China and the United States traded blows over entertainment and software piracy Friday as the World Trade Organization (WTO) formally ruled some Chinese practices were illegal but exonerated it of other complaints.

But the comments also showed that major trading powers were still ready to work within the international rules-based system to resolve rows even if the economic crisis is increasing protectionist pressures.

The WTO's dispute settlement body adopted a January 26 ruling in a case brought by the United States against China for failing to protect and enforce intellectual property rights, such as copyrights and trademarks, on a wide range of goods.

Today, the membership of the WTO agreed that China must bring its intellectual property rights enforcement regime into conformity with its WTO obligations, Ron Kirk, the new U.S. Trade Representative, said in a statement.

As this dispute demonstrates, the United States will not hesitate to use all appropriate tools at our disposal to ensure that our industries, authors and artists are protected -- and that our trading partners observe their WTO commitments.

Kirk had made it clear in the run-up to his confirmation this week by the U.S. Senate that he would press for the enforcement of existing trade agreements rather than seeking to notch up new trade deals.

MIXED VERDICT

But as so often with trade disputes, the verdict in this one was mixed, allowing China too to claim victory.

The United States persuaded the dispute panel that China had violated WTO rules by barring copyright protection for films, music and books that had not been approved by state censors for legitimate sale.

The panel also ruled that it was impermissible for China to allow the public auction of counterfeit goods seized by Chinese customs authorities, with the requirement that fake brands or trademarks be removed.

But the United States failed to persuade the panel of one of its central arguments: that Chinese copyright pirates and counterfeiters have no fear of criminal prosecution because the government's threshold for bringing a case is too high.

China's Commerce Ministry said the WTO had rejected most of the U.S. complaints and broadly backed Beijing's stance against commercial piracy, and added the findings did not affect China's right to censor content.

The expert group report rebutted the great majority of the U.S. side's claims and broadly vindicated China's intellectual property system, spokesman Yao Jian said in a statement issued on the ministry's website (www.mofcom.gov.cn).

The United States launched the case in 2007 out of frustration at rip-offs of films, branded goods and other trademarked property openly available in Chinese cities.

After the ruling in January, China said it would cooperate with other countries on copyright issues and chose not to appeal against the decision.

The International Intellectual Property Alliance, a coalition of U.S. entertainment and software industry groups, has claimed piracy in China costs them more than $3.7 billion in lost sales.

(For the U.S. statement go to:

http://www.ustr.gov/assets/Document_Library/Press_Releases/2009/March/asset_upload_file975_15433.pdf )

(Reporting by Chris Buckley in Beijing and Jonathan Lynn; Editing by Stephanie Nebehay)

China Intellectual property law Intellectual Property Wto