JAPANESE MISSION TO CHINA GETS WARM WELCOME,

UNCLAS SECTION 01 OF 03 TOKYO 002326

SIPDIS

STATE FOR EAP/CM, EAP/J AND EB/IPE, E -FELSING
USTR for China Office, Japan Office, IPR Office,
and OCG - Mendenhall, McCoy
Commerce for National Coordinator for IPR
Enforcement - CIsrael

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: KIPR ECON JP
SUBJECT: JAPANESE MISSION TO CHINA GETS WARM WELCOME,
BUT FEW ANSWERS ON IPR

Ref: Tokyo 617


1. SUMMARY: Chinese officials from 13 ministries and
agencies warmly received Japan's joint government-
industry mission to China in mid-April. Although the
Chinese were remarkably well prepared, the Japanese
delegation was not satisfied with the answers they got on
China IPR laws. While the atmospherics had improved
substantially, two members of the GOJ team told us that
the situation on the ground in China is getting worse and
losses are rising rapidly.
End Summary


2. ECONOFF received similar, but separate readouts from
two GOJ participants in the delegation, Masayasu Hosumi,
Counsellor in the Office of Intellectual Property
Protection of the Trade Ministry; and Kentaro Tanaka,
Deputy Director, International Affairs Division of the
Japan Copyright Office, Agency for Cultural Affairs.

A New Chinese Attitude
--------------


3. The Japanese side felt a dramatic positive change in
attitude by the Chinese officials. The hostility of
recent years was gone. Their Chinese interlocutors were
welcoming and sincere, admitting that there were serious
problems and weaknesses in the system. The Chinese
officials had obviously read the papers the GOJ had
submitted and were prepared to respond, point by point.
For the first time since these missions began four years
ago, the GOJ received all of the appointments it
requested; the appointments were confirmed in advance;
and none were cancelled. The Chinese emphasized that IPR
problems could be resolved through dialogue. Last year,
many on the Chinese side had complained that China was
the main victim of IPR infringement.


4. Commerce Minister Bo Xilai told the visiting
delegation that the ministry had set up 50 centers in
major cities around China to receive and handle
information on IPR infringement. Chinese officials gave
the Japanese delegation data showing that they had
transferred 70 per cent more cases from administrative
offices to the police in 2005 than in the year before.
They asserted that arrests under the criminal code had
gone up 50 per cent in 2004 and 300 per cent in 2005.
Hosumi said that Bo mentioned the number of U.S. cases
being prosecuted, but did not have similar information
for the number of Japanese cases. The GOJ made a point
of requesting it.

But the problem is getting worse
--------------


5. Overall, according to the two delegation members we
talked to, the IPR climate in China is worsening, and
Japanese companies' losses and damages climbing.
According to JETRO (Japan External Trade Organization)
data, Japanese companies suffered 3000 cases of
infringement in 2005 and have already suffered 5000 cases
in 2006 as of early April. To make things worse, Hosumi
pointed out, in many places around China the local media
is actively opposed to enforcement of intellectual
property rights and campaigns against it.

Unsatisfactory Answers to Japanese Complaints
--------------


6. The friendlier atmosphere the Japanese delegation
encountered did not mean that China was prepared to
change its position on many issues. For example an
International Intellectual Property Protection Forum
(IIPPF) complaint to the Commerce Department about
trademark infringement by look-alikes was greeted with
the response that it was a "matter of law" and the
ministry could not do anything about it because of the
separation of the legislative and executive branches.
(Hosumi labeled this ploy as using the "American

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excuse.")


7. The Japanese delegation requested more stringent
measures against repeat offenders, and recommended that
criminal penalties should be imposed. The Chinese
responded that it was impossible because the thresholds
set in the law would not allow it.


8. A complaint about karaoke machines was also rejected.
In China karaoke is considered a movie, which means that
the rights go to the producer, according to Hosumi.
Japan wants it to be considered broadcasting, allowing
full rights to the artists, but Chinese officials told
them that that was impossible because "there is no one
around to collect the information" about what is played
when, how many times. On falsely labeled goods, the
Chinese Police officials also offered the excuse that
some factories produce labels of multiple brands and it
is difficult for them to identify the nationality of the
IPR holder.



9. At the Supreme People's Court the Japanese
recommended revising the unfair competition law because
it did not address the problem of "slavish imitation" of
a well-known design, e.g. the "Tamagochi" toys. The
response was that the Chinese parliament may address the
issue when it revises the Patent Law in 2008. The
Chinese expect to complete a draft of the new law in 2007
and said that it would be opened for public comments in
May or June of next year.


10. The Japanese also complained about the situation for
agricultural chemicals which are covered by both the
Patent Law and the Administrative Law on Pharmaceuticals.
The latter has "special contingent application measures"
which allow production of the chemicals. As a result
Japanese companies have no Chinese licensees and are
losing out.


11. This was the first time the Japanese mission was
able to meet with the prosecutor's office (Supreme
People's Procuratorate). The Japanese message to the
prosecutors was that enforcement of IPR laws should be a
government-wide priority and carried out by local
officials wherever needed.


12. Some Chinese officials told them that dealing with
villagers on IPR issues was politically sensitive and
difficult because the villagers have so little
information available to them. China is considering
whether to "make copyright holders disclose information
on the Internet." Hosumi was not sure what this would
entail.

Thresholds
--------------


13. Chinese officials explained that there are now three
options for threshold criteria: 1) production or 2) sales
or 3) profits. The Japanese side had previously thought
it was necessary to meet all three, not just one of the
three. The Japanese complained about the fact that the
Chinese had raised the threshold in one category at the
same time they lowered thresholds in the other two. The
Japanese side also criticized the provision which sets
the criminal thresholds for individuals at three times
that for corporations, which the Japanese told the
Chinese was the opposite of the way it should be. The
Chinese response was that benefits and responsibilities
are shared in corporations, but the Japanese believe it
is because Chinese Communist Party members own the
corporations.

Japanese Technical Assistance
--------------


14. The GOJ, working with the private sector through
JETRO, plans to continue and expand its programs to

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provide training and textbooks for Chinese Customs and
Trademark officials. (See reftel on Japan Intellectual
Property Association's related activities in China.)
They are compiling a list of names of those who have been
convicted of IPR crimes for the Customs service and Fair
Trade Bureau. Japanese electronics firms have pledged to
provide training and technical information to Chinese
Patent Office examiners on certain technologies such as
liquid crystal displays, in order to speed up patent
approvals. JETRO has compiled several textbooks for its
workshops which include handbooks to distinguish real
Japanese brand marks from counterfeits. Hosumi remarked
that the head of the Chinese Customs office was
especially positive during their meetings, appreciative
of the training programs and displaying a complete change
of attitude from earlier visits.


15. JETRO is also planning a METI (Ministry of Economy,
Trade, and Industry) funded seminar for the Supreme
People's Court, Fair Trade Bureau and legislative
officials in response to China's interest in studying the
Japanese IPR legal framework, including anti-trust and
fair competition laws. (Econoff shared information with
Hosumi about upcoming IPR enforcement workshop at U.S.
Consulate-General, Hong Kong.)


16. The GOJ will be watching to see if and how China
enforces its IPR laws and will be keeping track of actual
damages and losses by Japanese companies.

Background on the Mission
--------------


17. This was the fourth year that the GOJ has sent a
joint government-private mission to China. The April 10-
14 mission was lead by Trade Ministry (METI) Director
General for Manufacturing Industries Policy DG Tomofuni
Hiraku. The working level group paves the way for the
high-level mission which will travel the first week in
June. Although Hosumi did not want to share the full
list of delegation members, the GOJ side included
representatives of METI, the Japan Patent Office, the
Agency for Cultural Affairs, the quasi-government trade
promotion agency, JETRO, industry associations such as
the Japan Intellectual Property Association (JIPA),The
International Intellectual Property Protection Forum
(IIPPF),and the Japan Electronics and Information
Technology Association (JEITA),plus representatives of
some large Japanese corporations.


18. List of Chinese government agencies visited by the
Japanese mission (as given by METI):

Supreme People's Court
Supreme People's Procuratorate (prosecutors)
Ministry of Public Security
Ministry of Commerce
Office of National Working Group for IPR Protection
Ministry of Agriculture
General Administration of Customs
Legislative Affairs Office of the State Council
State Intellectual Property Office
State Administration for Industry and Commerce
Trademark Office
Fair Trade Bureau
Administration of Quality Inspection, Supervision, and
Quarantine
National Copyright Administration
State Forestry Administration


Donovan