Taobao Marketplace, an online shopping site similar to eBay and Amazon that brings together buyers and sellers, "has been removed from the 2012 List because it has undertaken notable efforts over the past year to work with rightholders directly or through their industry associations to clean up its site," the U.S. Trade Representative's office said in the report.
The move came just before an annual high-level U.S.-China trade meeting next week in Washington.
Taobao Marketplace is China's largest consumer-oriented e-commerce platform, with estimated market share of more than 70 percent. The website has nearly 500 million registered users, with more than 800 million product listings at any given time. Most of the users are in China, Hong Kong, Taiwan and Macao.
The U.S. Chamber of Commerce has called Taobao "one of the single largest online sources of counterfeits."
The Chinese Commerce Ministry strongly objected to Taobao's inclusion on the USTR's 2011 notorious markets list. A ministry spokesman said it did not appear to be based on any "conclusive evidence or detailed analysis.
Alibaba hired former USTR General Counsel James Mendenhall to help persuade USTR to remove Taobao from its list.
The Chinese company's bid to shed its "notorious" label won support from the Motion Picture Association of America, a former critic of Taobao, which praised its effort to reduce the availability of counterfeit goods on its website.
But U.S. software, clothing and shoe manufacturers urged USTR to keep Taobao on the list.
To stay off in the future, USTR urged "Taobao to further streamline procedures ... for taking down listings of counterfeit and pirated goods and to continue its efforts to work with and achieve a satisfactory outcome with U.S. rights holders and industry associations."
USTR said it also removed Chinese website Sogou from the notorious markets list, based on reports that it has made "notable efforts to work with rights holders to address the availability of infringing content on its site."
U.S. concerns about widespread piracy and counterfeiting of American goods in China are expected to be high on the agenda at next week's meeting in Washington of the U.S.-China Joint Commission on Commerce and Trade.
The 2012 notorious markets list includes Xunlei, which USTR described as a Chinese-based site that facilitates the downloading and distribution of pirated movies.
Baixe de Tudo, a website hosted in Sweden but targeted at the Brazilian market, was also put on the list along with the Chinese website Gougou.
Warez-bb, which USTR described as a hub for pre-release music, software and video games, was also included. The forum site is registered in Sweden but hosted by a Russian Internet service provider, USTR said.
The full report can be found on USTR's website at: http://www.ustr.gov/sites/default/files/121312%20Notorious%20Markets%20List.pdf
(Reporting by Doug Palmer; Editing by Will Dunham, Dan Grebler and Jim Marshall)