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 criminal sanctions, will be necessary to bring this problem under control. While rightsholders reported that they were encouraged by the innovative protocol brokered by the Beijing municipal courts between brand-owners and the landlord of the notorious Silk Market, they are disappointed that the settlement protocol is not being enforced. We encourage the appropriate authorities to take the actions necessary to ensure that this protocol can be adequately enforced.

Despite the crackdowns during the Olympics and an increasing number of IPR cases in Chinese courts, overall piracy and counterfeiting levels in China remained unacceptably high in 2008. The share of IPR-infringing product seizures at the U.S. border that were of Chinese origin was 81 percent in 2008, and that share rose in terms of value by 40 percent over 2007. Chinese counterfeit products include 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. The U.S. copyright industries estimate that losses due to piracy in China were approximately $3.5 billion for the music recording and business software industries alone. While Internet piracy continues to grow, trade in illegal optical discs also 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. Piracy of books and journals and end-user piracy of business software also remain key concerns.

Inadequate IPR enforcement is a key factor contributing to these shortcomings, and there are a number of legal obstacles to effective enforcement that result in limited deterrence provided by Chinese law. These impediments include high value and volume thresholds that must be met before criminal prosecution of IPR infringement is possible as well as difficulties in initiating or transferring cases to the criminal authorities that do meet China's thresholds for criminal prosecution. Rules designed to promote the transfer of cases to criminal authorities do not appear to have solved the problem. Moreover, the vast majority of enforcement is channeled to administrative authorities. U.S. trademark and copyright industries continue to point out that administrative fines are too low and irregularly awarded to provide an effective deterrent, and as a result infringers continue to consider administrative seizures and fines as a cost of doing business. Civil damages for infringement are also low. IPR enforcement at the local level is hampered by poor coordination among Chinese Government ministries and agencies, local protectionism and corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of training, and inadequate and non-transparent processes. In addition, rightsholders report that in the eight years since China's current Copyright Law was adopted, China has yet to set a rate under Article 42 of that law for the remuneration of rightsholders for the use of their works by radio or television broadcasters.

As in the past, the United States will continue to review the policies and enforcement situation in China at the sub-national levels of Government. In 2009, USTR will conduct a review to assess the strengths, as well as weaknesses and inconsistencies, in and among the specific jurisdictions of provincial and municipal Governments' IPR protection and enforcement regimes.

Apart from longstanding concerns over IPR enforcement, the United States recognizes U.S. industry concerns about the possibility that laws or policies in a variety of fields might be used to unfairly favor domestic intellectual property (IP) over foreign IP. Such concerns are especially