ChinaChina AssociationAssociation ofof EnterprisesEnterprises withwith ForeignForeign InvestmentInvestment

QualityQuality BrandsBrands ProtectionProtection CommitteeCommittee Contents

1. The Problem: Counterfeiting in China

2. Introduction to the QBPC

3. 2005 Key Focus Items

4. Conclusions The Problem: Counterfeiting in China Scope of the Problem in China

• Counterfeiting has reached critical levels – AmCham’s survey of 450 members shows “piracy’ is “so pervasive and serious” that 35% respondents said it has forced them to slow, decrease or consider decreasing the investments in the country (AWSJ 9/2-4/05) Scope of the Problem in China

• Counterfeiting is #1 IPR issue for many companies • Losses are estimated to be 10-15% of annual sales for many companies

Percent of Counterfeit Goods Market

„ 60% of members 70% 60% s 2005 of believe between 5 nt 50% ge

de 2004

a 40% t on n 30%

& 10% of their e 2003 p c s

r 20% e

e 2002 R goods in the market P 10% 0% are counterfeits < 5% 5% - 10% 11% - 26% - > 51% 25% 50% Percentage of Goods Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated More Organized & Sophisticated

• 越打越多 • 越打越大 • 越打越精 • 越打越难 Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated • Counterfeiting problem has not improved in the past year ItIt hashas evolvedevolved fromfrom locallocal tradetrade toto inter-provinceinter-province businessbusiness to...to...

internationalinternational commercecommerce Key Counterfeiting Areas

• Top Provinces: Guangdong, Zhejiang, Fujian • Top Cities: Guangzhou, Shenzhen, Beijing, Ningbo

Activity Provinces Cities Counterfeit Guangdong (56%), Zhejiang Guangzhou (26%), Shenzhen Manufacturing (29%), (18%), Ningbo (7%) Shandong (11%) Wholesale of Guangdong (41%), Zhejiang Guangzhou (27%), Yiwu (11%), Counterfeit Goods (20%), Anhui (10%) Beijing (9%) Retail of Counterfeit Guangdong (32%), Fujian Guangzhou (20%), Beijing (13%), Goods (13%), Zhejiang (9%) Shenzhen (10%) Counterfeit Exports Guangdong (34%), Zhejiang Shenzhen (21%), Guangzhou (26%),Jiangsu(11%) (16%), Ningbo (16%) Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated • Counterfeiting problem has not improved in the past year • Growing export of China-made fakes to countries around the world Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated • Counterfeiting problem has not improved in the past year • Growing export of China-made fakes to countries around the world – 77% of members reported ‘very serious’or ‘serious’ counterfeit export problems Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated • Counterfeiting problem has not improved in the past year • Growing export of China-made fakes to countries around the world • Enforcement & prosecution largely ineffective – AmCham’s survey shows that 80% of respondents said they consider the official Chinese response to piracy “ineffective or totally ineffective” (AWSJ 9/2-4/05) Scope of the Problem in China

• Counterfeiting has reached critical levels • It has become more organized & sophisticated • Counterfeiting problem has not improved in the past year • Growing export of China-made fakes to countries around the world • Enforcement & prosecution largely ineffective • Burden of proof too difficult to satisfy • Criminal convictions are rare; fines are too low • Local protectionism creates serious barriers to enforcement Fundamental Problems

• Special to China: – Historical reliance on administrative enforcement; light punishment – Lack of clear standards for criminal liability – Police / prosecutors new to the game Fundamental Problems

• Same as elsewhere: – Inadequate criminal enforcement – Inadequate resources / training – Local bias (“protectionism”) and corruption Contents

1. The Problem: Counterfeiting in China

2. Introduction to the QBPC

3. 2005 Key Focus Items

4. Conclusions The Quality Brands Protection Committee (QBPC) QBPC Voting Members (25)

1. BAT 14. LVMH Fashion Group 2. Bosch 15. Mars 3. Colgate-Palmolive 16. Microsoft 4. Eli Lilly 17. Nike 5. General Electric 18. Nokia 6. General Motors 19. Philip Morris 7. Gillette 8. Henkel 20. Philips 9. Hewlett-Packard 21. Procter & Gamble 10. Intel 22. Qualcomm 11. Johnson & Johnson 23. Sony Corporation 12. JT International S.A. 24. Unilever 13. La Chemise Lacoste 25. Zippo QBPC General Members (106)

25. 3Com 39. BP 26. ABB 40. Burberry 27. Abbott Laboratories 41. Callaway 28. Acushnet 29. 42. Canon 30. Alcatel 43. Caterpillar 31. Anheuser-Busch 44. Chanel 32. AstraZeneca 45. Cisco Systems 33. BASF 46. Coach 34. Bayer 47. Cleveland 35. Beaufour Ipsen 48. Coca-Cola 36. Beijing Mundipharma 49. Creative Technology 37. BIC 50. DaimlerChrysler 38. BMW Group QBPC General Members (cont’d)

51. Danfoss 64. Fujisawa 52. Diageo 65. GlaxoSmithKline 53. Dell 66. Gore 54. Denso Corporation 67. Grohe 55. Disney 68. Gucci 69. Guthy-Renker 56. Dow Corning 70. Hasbro 57. Emerson 71. Heineken 58. Energizer 72. Hermès 59. Epson 73. Hitachi 60. Estée Lauder 74. Honeywell 61. Federal-Mogul 75. Hong Kong Jockey Club 62. Ferrero 76. ICI 63. Ford QBPC General Members (cont’d) 77. Imperial Tobacco 91. Michelin 78. Irdeto Access 92. Moët Hennessy 79. Karsten Manufacturing 93. NBA Properties 80. Kodak 94. NEC Corporation 81. LEGO 95. Newell Rubbermaid 82. Logitech 96. Nintendo 83. L’Oréal 97. Nissan 84. Lutron 98. Novartis 85. Makita 99. Nu Skin 86. Mary Kay 100.Perfetti Van Melle 87. Matsushita Electric 101.Pernod Ricard 88. Mattel 102.Peugeot Citroen 89. MeadWestvaco 103.Pfizer 90. Merck QBPC General Members (cont’d)

104.Portola 118.Siemens 105.Prada S.A 119.Syngenta 106. 120.Taiyo Yuden 107. 121.Texwood 108.Roche 122.Tiffany & Co. 109.Rohm and Haas 123.Time Warner 110.SanDisk 124.Toshiba 111.SANYO 125.Toyota 112.Sara Lee 126.Tyco Electronics 113.SAP 127.Unitex 114.S.C. Johnson 128.Volkswagen 115.Seb Développement 129.Wrigley 116.Servier 130.Yamaha 117.SEIKO The Quality Brands Protection Committee

• Beijing-based association under CAEFI/MOFCOM • Established March 2000 • Represents 130 multinationals and their subsidiaries (mainly American, European and Japanese) • Total China investment by members approximately US$42 billion Mission Statement

“To work cooperatively with the Chinese central and local governments, local industry, and other organizations to make positive contributions to anti-counterfeiting efforts in the People’s Republic of China.” Organizational Structure

• Member driven

• Agenda pursued mainly by committees

• Industry Working Groups

• Secretariat QBPC Organization Structure

Steering Council (Voting Members, QBPC Chair & Vice Chairs, Committee Chairs)

IWGs Committees Automotive

Battery Best Practices / Enforcement Committee S e

FMCG c

Communications Committee r

Food & Beverages e t

Home Appliances a

IT Customs Committee r i

Luxury a t Pharmaceutical Government Cooperation Committee Sporting Goods Legal Committee Membership Services Committee Contents

1. The Problem: Counterfeiting in China

2. Introduction to the QBPC

3. 2005 Key Focus Items

4. Conclusions 2005 Key Focus Items 2005 Key Focus Items

1. Reduce cross-border trade in counterfeits 2. Increase criminal enforcement against counterfeiters 3. Strengthen administrative enforcement 4. Build government relations 5. Increase cooperation with international and domestic organizations, foreign governments and Chinese IP owners 6. Expand the QBPC’s focus to cover IP issues other than anti-counterfeiting 7. Broaden public awareness of the problem 8. Meet membership satisfaction targets QBPC Key Focus Items

• All members agree with QBPC’s objectives • Members would like to see a continued focus on: – Lobbying on increased criminal enforcement – Lobbying for amendments to laws and regulations – Enforcement initiatives – Legislative initiatives • Other suggestions: – Lobbying of reforms in administrative enforcement – Supporting IWGs in conducting consumer education initiatives Contents

1. The Problem: Counterfeiting in China

2. Introduction to the QBPC

3. 2005 Key Focus Items

4. Conclusions Conclusions The Time to Act is Now

The problem persists: • Most members believe problem same or worse compared to one year ago • Counterfeiting affects investment decisions • WTO entry may have helped to increase counterfeiting

The government is ready to take action: • Central government is aware • Quality of support from government is improving Results Winner of the Global Anti-Counterfeiting Award 2001 Best Practice by an Association & 2004 Best Practice by an Association

Awarded by the Global Anti-Counterfeiting Group (GACG)