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 reliance on values of infringing products, rather than genuine products, as the default rule for determining whether threshold values are met. China has thus maintained a legal "safe harbor" that protects a large group of commercial infringers and operates to deprive the criminal enforcement authorities of needed information regarding the sources of counterfeit and pirated goods.

Right holders have pointed to a number of other deficiencies that collectively highlight the need for China to reform its criminal IPR laws, which were not revised at the time of WTO accession. In addition to the thresholds, notable problems include the profit motive requirement in copyright cases; the requirement of identical trademarks in counterfeiting cases; the lack of criminal liability for certain acts of copyright infringement; and the need to establish minimum, proportional sentences and clear standards for initiation of police investigations in cases where there is a reasonable suspicion of criminal activity. The United States calls on China to address these issues by announcing an initiative to reform its criminal IPR laws and related criminal measures.

Trade in pirated optical discs continues to thrive, supplied by smugglers and by both licensed and unlicensed factories. Small retail shops continue to be the major commercial outlets for pirated movies and music, and roaming vendors offering cheap pirated discs continue to be very visible in major cities across China. China made a 2005 JCCT commitment to take aggressive action against movie piracy, including enhanced enforcement for titles not yet authorized for distribution. Right holders have monitored China's efforts and report little meaningful improvement in piracy of pre-release titles. Right holder surveys showed progress in a limited number of retail outlets in Shanghai, one of four selected cities, but right holders reported that surveys of the three other major cities yielded disappointing results.

Piracy and counterfeiting are partly products of China's market access restrictions, which artificially limit the availability of foreign content and thus lead consumers to the black market. Various U.S. right holders continue to be adversely impacted by restrictions on imports, including having to go through import monopolies, restrictions on foreign investment in distribution, and delays in regulatory approval. Examples include restrictions on the import and distribution of legitimate foreign movies and delays created by the censorship process. Efforts to speed up content review for entertainment software have also been unavailing.

There have been a few bright spots in the areas of enforcement. Industry has confirmed that some of China's special campaigns, such as the continuing "Mountain Eagle" campaign against trademark infringement crimes, have in fact resulted in increased arrests and seizures of infringing materials, although the disposition of seized goods and the outcomes of cases remain largely obscured by lack of transparency.

China has announced a 2006 Action Plan on IPR Protection, including "special crackdown efforts" with respect to various IPR infringement problems. The United States looks to China to achieve real and transparent results for U.S. right holders through implementation of the Action Plan. In addition to stepping up action against trademark counterfeiting, the United States calls on China to launch and publicize significant criminal enforcement actions against optical media piracy, Internet piracy, and other forms of piracy afflicting U.S. copyright owners.