Digital Piracy Flourishes in Hong Kong, Despite US Protests

Across from Victoria Harbor lies Kowloon, a bargain-shopper's dream. Tucked between jewelry stores selling discounted Rolex watches and tailor shops promising to make you a custom suit in just hours are the shops of the copyright pirates.

Interested in Microsoft's new Windows 98? How about Natalie Imbruglia's latest CD for about a fifth of what you pay at Tower Records? Or a video of the hit movie "Titanic" for $3?

CD piracy is now one of the most significant problems between the United States and Hong Kong. And it's an issue that President Clinton is almost certain to bring up on his visit here July 2-3.

Digital piracy in Hong Kong of all types of copyrighted materials - CD-ROMs, music CDs, video compact discs (VCDs), and music software - cost US businesses more than $245 million last year, according to the Washington-based International Intellectual Property Alliance. That marks a 3.5 percent increase in losses compared with 1996.

Last year, when US pressure led Beijing to crack down on piracy in southern China, the counterfeiters simply moved across the border to Hong Kong.

"We see this sort of activity - pirating, counterfeiting of American products - as something that severely damages the US trade balance," says Joe Papovich, assistant US trade representative for services, investment, and intellectual property. "We see [attention to the problem] as being in the US national interest."

The incentive for pirates is simple - tremendous profits at little risk. A music CD can be made for as little as 15 cents and then sold at a Hong Kong market for about $2. If caught, the most a counterfeiter can expect to receive in punishment is a two-month prison sentence and a $650 fine. In China, the prison sentences for counterfeiters can reach seven years or more.

On May 1, the US Trade Representative's Office (USTR) decided to keep Hong Kong on its copyright-piracy-watch list. The action came the same week Hong Kong authorities seized 10 million pirated VCDs from an illegal manufacturer.

Tam Wing-pong, Hong Kong's deputy secretary for trade and industry, says the seizure demonstrated that his government is indeed cracking down.

Some of these efforts include recruiting Hong Kong movie stars like Jackie Chan to urge students not to buy fake goods. And Hong Kong's chief executive, Tung Chee Hwa, is considering tougher antipiracy laws, including making the purchase of pirated goods illegal.

"We have done a lot since we were first put on the watch list. And the USTR does not seem to take into account what we have done so far," says Mr. Tam. "So we feel that it is grossly unfair and unnecessary and unreasonable to keep Hong Kong on the list."

Despite such protestations, the retail selling of pirated products continues to flourish. At Kowloon's night market the pirated CDs and VCDs are sold in plain sight of tourists and police. Store owners advertise their bargains with hand painted signs that flash four CDs for about $2.50.

It is this blatant violation of copyright law that angers US trade officials. "Steps that they've taken have been good and we've praised them for that, but they need to have that over a sustained period of time," says the USTR's Mr. Papovich.