The United States named China and India on a watch list for countries that aren't doing enough to fight intellectual-property crimes, warning of trade-secret theft in China and the proliferation of generic drugs and counterfeiting in India.
But the U.S. Trade Representative resisted lobbying by the U.S. Chamber of Commerce and pharmaceutical industry to censure India with the "worst offender" tag in its annual scorecard on how well countries protect U.S. patents, copyrights and other intellectual property, or IP, rights.
That path could have led to trade sanctions. But the United States instead kept India on its Priority Watch List and urged the country, which is in the midst of elections, to take steps to address concerns and participate in a process of "constructive bilateral engagement."
"The United States will redouble its efforts to seek opportunities for meaningful, sustained, and effective engagement on IP-related matters with the new government," the report said.
Concerns about India's trade practices have escalated in Washington since top lawmakers ordered an investigation into Indian trade policies last year and pharmaceutical and other companies urged the administration to take a tougher line.
The Pharmaceutical Research and Manufacturers of America said in a submission to the USTR India's patent policies aimed to protect local generic drugmakers over foreign companies.
Following the report, India will be subject to a special review but remains on the trade office's second-level priority list along with China, Russia and seven other countries.
India's limits on the approval of pharmaceutical patents, a convoluted process for patent challenges and the fact that the government was considering opening a series of patented drugs to generic manufacturers created "serious challenges" for some innovators, USTR said.
The spread of pirated goods in India was also worrying. The report noted estimates that counterfeiting and smuggling lost copyright holders almost $12 billion in 2012.
In China, which is set to overtake the U.S. as the No. 1 economy, the USTR said it had "significant concerns" about the theft of trade secrets and urged the government to take steps to stop Chinese companies taking advantage of overseas competitors.