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The Office of the U.S. Trade Representative has released a report warning companies and other intellectual property holders about countries that it says come up short in regard to IP protection and enforcement. China has made the list of the most problematic countries once again—and in a move that may come as a surprise, Canada has been added for the first time.

For the 14th year in a row, China has been placed on the USTR's “Priority Watch List” as part of the office's annual Special 301 Report, released April 27. The USTR cited China's record of failing to crack down on the manufacture and sale of counterfeit goods and its lack of laws to prevent trade secret theft.

According to the report, in 2014, the Chinese State Administration for Industry and Commerce (SAIC), a national corporate regulator, reported that 40 percent of goods it purchased online were “not genuine,” which is a classification the organization used to describe counterfeit products.

The report also cited technology transfer requirements that the USTR said are used as a condition to access Chinese markets, as well as the “mandatory application of adverse terms to foreign IP licensors.”

“Assertions by Chinese government officials that China's shortcomings should be excused in light of the country's stage of economic development appear to suggest an underlying lack of commitment to address longstanding problems and undermine any confidence stemming from positive developments and high level statements in support of IP and innovation,” the USTR report said.

The office said in the announcement of the report's release that the 12 countries on the Priority Watch List, including China, will be subject to “intense bilateral engagement” over the next year.

After China on the priority watch list were Indonesia, India, Algeria, Kuwait, Ukraine, Argentina, Canada, Chile, Colombia and Venezuela.

Canada is the only G7 country this year to move from the Watch List to the Priority Watch list. The report states that Canada was downgraded because of “poor border enforcement generally” and lack of a customs authority to “inspect or detain suspected counterfeit or pirated goods shipped through Canada.”

The report further states that in 2017 there were no known criminal prosecutions for counterfeiting in Canada, which makes it a “striking outlier” among Organization for Economic Co-operation and Development countries. The report also cites U.S. concern over proposed changes to Canada's Patented Medicine Prices Review Board that would “fail to appropriately recognize the value of innovative medicines in both the private and public markets.”

On the second-tier Watch List were Thailand, Vietnam, Pakistan, Tajikistan, Turkmenistan, Uzbekistan, Egypt, Lebanon, Saudi Arabia, the United Arab Emirates, Greece, Romania, Switzerland, Turkey, Mexico, Costa Rica, the Dominican Republic, Guatemala, Barbados, Jamaica, Bolivia, Brazil, Ecuador and Peru. The report says that IP challenges in those countries merit additional bilateral engagement over the next year.