WTO Rules Against China on U.S. Imports

Recent World Trade Organization cases carry implications for the fashion industry.

WASHINGTON — A World Trade Organization panel said Wednesday that China disobeyed trade rules by creating barriers to imports of U.S. books, music, videos and movies, a warning to Beijing over its handling of intellectual property and distribution requirements.

This story first appeared in the August 13, 2009 issue of WWD.  Subscribe Today.

It is the second recent ruling in which the WTO has sided largely with the U.S. and criticized China for inadequate intellectual property rights enforcement and protection. China can appeal the decision.

In March, the WTO adopted a dispute panel judgment in favor of the U.S. with implications for the fashion industry, which spends billions of dollars policing counterfeit products and taking steps to shut down counterfeit operations. In that case, the WTO found that China’s laws exclude some copyright and trademark infringements (counterfeits) from criminal liability.

The threshold for criminal prosecution under Chinese law is if the trademark counterfeiting or copyright piracy exceeds $7,000 worth of infringed goods or 500 copies of bogus products or pirated works. The International Intellectual Property Alliance, an umbrella group, has conservatively estimated piracy losses exceeded $3.5 billion in China in 2007, the most recent figures available.

China was the source of 81 percent of all goods seized for intellectual property violations last year, according to U.S. Customs & Border Protection.

“We’ve been thinking about these two [WTO] cases as complementary to each other,” said a U.S. trade official, who spoke on the condition of anonymity. “From our perspective, when you get market access for legitimate products, consumers who want to be law abiding aren’t forced to go to the pirated market. The flip side is true, as well. When there is a problem with copyright enforcement or IPR enforcement, there are more pirated markets out there competing with legitimate products.”

The trade official said the U.S. and China have agreed on a 12-month period for China to come into compliance with improving its enforcement of counterfeit goods and copyright and trademark rules.

“March 2010 is the due date for China to bring themselves into full compliance,” the official said.

Failure to comply with such WTO rulings can lead to punitive tariffs being imposed on Chinese imports.