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Office of the Press Secretary

For Immediate Release June 17, 1996
                           PRESS BRIEFING

The Briefing Room

12:45 P.M. EDT

MR. MCCURRY: Good afternoon, everyone. I think, as you all know, earlier today, Ambassador Charlene Barshefsky, in Beijing, along with Chinese authorities, announced that arrangements have been made that will allow for the enforcement of the 1995 Intellectual Property Rights Agreement between the United States and the People's Republic of China. You heard the President earlier today welcome that news and say that it is a good understanding that is now in place.

And to talk about it further, I've asked Dr. Laura Tyson, who is the National Economic Advisor to the President and Chair of the National Economic Council, to be here, along with Secretary of Commerce Mickey Kantor. It's a pleasure to have both of them here.

Laura, Mickey, the podium is all yours.

DR. TYSON: Thank you very much. I might also say that afterward there will be Jennifer Hillman of the USTR, and Leal Brainard of the National Economic Council and National Security Council, will be outside at the awning to answer any technical questions that we want to hit over to them.

As you know, Ambassador Barshefsky did announce this morning in Beijing that China is taking significant action to implement the 1995 Intellectual Property Agreement. The Chinese authorities have announced that they've already closed 15 pirate CD factories, producing an estimated 30 million to 50 million pirate disks a year. And they've already closed six major distribution centers, and they have announced a ban on equipment -- import of equipment used to manufacture CDs.

Now, I'm very pleased to report that these actions by China to enforce what was an agreement made in February of 1995 on intellectual property will avert the imposition of sanctions on $2 billion worth of Chinese imports. Those sanctions would have been in neither country's interests.

This important agreement represents the culmination of tireless efforts by Ambassador Barshefsky on behalf of the U.S. industry, and I want to take an opportunity to congratulate her for this significant achievement. From the start she has worked closely with the U.S. industry. Many representatives have been here today and they have voiced their strong support for this agreement.

I want to emphasize that this agreement, like our other trade agreements with China and our other trading partners, reflects the President's fundamental approach to trade issues. He has consistently stood firm for American industry and American companies, American workers, insisting that our products be granted fair access abroad. China's actions today are consistent with that goal of fair access abroad, and will protect some of our nation's most dynamic and competitive industries.

Finally, I want to say this -- President Clinton's policy of engagement with China is working. China's actions in this area confirm the wisdom of our policy of engagement. We will continue to insist that our trade agreements with China, including this Intellectual Property Agreement, are fully enforced, using all of our appropriate tools.

Now, we'll turn to a discussion of the particulars of the agreement. As you will remember, Ambassador Barshefsky went to China in April, laid out four specific areas for action, and in each of these areas there has been significant steps forward, with the understanding reached today. The Chinese have taken steps to close pirate CD factories. They have taken steps to seize shipments of pirated goods. They have taken steps to strengthen enforcement in areas where piracy is concentrated, especially the Guangdong Province. And they have instituted concrete measures to give American intellectual property producers access to the Chinese market. So they've moved significantly in all four areas.

And now I'd like to turn over to Secretary Kantor to talk about the particulars.

SECRETARY KANTOR: Thank you. Thank you, Mr. McCurry, for the use of your room. We always appreciate that.

We are, of course, very pleased. We've gone from the abstract to the concrete. Enforcing intellectual property rights in any country is complex, and enforcing this agreement has been particularly so that we've had nine trips to China and 40 different meetings. And Ambassador Barshefsky and her team are to be congratulated, they have done a fabulous job. This is a real and significant concrete step forward.

First of all, there were four plants previously closed -- so we can get the inventory correct -- 12 more licensed plants were closed as a result of this agreement. And that has been verified. And three underground, so-called "underground" plants have been closed, for a total of 19, only 16 of which are licensed, three of which are underground. There were 31 licensed plants.

The 15 remaining plants are under the agreement, being investigated actively by Chinese authorities. That will be the Ministry of Public Security, which is a major new step in the right direction. The Ministry of Public Security is taking over both the enforcement and monitoring of this agreement from the Press and Publications Administration. Therefore, it has been put in the hands of Chinese law enforcement.

In addition to that, all additional underground plants will be closed when they are found. That's an absolute commitment. A third step, there will be -- they will stop the shipment of presses at the border, also work with Hong Kong authorities in that regard -- all new presses that would go to plants, which would increase the production capability of these plants. And fourth, this is all under plant closures. There will be no new licensed plants until further notice, all of which are important.

So no new licensed plants; stop the presses at the border; close all underground plants; four plants have already been closed; 12 new licensed plants closed; and, of course, three underground plants closed in addition.

Special enforcement period that has been implemented. By the way, under that, six wholesale operations were just shut down, including the largest one in China. That's a big step forward. Five thousand laser disc theaters have been shut down. A nationwide special enforcement period has been implemented through August, and seven months special enforcement period implemented in Guangdong Province.

Border enforcement, I talked about to some degree. They'll cooperate with Hong Kong. They have been seizing tens -- meaning China -- tens of thousands of these compact disks, laser disks and others which would go to third markets, which would hurt U.S. jobs and U.S. businesses. And no presses can be, as I said, imported in the country unless they're officially approved.

On market access, there is market access agreements in the sound recording, motion picture and software area. In motion pictures, for instance -- I saw Jack Valenti back here just a second ago -- in motion pictures, for instance, they have taken away all quotas. All quotas are gone now. You can import as many films as will be agreed to under this situation. And they have implemented a new monitoring and verification system, which is extremely important, including new SID codes, which are the signatories where you can -- if each disk much have a stamp on it to show where it was made, and with a title verification system connected to the signatories and 24-hour monitoring at the plants -- they will report on a 24-hour basis -- the production of the plant will be able track through U.S. law enforcement authorities what's going on in China.

All of these are major steps forward. And, again, let me say Ambassador Barshefsky, Lee Sands and the team there have done a really superior job. The President's policy is working. We need to continue to be vigilant in our monitoring of this and other agreements with China and with others, as well. But the question of constructive engagement and taking responsibility is making a big difference.

We'd be happy to answer questions.

Q What exactly would you say changed? Because up until recently they were saying it's virtually impossible to control all of this -- a huge country, we can't get everywhere. What changed?

SECRETARY KANTOR: I think two or three things, frankly. I think there was a recognition in China that the President's policy of constructive engagement was important to China and important to stability in the region and important to China's future. And China did ont want to do anything to harm that policy.

Second, they understand if they're going to be part of a trading system and take advantage of U.S. markets, as they have, we're going to insist that we begin to have the same kind of access to the Chinese markets. And that policy of responsibility was one that we were committed to.

Q Is there any guarantee we won't be back there a year from now, going through the same situation?

DR. TYSON: It's important to emphasize that we believe that there have been things already done here. I think that's the first thing we want to emphasize. The situation has changes. Plants have been closed. Both the -- we have had the 12 plant closures and then we had three underground plants discovered and closed. There's a commitment on a per se basis to have all underground facilities that are found closed. There is a ban on the import of equipment. There are monitoring devices put in place at this point that will handle the problem much more effectively than has been the case before.

Having said all that, we want to emphasize that these are significant steps. This is real progress. But the enforcement of intellectual property rights, not just in China but around the world, is a long-term process. We will be working with the Chinese until their system of enforcement is self-sustaining. So progress, significant steps, an improved situation, but a long-term challenge.

Q How will we be monitoring their enforcement? In the February 1995 agreement -- couple paragraphs said that seven facilities were shut down. Clearly, they weren't. In what way will the United States authorities be able to monitor the enforcement of this agreement now?

SECRETARY KANTOR: Well, two or three ways. Number one is they have agreed to share data which is coming from these plants. They will have inspectors in the plants on a 24-hour basis. That data will be transmitted not only to Chinese authority but to U.S. law enforcement authorities as well. That's number one. Number two, they're going to allow U.S. industries to make verification visits, which is a big step forward, and different. And third, the SID codes connected title verification system will make a difference as well.

I did want to say one word about the question before. We will be hear a year from now. I don't know about you.

Q Those other 15 plants, can you please explain why they're not being shut down now?

DR. TYSON: They are all under investigation. And it's important here to emphasize that the issue not that all plants had to be closed but all illegal activities in plants had to be shut down. That has happened in part through closing facilities whose activities were illegal. There are other plants where investigation will -- and with monitoring, 24-hour-a-day monitoring, will determine which activities, if any, are illegal. And those would be closed down. The plants don't necessarily have to be closed down. They need to be investigated and they need to be monitored on a continuous basis.

Q That sounds like the Chinese explanation. I mean, do you accept that? Do you accept that of the 30, only 15 or so were doing completely illegal activities?

DR. TYSON: It is not -- I would not say it is -- my answer should not suggest that there would not be other full plant closures. My answer should only suggest that the remaining plants are under investigation at this point to determine which, if necessary, should be closed.

Q Ambassador Barshefsky said at one point that virtually all of these plants were engaged in illegal activity. Shouldn't they all be closed?

DR. TYSON: Well, again, let me draw the distinction between engaged in illegal activity and fully engaged in illegal activity. That is, the issue here is if you have 24-hour-a-day enforcement reporting to monitors that -- and reporting to us, then the issue is, would a plant stay open because some of its activity is perfectly legal. And the issue of whether a plant would actually be closed or curtailed in some way is the issue that is under investigation.

Q Dr. Tyson, what is the bottom line? How much piracy is going to continue under this agree?

SECRETARY KANTOR: Let me -- I can just give you some numbers. There have been estimates, and these are only estimates, from industry and other sources, that 80 million to 200 million, if you want to take the largest estimate, which we don't believe is correct, but 200 million of these CDs, CD-ROMs, video disks, laser disks, being produced every year. The plants that have been closed -- verified closed under this agreement -- represent about 30 to 50 million in production. Now, you have the range here, 30 million to 50 million, or 80 million to 200 million. Now, you can make any assessment that you wish from that.

It is significant under anyone's assessment, this step. And this is very concrete. And it's significant for two reason. One, 14 months ago, of course, all of these factories are operating without verification, without monitoring, there were underground plants being set up, presses were coming into China without being stopped, and of course disk and laser disk and others were being exported without being stopped. All of that is now not only under scrutiny, is now under concrete action by the Chinese government.

This is a big step in the right direction. However, we have to continue to monitor and verify and make sure this agreement is working as it is at this moment.

Q Were any of those licensed plants licensed since the last agreement was reached?

SECRETARY KANTOR: You know, I don't know the answer to that question. I really don't. It is -- you might ask Jennifer Hillman later. I'm sorry I just don't know. We know there were 31 licensed plants at the time when these last discussions started. We know four had closed in the last few months. We know there's 12 more, and then we knew three underground. But I don't know that. I really don't know the answer.

Q -- underground plants?


Q Did the government have any -- either local government or national government -- have any connection over knowledge of the underground plants?

SECRETARY KANTOR: We have no facts that would support the one way or the other.

Q -- come in at any point to destroy any of the equipment that is in the 15 plants that were closed? And can you describe in a little more detail the exact nature of this monitoring system and whether we attempted in the negotiations to have American monitors placed in those plants, rather than have Chinese nationals doing the monitoring?

SECRETARY KANTOR: First of all, they have revoked in each of these where there are permits the AV, audio visual, permits, or local business license. As you know, the AV permits, as you know, come from the central government; the local licenses come from the local government. Those have been revoked where those existed. Now, in the three underground plants, they didn't have them. That was the problem.

Second, they have seized and confiscated materials and machinery to manufacture parody of products, including destruction of CD molds and other equipment. And, third, they're investigating and prosecuting individuals -- 30 have already been prosecuted connected with these plants; 40 more are under active investigation as we stand here today.

Q Thirty individuals?

SECRETARY KANTOR: Thirty individuals, in addition to the -- 30 have been prosecuted and 40 now are under active investigation, in addition to the 30. That's a total of 70.

In the verification -- I don't know how much detail you want to go to, and I'm prepared to do so if you wish. Part of that is part of your circular. I will be glad to go over it. But that has to do with -- the monitoring and verification has to do with a 24-hour -- people in those plants 24 hours a day providing information and data not only to Chinese officials, but to U.S. officials.

Q Did we attempt to make sure that there were any American monitors placed in the plants?

SECRETARY KANTOR: We thought it was sufficient to have the data transmitted, plus to have the industry verification visits approved, in connection -- and then with an SID system and a title verification system, that that would be a very strong, concrete, enforceable system.

Q Did you seek at any point to have American monitors placed in the plants?

SECRETARY KANTOR: On a full-time basis? No.

Q Excuse me, the administration --

SECRETARY KANTOR: We have had American monitors, you know, go into those plants, as you know. Obviously, that's how we verified the existence of a number of these plants.

Q The administration went out of its way to say that there were powerful people involved in some of these plants, the Chinese army was involved, identified in some of them. And I wonder, has any effort been made to close down the plants that are owned by ministries and the Chinese army, or will we be allowing those to remain open?

SECRETARY KANTOR: First of all, we never identified any particular entity as having ownership or an interest in these plants, either in the past, present or certainly in the future.

Number two, we have been concerned, of course, about ownership and control of these plants and the Chinese government's commitment to live by the agreement reached on March 12, 1995 -- signed in February and then finally signed on March 12, 1995. However, we have no information with regard to the particular interest you cited in your remark.

DR. TYSON: Can I say one other thing that was remarked, I believe quite intensively in the Chinese briefing given by Ambassador Barshefsky, and that is this is the first time that the Ministry of Public Security in China will be taking an active role in the enforcement activities. And I think that signals they have instituted a new campaign against crime, and they have instituted --have identified IPR violations as an important part of this campaign.

So we have a new law enforcement type agency in the Chinese setting involved in this, and that, with a number of other things, really changes the context here. It's not to say, again, that we need -- we need to continue to be vigilant and continue to work with the Chinese on this issue. Making progress does not mean the problem is solved; it means what it is -- making progress.

But there are a number of things that have changed now, in terms of reporting and in terms of who would be in the factories and in terms of responsible agencies who are involved in the enforcement effort. And that should, we believe, represent progress going forward.

Q Mr. Secretary, Jack Valenti was telling us outside that this agreement does not bar continued Chinese censorship of American movies going into China. Can you shed some light on the kind of censorship they have? Is it political based, culture based, both? And how serious is it in terms of access?

SECRETARY KANTOR: In the past it has been both politically and culturally based, based on Chinese law. And, in fact, of course, they retain the right to censor in the future. The fact is, by getting rid of the quotas and no longer maintaining them and allowing for the importation of motion pictures unrestricted in that regard, we have made a big step forward. But you're correct, and Mr. Valenti is correct, of course, that this censorship -- or potential censorship is a better way of putting it -- of course, still exists under Chinese law.

Q Some of the industry people also were saying that this agreement could open the way for significant joint business partnerships, U.S. with the Chinese, to produce disks and software and movies there. Can you give us any kind of quantitative estimate or other projection of how much business American entertainment industry will now be able to generate with partnerships in China?

SECRETARY KANTOR: I would not qualified to give you that kind of estimate. I think the industry folks would be the best qualified to do that. All I can tell you is in the music area and the movie area and the software area, those kinds of projects could be undertaken under this agreement, or under this agreement, or under this extension of the 1995 agreement, including, we hope, projects for renovation and building of theaters and other matters such as that.

However, the specific authorizations in this agreement are very broad and not, however -- they are very broad in terms of music, movies, and software, and will allow for that potential. How much of that will be realized is certainly -- the industry would be a better estimate and that, of course, we will see in the future.

Q Secretary Kantor, with the amount of piracy that you think will still go on, does it make the market opening end of this agreement not all that worthwhile?

SECRETARY KANTOR: Oh, it's just the opposite. To the extent you open the market, you make piracy less productive and profitable, and you make the market end more profitable and productive. Therefore, the Chinese will have an interest in cracking down on piracy. The more involved we are together marketing in China in each of these three areas as well as other areas -- it's just the opposite, frankly.

Q Mr. Secretary, you have officals today with many of the nation's largest retailers as well as importers who lauded the agreement, but said that they were very concerned that the fact that apparel was such a large percentage of the proposed sanction list, that, one, they have been hurt economically already, and two, this will make an inviting target should this ever come up again in the future. Your comments, please.

SECRETARY KANTOR: Well, we chose the list in order to make it clear to the Chinese this was serious and it would have a real effect upon their behavior. The fact is that a large part of Chinese exports to the United States are textile and apparels, number one. Number two, the fact is that because of quotas around the world, if the U.S. market became limited if we had imposed the sanctions, as you know, they would not have many alternatives. Third, these are made and produce in Guangdong Province where most of the piracy is going on, so the same area that is producing the piracy would be most affected by this. And number four, of course, this industry had more alternatives than almost any other industry in terms of sourcing either from the United States or from the Caribbean or from Latin America. So therefore, it made sense in this case to develop the list in the way it was.

What would happen in the future would be mere speculation. We hope and assume this agreement will be adhered to; therefore, there will be no need to do this again. Although, we will continue to monitor, legally under Section 306 -- that's what happens under 301 action, you suspend the imposition of sanctions, you monitor the Section 306.

Q Just a follow-up question on that monitoring point. Have you set a specific date by when you'll review China's compliance, or a regular period, compliance review periods?

SECRETARY KANTOR: We do it continually.

Q Mr. Secretary, does today's action on the part of China make the Sino-American relationship on a tack of more smoother sailing? And would it tend to -- would it make you more likely to support a possible presidential visit to China?

DR. TYSON: I think what this action shows is that we have many interests with China that we have -- the President has chosen a policy of constructive engagement with China; that that involves using various tools that are most appropriate to the interests at question. Here was a case where we used our existing trade policy in an effective way to get results which we believe not just in our interests, but let me emphasize, as with all our trade agreements, we believe that these agreements are actually in the interests -- they're win-win situations; in our interests and in the interests of our trading partners.

So I would say we really want to emphasize that this result shows the wisdom of the general approach to China, which is one of constructive engagement.

Q What about the provinces? I mean, the central government is one thing, but the provinces have sometimes gone off in their own direction regarding enforcement and just about everything else. What guarantees do you have that the provinces will be held in line?

SECRETARY KANTOR: Well, one of the things -- just let me give you a very concrete example in this agreement -- we're going to have a seven-month special enforcement period in Guangdong Province alone, in addition to the special enforcement period in the whole nation which will go through August. We'll have seven months in Guangdong Province.

As you know, the one thing that worked well in 1995, the first year of the agreement --'95-'96 I should say -- was a special enforcement period. They literally -- the Chinese government confiscated and destroyed hundreds of thousands of these disks, CDs and so on. So that worked well. That's one concrete example of the provinces being involved.

Q Do you have any way to assess the political impact with this on the MFN fight on the Hill?

SECRETARY KANTOR: All I would say is I think this is -- for those on the Hill who are looking at this question of China, constructive engagement is working. Both sides have to take responsibility -- the Chinese did in this case. We're pleased with the results. I think this shows that when you constructively engage with China and insist on standing up for U.S. interests, that both side can win and both sides can be benefitted. Therefore, I think it's probably going to help on the Hill.

Q Are there any other trade disputes coming with China?

MR. MCCURRY: Two more questions -- here and then back there.

Q Are there any other trade disputes looming with China?

DR. TYSON: What do you think? (Laughter.)

SECRETARY KANTOR: Oh, don't get me started. (Laughter.) No, they -- nothing of an immediate nature. However, we continue to have some concerns about industrial market access and agricultural market access. We continue to engage the Chinese in discussions about their accession to the World Trade organizations. We have specific sectors and commodities that we discuss on an ongoing basis. But nothing of the magnitude of what we just went through.

Q Will the agreement that you announced today have any effect on those issues that you cited in terms of trying to resolve those problems?

SECRETARY KANTOR: I hope so. I hope China now implements those agreements on market access as they've implemented this agreement on intellectual property rights. It would be very helpful.

Q Is China due to become a WTL member soon?

DR. TYSON: What?

Q Aren't they due to become a WTL member soon?

DR. TYSON: We have given to China -- actually, Ambassador Barshefsky has presented them with a blueprint of guidelines of actions they need to take in order to enter the WTO accession on commercial terms.

Incidentally, it includes some issues on intellectual property rights. And when we say this agreement is a win-win for us and for China, one of the decisions we believe the Chinese are making is their recognition of the need really to adhere to international rules of the game and things like intellectual property rights in order to become a member of the international trading community.

MR. MCCURRY: Last two right there.

Q Secretary Kantor, I'm wondering today you're emphasizing the use of U.S. trade law in the enforcement of this deal. To what -- and Ambassador Barshefsky has previously said how difficult it is for us to press these issues with Europe and Japan standing on the sideline. Will you be making any specific or renewed effort to gain international support to bring to bear more pressure to live up to IPR rules?

SECRETARY KANTOR: Well, we would be pleased and it would be helpful if Europe and Japan would join us in an overall attempt to protect intellectual property rights around the world. We will continue to follow this policy regardless of what Europe and Japan do. However, we would welcome their active and full participation.

Q -- seeking it with a new initiative?

DR. TYSON: Can I just say one thing on that issue related to the question I answered a minute ago, which was on the WTO? It's important to emphasize that on the issue of the terms for Chinese accession to the WTO that there is unanimity among those trading nations responsible for making that decision. So there is one area, for example, where we are working together -- the U.S., Europe, Japan, other trading nations -- to make sure that China's accession to the WTO occur on commercial terms.

MR. MCCURRY: Last question.

Q Secretary Kantor, you and Ambassador Barshefsky cited several times that the Hong Kong and Taiwanese investor involved actively in those illegal activities in China, mainly in those CD plants. I wonder, can you tell us that in those plants being closed -- I'm talking those 15 -- how many of them are Hong Kong invest or Taiwan invest? And then in this press release, it specifically mentioned that the cooperation from Hong Kong -- I'm just wondering, do you obtain cooperation from Taiwan?

SECRETARY KANTOR: We have called upon Taiwan to cooperate and to be as active as Hong Kong has been, not only in terms of the shipment of pirated goods from China through those areas to the rest of the world, but also do what Hong Kong has done, and that is actively consider -- and they have indicated to us they will pass a law in Hong Kong which will find it to be a crime to involved in illegal activities on the Chinese mainland. And this, of course, would be one of them. This was introduced in Hong Kong by the authorities there as a result of the investment by certain Hong Kong residents in these pirate factories.

I would have no comment about the ownership of these particular plants. I think that would not be helpful.

THE PRESS: Thank you very much.

END 1:15 P.M. EDT