"Previous Chinese promises have proven meaningless," wrote DeFazio. "The time for talk is over. The time for enforceable action, through the WTO or our own trade laws is now. U.S. jobs are at stake. It is simply not good enough to allow the status quo to continue or to tell U.S. small businesses that they’re on their own. China must be held accountable for its rampant violations of the intellectual property rights of American companies."

Wood Castle Furniture of Albany, Struble Manufacturing of Sutherlin and Videx of Corvallis are just three Oregon companies that have had entire product lines copied by the Chinese, resulting in the loss of millions of dollars in revenue. But these small businesses often do not have the time or resources to protect their products. DeFazio argues that the U.S. government has an obligation to defend the interests of small businesses by forcing Chinese compliance with its intellectual property commitments.

In addition to the letter to president Bush, DeFazio introduced bipartisan legislation today to urge the U.S. Trade Representative (USTR) to use all legal avenues available to force China’s compliance with intellectual property protections. Legal tools include the imposition of bilateral tariffs under section 301 of the Trade Act of 1974 and filing a complaint at the World Trade Organization. The bill was introduced with 13 original cosponsors.

A copy of the letter is attached, and a copy of the legislation is available upon request.

-30-

November 16, 2005

The Honorable George W. Bush
President
1600 Pennsylvania Avenue, N.W.
Washington, D.C. 20500

Dear President Bush:

I am writing to strongly urge that when you meet with Chinese President Hu Jintao and Premier Wen Jiabao this week, you make it clear the United States will use all legal avenues available, including filing a complaint at the World Trade Organization (WTO) or launching an investigation and retaliatory action under Section 301 of U.S. trade law*, in order to force China's compliance with intellectual property protections. I have enclosed a copy of a bipartisan resolution that I will introduce this week urging your administration to take one of these enforceable actions in order to protect American ingenuity.

Despite repeated promises by the Chinese to crack down on counterfeiting, the problem continues to grow. And, it's not limited to software, movies and music. I have three manufacturers in Southwest Oregon who have had product lines copied by the Chinese. One of the cases involves a blatant rip-off of a company's trademarked product. But, as a small business, the company doesn't have the time or resources to devote to pursuing its legal rights through the drawn out Chinese legal process. Small businesses need the U.S. government to stand up for them. The time for talk is over. The time for enforceable action, through the WTO or our own trade laws, is now.

Your administration has acknowledged the problem with intellectual property violations by the Chinese. Yet, to date, your administration has not taken any actions that would force China's compliance.

The U.S. Trade Representative's December 2004 report to Congress on China's compliance with its WTO obligations documents that significant problems remain with respect to intellectual property protection in China, particularly the enforcement of such rights, which the USTR reported "remained ineffective in 2004." The USTR report also concluded, "Counterfeiting and piracy are at epidemic levels and cause serious economic harm to U.S. businesses in virtually every sector of the economy."

The 2005 National Trade Estimate Report on Foreign Trade Barriers, also prepared by the USTR, reports that administrative enforcement actions in China "do not appear to deter further IPR infringement" because the cases result in extremely low fines; the established value for fines is based on the price charged for the counterfeit or pirated good rather than the price of the genuine article; evidence showing a person was caught warehousing goods is not sufficient to prove intent to sell, which means the value of warehoused goods are not included in fines; and administrative authorities, "rarely forward an administrative case on to the Ministry of Public Security for criminal investigation, even for commercial-scale counterfeiting or piracy."

The 2005 Foreign Trade Barriers report also says that criminal enforcement in China "has virtually no deterrent effect on infringers" because criminal prosecutions are pursued "in a relatively small number of cases"; "a lack of transparency makes it sometimes difficult to find out if they resulted in convictions and, if so, what penalties were imposed and whether the penalties were suspended"; criminal liability thresholds "were very high and seldom met," including because warehoused goods are not included in calculations of the damage done; and China failed "to treat the export of counterfeit or pirated goods on a commercial scale as a criminal act."

The importance of intellectual property protection was also detailed in the 2004 Economic Report of the President and the January 2004 Manufacturing in America report by the Department of Commerce.

As your administration has repeatedly reported, China is failing to live up to its commitments on intellectual property. When you meet with President Hu Jintao and Premier Wen Jiabao this week, it presents a unique face-to-face opportunity to demand that the Chinese government take action to crack down on intellectual property theft or face legal action by the U.S.

U.S. jobs are at stake. It is simply not good enough to allow the status quo to continue or to tell U.S. small businesses that they're on their own. China must be held accountable for its rampant violations of the intellectual property rights of American companies.

Sincerely,

PETER DeFAZIO

Member of Congress

*Section 301 of the Trade Act of 1974 allows the U.S. to take unilateral action if a country is (1) denying the U.S. its rights under a trade agreement; or (2) engaging in unjustifiable, unreasonable or discriminatory acts, policies or practices that burden or restrict U.S. commerce. An affirmative finding under Section 301 would allow the United States to suspend benefits to Chinese companies, impose duties or other restrictions on Chinese imports, and enter into a binding agreement with China to end its violations, or take all other "appropriate and feasible" action to protect U.S. companies.