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CHINA China remains a top intellectual property enforcement and TRIPS compliance priority for the United States. China will remain on the Priority Watch List, and remain subject to Section 306 monitoring. The United States has also requested WTO dispute settlement consultations with China on a number of IPR protection and enforcement issues. (See the "Dispute Settlement" section above).

In addition, the United States conducted a special provincial review over the past year to examine the adequacy and effectiveness of IPR protection and enforcement at the provincial level. The resulting report (see the "Special Provincial Review of China" section below) spotlights strengths, weaknesses, and inconsistencies in and among specific jurisdictions, and has informed this year's Special 301 review of China as a whole.

The United States recognizes and appreciates the efforts of the many officials in China who continue to give voice to China's commitment to protecting intellectual property rights and are working hard to make it a reality. In spite of these efforts, the shared goal of significantly reducing IPR infringement throughout China has not yet been achieved.

China has made welcome progress in some areas. Notable IPR improvements included completion of China's accession to the WIPO Internet Treaties, and its ongoing implementation of new rules that require computers to be pre-installed with licensed operating system software. The United States believes that continued bilateral dialogue and cooperation can lead to further progress in these and other areas, and the United States will continue to put serious efforts into its joint work with China on innovation policy, intellectual property protection strategies, and the range of other important matters in our bilateral economic relationship through the U.S. – China Strategic Economic Dialogue and the Joint Commission on Commerce and Trade (JCCT). At the same time, the United States looks forward to continuing an active dialogue with China in an effort to resolve certain other issues with the help of the WTO dispute settlement mechanism.

Despite anti-piracy campaigns in China and an increasing number of IPR cases in Chinese courts, overall piracy and counterfeiting levels in China remained unacceptably high in 2006. The U.S. copyright industries estimate that 85 percent to 93 percent of all copyrighted material sold in China were pirated, indicating little or no improvement over 2005. Trade in pirated optical discs continues to thrive, supplied by both licensed and unlicensed factories and by smugglers. Small retail shops continue to be the major commercial outlets for pirated movies and music and a wide variety of counterfeit goods, and roaming vendors offering cheap pirated discs continue to be visible in major cities across China. Piracy of books and journals and end-user piracy of business software also remain key concerns. In addition, Internet piracy is increasing, as is piracy over closed networks such as those of universities. The share of IPR infringing product seizures of Chinese origin at the U.S. border increased to 81 percent in 2006 from 69 percent in 2005. Chinese counterfeits include many products, such as pharmaceuticals, electronics, batteries, auto parts, industrial equipment, toys, and many other products, that pose a direct threat to the health and safety of consumers in the United States, China and elsewhere.