Piracy of CDs threatens Ukraine's trade status (02/25/01)

Piracy of CDs threatens Ukraine's trade status

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine could face trade sanctions by the United States - including restrictions on the importation of its goods to the United States and a possible recommendation by Washington that it be refused entry into the World Trade Organization - if it does not begin to support international intellectual property rights and actively fight against the illegal manufacture of CDs.

Ukraine's Vice Prime Minister Mykola Zhulynskyi acknowledged as much on February 21, after a meeting of the Cabinet of Ministers that addressed growing concerns in the West over perceived disregard by Ukraine of an agreement to adopt and enforce laws on intellectual property rights made when former U.S. President Bill Clinton was last in Kyiv.

Ukraine has recently been identified as the top global producer of pirated CDs, a fact that has galled record industry advocates who believe the government has taken a lackadaisical approach to the problem.

The Cabinet of Ministers meeting and a roundtable sponsored by the U.S. Embassy and the International Federation of the Phonographic Industry, a representative agency for 1,400 record companies in more than 70 countries, underscored that Ukraine needs to take decisive and immediate action to stop a burgeoning pirate industry of compact discs, today the most popular form of musical entertainment.

"Unfortunately today [Ukrainian] economic criminals are engaged in the piracy of international property rights," explained U.S. Ambassador Carlos Pascual. "They are hindering the development of a legitimate business in Ukraine," he added.

Mr. Pascual, although remaining discreet about the threat of sanctions, said the United States retains that option, but would rather work with the Ukrainian government to shut down the illegal manufacturing plants.

The ambassador said the United States is willing to help develop strategies to secure intellectual property rights for artists and recording companies, including the development of a legal basis to fight the problem; analyses of samples to prove bootlegging activities; and surprise inspections of facilities to ensure they are legally producing CDs.

Ukraine currently ranks with Bulgaria, Malaysia and Hong Kong as world leaders in the illegal manufacture of CDs. Last year about 2 million to 3 million bootleg CDs made in Ukraine and sold around the world generated $250 million to $300 million in revenue for Ukrainian music pirates. Since President Clinton and his Ukrainian counterpart, Leonid Kuchma, signed an agreement in June 2000 to wipe out Ukrainian CD piracy, it is estimated that 140 additional titles have been pirated for domestic or foreign consumption.

Illegal CDs from Ukraine have been seized in 20 countries. Bootlegged Ukrainian CDs are found in every corner of the globe, from Israel and Lebanon to Malta and Peru, as well as in Belgium, Russia and New Zealand.

Stefan Kravchuk, director of the Eastern European Department of the IFPI, whose member countries sold $38 billion worth of music in 2000, said the problem seems to be getting worse. He said that illegal shipments of CDs arrested at customs points more and more often contain Ukrainian contracts and shipping invoices. A recent seizure of an illegal shipment in Malta contained more CDs than the country's citizens buy in an entire year.

Mr. Kravchuk said that because of Ukraine's lax attitude toward enforcement of intellectual property rights the pirates have no fear or even shame. He noted that in one case the director of a pirating operation called the customs service of a country that had just seized half a million of his illegal products to determine how he could get them returned.

Mr. Kravchuk said he rejects assertions by some Ukrainian government officials that the pirates do not realize they are breaking international law and are simply trying to make a living. He explained that if the manufacturers were as naive as some would rather believe they would not credit the legal producer or distributor on the outer packaging of their illegal recordings, as most pirate operations do.

"They know what they are doing," asserted Mr. Kravchuk.

The Ukrainian government has maintained that it is doing its best to battle the music pirates, but has stubbornly refused to admit the problem is as widespread as the music industry states.

Yaroslav Yatskiv, assistant minister for science and education, while questioning the number of seizures of contraband Ukrainian-produced CDs, said the hands of the Ukrainian government often are tied because it does not have a developed set of laws on intellectual property rights. He explained that the Ukrainian legislature has failed to enact the statutes to give the executive branch the tools with which to fight the pirates. He said some of the bootleggers outrightly question the right of the government to shut them down.

Ambassador Pascual gave a more vivid example of the power of the illegal CD manufacturing industry in Ukraine and the way it works in the Parliament to effectively freeze legislation.

"The arm of the bootleggers extends so far that they have proposed alternative legislation which in fact pirates the original bill (which has idled in the Parliament for months) but with the penalties taken out," explained Mr. Pascual.

Observers say Ukraine's best chance to avoid international sanctions for failing to fight the piracy of intellectual property is to copy the manner in which Poland rid itself of its CD bootleggers. Mr. Kravchuk of the IFPI said that today the Polish market, which once was a leading producer of pirated CDs, has grown to nearly $160 million - nearly all of which is legally earned money. He said that Polish CD manufacturers now have agreements with record companies to produce legal titles and, contrary to what was thought earlier, have seen their profits rise dramatically since they went legitimate, even as they began to pay taxes. Where 10 years ago 90 percent of the Polish market was illegitimate, today that number has fallen to 25 percent.

The Ukrainian government, which often looks for an immediate benefit to whatever action it takes, should find an incentive here to develop and enforce the law. If it did, more international acts would tour Kyiv in support of their musical releases, which today rarely happens because the recording companies that hold their contracts don't see a market for their own legitimate product. If they came, these acts would generate tax revenue for the cash-strapped Ukrainian government.

Additional revenues also would flow from local Ukrainian musical acts who suffer from the pirating of their products as much as their Western counterparts. One such artist, rock musician Natalia Mohylevska, who along with several other Ukrainian musicians took part in the roundtable said, "Even I would then consider paying taxes."

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