"Until China wakens to the reality that it must move criminally against pirates with significant deterrent penalties ... we do not see China's piracy rates dropping significantly, as has happened in other countries in the region," Smith said told an interagency panel.

Piracy levels in most of the copyright sectors in China are around 90 percent, costing foreign firms $1.9 billion in losses annually, he said.

Unless Beijing takes dramatic steps soon to thwart piracy, "trading partners will have no other choice but to challenge (China) under the WTO," he said.