European Union Trade Commissioner Peter Mandelson praised an agreement aimed at Beijing’s notorious Silk Street market as an advance in efforts to stamp out China’s widespread faking of luxury brands.

Mandelson, visiting Beijing, oversaw the signing of the deal that will encourage Silk Street landlords to sign leases with stallholders to bind them from selling counterfeits, which have been their lifeblood till now.

Silk Street is a magnet for tourists looking to buy cheap, usually shoddy imitations of Louis Vuitton handbags, Burberry clothes and other counterfeits that sell for a fraction of the real goods’ prices.

Mandelson said the deal signaled China’s growing seriousness in fighting commercial piracy, though he and other EU officials said Chinese counterfeiting remains both stubborn and widespread.

“Probably the most important issue in Europe’s relations with China is the protection and enforcement of intellectual property rights. It is as serious and as big as that,” Mandelson said in a speech to business executives and lawyers.

“The situation still remains problematic on the ground.”

Mandelson announced the agreement after meeting China’s minister of commerce, Bo Xilai, for four hours. He offered no signs of a breakthrough on a separate dispute over auto parts that has set both Brussels and Washington against Beijing.

The United States and EU have complained to the World Trade Organization, which regulates international trade, about China’s rule that imported parts attract “whole vehicle” tariffs if they make up 60% or more of an assembled vehicle’s value.

Mandelson told reporters there would be “a period of reflection on China’s part” before the two sides decided where the dispute would go next. He declined to specify how long that period would last.

“Massive litigation”

It was also unclear how rapid and how effective the agreement aimed at Silk Street and other counterfeit bazaars would be.

Ten minutes’ walk from where Mandelson announced the agreement, Silk Street vendors were still selling fake bags, clothes and watches, although more furtively than usual.

“I’m keeping them here for now,” said one stallholder, surnamed Wang, lifting open a box of fake Gucci bags at the back of her stall.

“Come back next week,” said another.

The EU’s ambassador to China, Serge Abou, told reporters the agreement was a symbolic step, and now it was up to landlords and stallholders to reject fakes if they wanted to avoid the threat of “massive litigation” from foreign companies.

Last year, Gucci, Burberry and other European brands sued Silk Street landlords for bootleg sales by tenant stallholders. In April, Silk Street’s main landlord lost an appeal after a Beijing court ordered it to pay the European brands a total of 100,000 yuan ($12,500) for countenancing fakes.

Paul Ranjard, a Beijing-based lawyer who chairs the European Chamber of Commerce in China’s intellectual property working group, said the main damage to European luxury brands from Chinese fakes was not direct loss of sales, but the diluting of a brand’s cache in a sea of cheap copies.

“In the street you have many people carrying the same bag,” he said. (Reuters)