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YONGSAN GARRISON, South Korea — The vendor-consumer conversation usually goes along these lines: “Is it a good copy? Can you show me?”

The vendor takes the pirated DVD, pops it into a player and plays on a small TV. If the movie hunter is satisfied, around $8 buys a copy of a new flick, often before it’s been released in theaters. By night’s end, the gypsy vendors disappear.

It’s a flagrant and easy street-side transaction. It’s also illegal — a violation of intellectual property and copyright laws that cost U.S. and South Korean companies billions every year, officials say.

Illegally copied DVDs were one reason South Korea was placed on the United States Trade Representative office’s “priority watch list,” upgraded from a less-severe “watch list” in January 2004. It noted that South Korea’s copyright protection “continues to be lacking in important areas.”

Those areas also included protecting audio recordings from digital piracy, book piracy, counterfeit consumer products and protection of pharmaceutical patents.

Despite the open street-side hawking in places such as Itaewon, just outside of Yongsan Garrison, South Korea has received positive marks for stepping up police authority for investigating software piracy. The South Korean government also redrafted regulations to stop the fraudulent rating of videos, DVDs and video games, according to the USTR’s 2004 report.

Since being placed on the priority list, the Ministry of Information and Communication, along with government prosecutors are doing more piracy investigations, said ministry spokesman Kim Joong-suk. Those found pirating could be fined up to $4,500, he said.

Sales rates of pirated DVDs — versus legitimate products — have dropped from 50 percent of all discs sold to 40 percent recently, Kim said. Software, music and movie piracy is estimated to pull in $26 million annually in South Korea, Kim said.

Pending legislation in the National Assembly would offer more protection for owners of audio recordings, including a ban on Internet file sharing, said a U.S. Embassy economic official. The United States also is working closely to close a legal loophole allowing the licensing of copied movies, the official said.

As progress is made, the United States could do a special evaluation of South Korea and remove the country from the priority watch list, the officials said. South Korea is next scheduled for an evaluation in April 2005.

South Korean President Roh Moo-hyun convened a cabinet meeting in February, creating a special task that brings together law enforcement, customs and trade officials to strengthen enforcement. “We are pretty encouraged by that,” the embassy official said. “It’s a big step forward.”

Since South Korean companies have begun developing their own technology, they realize that in order to fund innovation, intellectual property rights must be protected, said Tami Overby, executive vice president of the American Chamber of Commerce in Seoul.

Pending legislation in the National Assembly would offer more protection for owners of audio recordings, including a ban on Internet file sharing, said a U.S. Embassy economic official. The United States also is working closely to close a legal loophole allowing the licensing of copied movies, the official said.

As progress is made, the United States could do a special evaluation of South Korea and remove the country from the priority watch list, the officials said. South Korea is next scheduled for an evaluation in April 2005.

South Korean President Roh Moo-hyun convened a cabinet meeting in February, creating a special task that brings together law enforcement, customs and trade officials to strengthen enforcement. “We are pretty encouraged by that,” the embassy official said. “It’s a big step forward.”

Since South Korean companies have begun developing their own technology, they realize that in order to fund innovation, intellectual property rights must be protected, said Tami Overby, executive vice president of the American Chamber of Commerce in Seoul. But it’s still possible to buy Viagra out of the back seat of someone’s car or imitation Louis Vuitton bags, she said.

“It’s an ongoing challenge,” she said.

American companies have adapted to intellectual property challenges in unique ways. Take Proctor & Gamble: a South Korean company began producing exact replicas of Pampers diapers. In a landmark case about four years ago, a South Korean court granted an injunction, and production stopped, Overby said.

Proctor & Gamble then made a deal where it would receive royalties on diaper production in South Korea.

One DVD vendor in Itaewon this past weekend said a police crackdown was the reason he did not have the latest movies on public display on the street. However, he said, his colleague — who was positioned in a second-floor stairway off of the street — would have the latest movies there.

A warning to servicemembers: buying copied movies or pirated software violates both U.S. and South Korean law. “If they try and bring it back to the United States they can be punished if U.S. Customs discovers the material,” the U.S. Embassy official said.

But it hasn’t stopped all from sampling the goods. “I used to buy at least one DVD every other week or so,” said one enlisted Army soldier at Yongsan Garrison. “It’s a lot cheaper.”

— Jennifer Kleckner contributed to this report.

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