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Ukraine: U.S. Trade Sanctions Imposed Over CD Piracy

Trade sanctions imposed against Ukraine by the United States take effect today. The sanctions are an attempt to pressure Kyiv into taking strong action to eradicate compact-disc piracy. Anti-piracy groups estimate that Ukraine's illegally produced CDs cost the international music industry $180 million to $250 million a year. RFE/RL correspondent Ron Synovitz takes a closer look at the issues in Ukraine, and at CD piracy across the region.

Prague, 23 January 2002 (RFE/RL) -- Washington today imposed trade sanctions that will restrict U.S. imports of steel and 23 other items from Ukraine. The move is aimed at pressuring Kyiv into passing stricter legislation against widespread industrial compact-disc piracy.

While Washington estimates that the sanctions will cost Ukraine about $75 million in lost trade, authorities in Kyiv say they expect to lose as much as $470 million.

The dispute over the theft of intellectual property by Ukrainian firms is long-running. Washington has suggested strict legislation against the production of counterfeit CDs, but Ukraine's parliament, the Rada, has repeatedly rejected U.S. suggestions. The Rada did pass an antipiracy bill in mid-January, and President Leonid Kuchma has said he probably will sign it into law.

But Maria Jovanovich, a spokeswoman for the U.S. ambassador to Ukraine, said in Kyiv yesterday that the U.S. believes the bill is not adequate.

"We have requested a copy of the law that was passed last week, although we have not seen a copy. But based on preliminary readouts, we do not think that this is the kind of law that we have been discussing with Ukraine over the past number of months," Jovanovich said.

Jovanovich noted that the 100 percent import tariffs imposed by the United States on Ukrainian products will mean much more than lost revenue in Kyiv.

"This is, of course, a very important issue to the United States. This question also goes to the heart of Ukraine's integration into Europe and into the global community -- for example, into the World Trade Organization and a closer association with the European Union," Jovanovich said.

But she said officials in Washington will be more lenient toward Kyiv about lifting the sanctions than in previous cases against other countries: "Normally, sanctions are lifted only when a country stops the pirates that are violating intellectual property rights. In Ukraine's case, the U.S. trade representative has said that they are willing to make an exception and will lift sanctions when Ukraine passes a strong law. In other words, before it is actually implemented."

Kuchma responded sharply to the U.S. announcement. He said the demands of Washington and the recording industry's antipiracy group, the International Federation of the Phonographic Industry (IFPI), are too strict. Kuchma also said the antipiracy legislation that Washington wants would be stricter than that of any other country.

Kuchma's spokesman said Washington is now pressuring Ukraine, rather than cooperating with Kyiv on reforms.

The U.S. sanctions come after the influential IFPI criticized last week's legislation in the Rada. In a statement issued from its London office, the IFPI called the bill "ineffective" and "highly flawed."

Stefan Krawczyk, the IFPI's regional director for Eastern Europe, told RFE/RL today that a conservative estimate of the damages caused to the international recording industry by Ukrainian counterfeit CDs is between $180 million and $250 million per year.

Krawczyk said those damages are not the result of pirate CDs being sold in Ukraine. Rather, he said, there are millions -- and possibly dozens of millions -- of Ukrainian counterfeit CDs exported to markets across Eastern and Central Europe, the former Soviet republics, the European Union, North America, and Latin America.

Krawczyk noted that while the CD factories in Ukraine are all private firms, the companies are operating in facilities rented from the Ukrainian military. Thus, he says, the Ukrainian government is at least indirectly earning money from CD piracy.

Krawczyk also said Ukraine is not the only country in which large factories are illegally copying CDs: "The real production bases remain Ukraine, Russia, Bulgaria, Belarus, and possibly Poland and the Czech Republic."

Krawczyk said the former Yugoslav republics also are a center for pirate CD production -- albeit not in large factories.

"If you look at pure pirate production, I would also include the former Yugoslav [republics] -- Yugoslavia as such, Bosnia, Montenegro, [Macedonia]," Krawczyk said. "But there, it is a bit less industrial piracy and much more very large-scale piracy on blank CDs in small -- what we call garage or cottage -- operations. But they are having a very big impact on the market there, which is almost 100 percent pirate."

Krawczyk said CD piracy in Russia has been a growth industry in recent years, and that Russian firms have been increasingly exporting counterfeit CDs since the beginning of 2001.

"After Ukraine, I would say the spotlight in terms of industrial CD piracy would go to Russia. There's an increasing number of CD plants there, and we now see a lot of Russian pirate products turning up in countries and markets around the region," Krawczyk said. "Up to a year or so ago, there was already large-scale piracy in Russia, but it mostly remained inside the Russian market. And they now have clearly taken over the role that Ukraine used to play."

Still, he said, Ukrainian authorities have not been clamping down enough on known pirates: "Ukraine has continued over the last year to be a major source of pirate CDs -- both local production as well as trans-shipments. So there is still a big Ukrainian involvement in many respects in trade of pirate products. But it is indeed clear that with all this attention -- from the United States, the European Union, from the international media -- on what has been going on in Ukraine, that they have taken a slightly lower profile. And, indeed, Russian entrepreneurs have jumped in immediately to fill that emerging gap."

Krawczyk said one Ukrainian firm that came under international scrutiny for widespread distribution of pirate CDs has simply moved its illegal counterfeiting operations into Belarus. He said that factory is now operating under the name "RIT" but was formerly known as "Bolidisk."

"Belarus is starting to become a problem. One of the main reasons is that one of the Ukrainian pirate plants moved a substantial part of its operations to Belarus," Krawczyk said.

Krawczyk said the Bulgarian government in the late 1990s cracked down on pirate CD factories that were owned and operated by the state -- a practice that had given Bulgaria the dubious distinction of being Eastern Europe's biggest music pirate before Ukraine.

"In Bulgaria, in 1997 or 1998, we were very, very close to trade sanctions as well. Only the Bulgarian government at that time knew what was at stake for their economy, which was not in very good shape anyway," Krawczyk said. "And they took the right measures. And they took it very decisively, I would say."

But Krawczyk also warned that private Bulgarian firms have started to re-emerge as major CD pirates: "Bulgaria, or Bulgarian entrepreneurs I should say, have been taking advantage of all this attention on Ukraine to start building up CD capacity again. And they are certainly also again involved in pirate production."

Krawczyk said it has become more difficult to determine the level of piracy in Poland and the Czech Republic. But he said the IFPI suspects the counterfeit CD industry is large in both countries.

"Entrepreneurs both in Poland and the Czech Republic to a certain extent cooperate with IFPI, which is very good, in having their plants controlled," Krawczyk said. "And the other ones might be involved in pirate production, but if they are, they are doing it in such a way that it is very difficult to actually detect."

Krawczyk said Lithuania is known as a key distribution hub for illegally copied CDs coming from other Eastern and Central European countries -- even though there are no large counterfeit factories in the Baltic state.