U.S. steps up pressure on China's intellectual property rights violations.

In April, the Office of the U.S. Trade Representative (USTR) released its annual "Special 301" report on the state of intellectual property rights (IPR) protection around the world. The findings of an Out-of-Cycle Review (OCR) of China's intellectual property system are presented with the conclusion that infringement levels remain unacceptably high. In the report, the USTR raised China to the Priority Watch List for failure to protect intellectual property rights.

The Trade Act of 1974 directs the USTR to annually identify countries that fail to adequately protect IPR. The section, commonly referred to as "Special 301," ranks the countries with Priority Foreign Country (PFC) as the worst, followed by Priority Watch List and Watch List. The Special 301 review occurs annually, but OCRs may be conducted at any time.

In 1994, the People's Republic of China was designated a PFC, and the USTR announced in its 2004 report that it would conduct an OCR in early 2005 to evaluate China's implementation of its commitments to reduce IPR infringement. The OCR found that piracy and counterfeiting remains extremely high due to China's ineffective enforcement system.

By being identified as a PFC, China can be subjected to a Section 301 investigation and face the possibility of trade sanctions if it does not enter into good faith negotiations or make significant progress in bilateral or multilateral negotiations and provide effective protection of IPR.