U.S. Assistant Secretary of Commerce William Lash paid surprise visits to commercial centers in Manila known for openly selling pirated VCDs and DVDs, and wound up buying a bootleg version of "The Lord of the Rings: The Two Towers" that was selling for P100, less than $2. The film has yet to open in local theaters. Lash said U.S. companies lost about $116 million to intellectual property violators in the country during 2002, while Manila lost $25 million in taxes.

"While there have been many raids and many inspections of copyrighted bootleg goods, we've found that there have been exactly zero convictions in the past year," he said.

The Philippines is one of 15 countries on a U.S. "priority watch list" of nations with piracy problems.

Presidential spokesman Ignacio Bunye said the reason there have been no convictions of the 280 cases of video piracy thus filed is because the complaining distributors, mostly foreigners, enter into out-of-court settlements with the pirates.

The Videogram Regulatory Board (VRB) conducted 39 anti-piracy operations from July to December of last year, which reduced the volume of pirated videos by 50% to 60%, according to the organization. Four illegal replicating operations have been shut down; 11 replicating machines have been seized and more than 6 million pirated CDs, VCDs and DVDs worth over $37.8 million have been destroyed.

VRB chairman Ramon "Bong" Revilla said that copies of pirated foreign films are still in circulation because fake VCDs and DVDs that are made in countries like Malaysia, Singapore and the U.S. and imported to the Philippines.

"It is hard to prevent their entry into our many ports, but we are coordinating closely with the Bureau of Customs," he said.