HKSAR.

Additionally, Hong Kong remains as a major distribution source for pirated products made in other territories in the region, such as Macao and southern China. The SAR is home to extensive pirate bazaars, unmatched anywhere else in Asia, doing a brisk trade in illegal music CDs, video CDs, and CD-ROM software compilations. Hong Kong official actions have been stepped up to combat this growing problem but only recently have begun to make a discernable difference.

U.S. industry estimates IPR losses jumped from U.S.$217 million in 1995 to nearly U.S.$240 million in 1996, one of the highest per capita piracy rates in the world. Although Hong Kong authorities are beginning to address the issues, the situation on the ground has not improved. Hong Kong was placed on the Special 301 Watch List in April 1997 and remained on the Watch List in the Out-of-Cycle Review announced in January 1998.

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VIII. Trade Enforcement Activities

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Special 301

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On April 30, 1997, USTR identified 46 trading partners that deny adequate and effective protection of intellectual property or deny fair and equitable market access to U.S. persons that rely upon intellectual property protection. Also announced was the monitoring of China's compliance with the 1996 bilateral intellectual property agreement under section 306 of the Trade Act. The identification of 46 partners represented a 25% increase in the number of trading partners named in 1996. Of the 46, 10 were placed on the Priority Watch List and 36 on the Watch List. Eleven of these 46 were named for out-of-cycle reviews: Brazil, Bulgaria, Canada, Ecuador, Hong Kong, Italy, Luxembourg, Panama, Paraguay, Thailand, and Turkey. USTR also noted growing concern about an additional 12 countries not named to the Watch List or Priority Watch List. Finally, USTR used the Special 301 announcement to report its intention to bring WTO Dispute Settlement cases, three of which were initiated in 1997.

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In December, USTR reviewed the protection of intellectual property in Paraguay, Turkey, Bulgaria, Brazil and Hong Kong. As the result of these reviews, Paraguay was identified as a Priority Foreign Country, because of alarming levels of piracy and counterfeiting, and the Government's continued failure to enact adequate and effective intellectual property legislation. Bulgaria was elevated from the Watch List to the Priority Watch List because of extensive piracy of sound recordings and software. USTR also noted that should Bulgaria fail to make substantial progress toward combating the piracy, it will be identified as a Priority Foreign Country, as early as April 1998. Turkey remained on the Priority Watch List, and USTR noted that until U.S. concerns are addressed, the U.S. will not consider requests to augment Turkey's benefits under the U.S. Generalized System of Preferences (GSP) program. Brazil and Hong Kong remained on the Watch List.

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