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Those countries will now be subject to additional scrutiny with the possibility that they could face economic sanctions if the government decides to take action against them through the World Trade Organization.

As expected, China and Russia are among the 12, alongside Argentina, Chile, Egypt, India, Israel, Lebanon, Thailand, Turkey, Ukraine and Venezuela.

Five countries that the International Intellectual Property Alliance (IIPA) had wanted to be included - Canada, Costa Rica, the Dominican Republic, Mexico and Saudi Arabia - were left off the list compiled by US Trade Representative Susan Schwab, although she did add one, Lebanon, that had not been submitted by the IIPA, a coalition of intellectual property organisations.

A further 31 countries were placed on lower-priority lists, and will be subject to less intensive scrutiny.

Schwab said that her report demonstrates that effective IPR (intellectual property rights) protection is a core focus of US policy.

'Innovation is the lifeblood of a dynamic economy here in the United States, and around the world,' she said. 'We must defend ideas, inventions and creativity from rip off artists and thieves.'

While noting IPR infringement remains widespread in Russia, particularly in the form of large-scale production and distribution of counterfeit CDs and DVDs and 'minimally-restrained Internet piracy', Schwab said that the next few months will be crucial.

'The coming months will be a critical period, as Russia moves to implement a variety of legal and law enforcement improvements to which it committed as part of a bilateral agreement with the United States on Russia's eventual accession to the World Trade Organization,' she said. 'Implementation of these commitments will be essential to completing the final multilateral negotiations on the overall accession package.'

She added: 'I know that our Russian colleagues see the value of intellectual property to Russia's economy and are working hard to deliver on their commitment.'

She made no mention of China's recent introduction of new laws governing IPR, saying only that 'high levels of copyright piracy andtrademark counterfeiting remain of concern' and that the US government, together with other countries, would continue to press China to address its 'deficiencies.

'Our recent decision to pursue IPR-related concerns

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in China through consultations under WTO dispute settlement rules demonstrates our determination to defend vigourously American innovation,' she said. 'The report flags many other issues on which we hope to remain constructively engaged with China, building on the recognition of many Chinese officials that their country has its own huge stake in effective IPR protection.'

China's Vice Premier Wu Yi said last week that any any attempt to penalise it would 'seriously harm' trade co-operation between the two countries.

It was not all bad news for advocates and owners of IPR. Schwab singled out several countries that she said had made significant improvements in copyright enforcement.Brazil has been dropped from the Priority Watch List (though it remains on a lower list) while Bahamas, Bulgaria, Croatia and Latvia plus the EU are no longer included on any of the three lists.

Nonetheless Schwab said that despite some encouraging developments, numerous IPR problems persist around the world.

'Trade in counterfeit pharmaceuticals is a particularly grave concern, in light of the risks to human health and safety,' she said. 'Unabated piracy of CDs, DVDs and CD-ROMS, and the widespread counterfeiting of trademark-protected consumer and industrial goods will also remain important focuses of US IPR trade policy efforts in the coming year.'

The Recording Industry Association of America (RIAA) welcomed the report.

'In China, the large-scale piracy of sound recordings continues unabated, and market-access problems remain unaddressed,' said RIAA executive vice-president, International, Neil Turkewitz. 'In certain respects, these issues have only become more problematic for our industry, and RIAA fully endorses the recent action by USTR to initiate consultations in the WTO.'

Like Schwab, Turkewitz noted Russian efforts to address international concerns, but urged the US government not to shy away from imposing sanctions if these efforts fail.

'Russia is simultaneously home to some of the biggest criminal enterprises involved in production and global trafficking in pirate optical discs and to some of the world's most notorious pirate websites such as allofmp3.com,' he said.

He said that the music industry backed the decision to drop Brazil from the priority list. He noted that the Brazilian government has completely reorganised its approach to fighting IPR infringement but warned that there is much to be done.

'For the first time in many years, the piracy rate for recorded music has dropped below 50 per cent,' he said. 'Unfortunately, a tremendous increase in the availability of unauthorised recordings on the Internet has kept this decrease in the physical piracy rate from resulting in increased legitimate sales. This disconnect makes clear that piracy involving the Internet and other digital media present enforcement challenges that need to be addressed in order to truly expand opportunities for creators - both in Brazil and abroad.'