China's Implementation Steps of Phase One Agreement "Fall Short," Says USTR

On April 30, 2021, The Office of the United States Trade Representative (USTR) released its annual Special 301 Report on the adequacy and effectiveness of trading partners' protection of intellectual property rights and the findings of its Review of Notorious Markets for Counterfeiting and Piracy (the Review), which highlights online and physical markets that reportedly engage in and facilitate substantial trademark counterfeiting and copyright piracy.

The Special 301 Report (Report) is the result of an annual review of the state of intellectual property (IP) protection and enforcement in U.S. trading partners around the world, which the Office of the United States Trade Representative (USTR) conducts pursuant to Section 182 of the Trade Act of 1974, as amended (the Trade Act, 19 U.S.C. § 2242). Congress amended the Trade Act in 1988 specifically “to provide for the development of an overall strategy to ensure adequate and effective protection of intellectual property rights and fair and equitable market access for United States persons that rely on protection of intellectual property rights.” In particular, Congress expressed its concern that “the absence of adequate and effective protection of United States intellectual property rights, and the denial of equitable market access, seriously impede the ability of the United States persons that rely on protection of intellectual property rights to export and operate overseas, thereby harming the economic interests of the United States.”

This Report provides an opportunity to put a spotlight on foreign countries and the laws, policies, and practices that fail to provide adequate and effective IP protection and enforcement for U.S. inventors, creators, brands, manufacturers, and service providers, which, in turn, harm American workers whose livelihoods are tied to America’s innovation-driven sectors. The Report identifies a wide range of concerns, including: (a) challenges with border and criminal enforcement against counterfeits, including in the online environment; (b) high levels of online and broadcast piracy, including through illicit streaming devices; (c) inadequacies in trade secret protection and enforcement in China, Russia, and elsewhere; (d) troubling “indigenous innovation” and forced technology transfer policies that may unfairly disadvantage U.S. right holders in markets abroad; and (e) other ongoing, systemic issues regarding IP protection and enforcement, as well as market access, in many trading partners around the world. Combatting such unfair trade policies will encourage domestic investment inthe United States, foster American innovation and creativity, and increase economic security for American workers and families.

The Special 301 Subcommittee received stakeholder input on more than 100 trading partners, but focused its review on those submissions that responded to the request set forth in the notice published in the Federal Register to identify whether a particular trading partner should be named as a Priority Foreign Country, placed on the Priority Watch List or Watch List, or not listed in the Report. Following extensive research and analysis, USTR has identified 32 trading partners as follows:

Priority Watch List

• Argentina
• Chile
• China
• India
• Indonesia
• Russia
• Saudi Arabia
• Ukraine
• Venezuela

Watch List

• Algeria
• Barbados
• Bolivia
• Brazil
• Canada
• Colombia
• Dominican Republic
• Ecuador
• Egypt
• Guatemala
• Kuwait
• Lebanon
• Mexico
• Pakistan
• Paraguay
• Peru
• Romania
• Thailand
• Trinidad and Tobago
• Turkey
• Turkmenistan
• Uzbekistan
• Vietnam

With regard to China, tThe United States has been closely monitoring China’s progress in implementing its commitments under the United States-China Economic and Trade Agreement (Phase One Agreement). In 2020, China published several draft IP-related legal and regulatory measures and finalized over a dozen measures. Notably, China amended the Patent Law, Copyright Law, and Criminal Law in the past year. However, these steps toward reform require effective implementation and fall short of the full range of fundamental changes needed to improve the IP landscape in China.