Guilty As Charged? Pakistan And The Special 301 Reports 23/05/2016 by Intellectual Property Watch Leave a Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) The views expressed in this article are solely those of the authors and are not associated with Intellectual Property Watch. IP-Watch expressly disclaims and refuses any responsibility or liability for the content, style or form of any posts made to this forum, which remain solely the responsibility of their authors. By Owais Hassan Shaikh[*] The Office of the United States Trade Representative (USTR) issued its annual Special 301 Report in the last week of April. This report discusses the impediments faced by the US nationals and companies due to lack of intellectual property protection in foreign countries. This report is issued every year under Section 182 of the amended US Trade Act, 1974. Under this Section, the USTR is required to identify countries that fail in providing adequate and effective protection to intellectual property rights or restrict market access to the US nationals relying on IPR protection in the host countries. Countries thus identified are considered Priority Foreign Countries. According to this Section, a country may be considered a priority foreign country even when it is fully compliant with the WTO Agreement on the Trade-Related Aspects of Intellectual Property Rights (TRIPS), the main multilateral agreement on IP rights today. Hence, this legislation and the determinations made in the Special 301 reports prioritize protection of commercial interests of the US nationals. The requirements in Section 182 for designation of a country as a Priority Foreign Country are themselves onerous and in the last 10 years, only Ukraine has been designated as a Priority Foreign Country (in the year 2013). To keep the 301 ball rolling, the USTR administers two more instruments: Priority Watch List and Watch List. These lists are not mandated by Section 182 but have been created in order to ‘assist the (US) administration in pursuing the goals of Special 301 Provisions’ according to the Assistant USTR Probit Mehta. Therefore, a country on one of these lists does not fall foul of Section 182, but it may be designated as a Priority Foreign Country in the next edition of the Report if the USTR determines so. The Special 301 Report is published as a result of the Special 301 Review process comprising of initial comments, a public hearing and post-hearing comments. In January this year, the USTR invited initial comments from public, including foreign governments, industry associations and civil society organizations. This was followed by a public hearing on March 1, where interested parties participated and aired their opinions. A very short, post-hearing comment period followed. Finally, the USTR published the Special 301 Report in the last week of April. This year 62 parties, including 16 foreign governments, submitted their comments. However, the representation was highly skewed in favor of industry associations, demanding stricter protection of IPRs, as more than half of the comments came from them. Around 10 civil society organizations and NGOs participated in the process. Contributions were also made by the US embassies abroad. This year’s Report does not identify any Priority Foreign Country, but features 11 countries on the Priority Watch List including China, Russia and India, and 23 countries on the Watch List including Pakistan, Canada, Switzerland, Greece and Mexico. Pakistan’s Regular Appearance in 301 Reports In 1989, the USTR released the first 301 Report and for the first four years the reports featured all US trading partners on the Watch List in order to engage them in negotiations on the level of IP protection acceptable to the US companies. From 1993 onwards, countries were specifically named. Pakistan appeared on the Watch List in that year because of alleged trademark and copyright violations, especially of textile designs. It remained on this list for various perceived violations till 2003. In 2004, the US elevated Pakistan to the Priority Watch List but moved it again to Watch List in 2006. Pakistan reappeared on Priority Watch List in the 2008 Report where it remained till 2015. Thus, the country has been on one of the two lists throughout the 27-year life span of the 301 process. A thorough analysis of the 27 yearly reports reveals that copyright protection and enforcement have been two major causes of concern for the US. However, for the last 10 years or so, the US has been consistent in demanding, in addition, that Pakistan introduce pharmaceutical test data exclusivity and patent linkage provisions in its laws. There have been calls for updating the copyright laws to include provisions regarding digital technologies and copyright protection on the Internet. These demands go beyond the minimum standards set in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). The 2016 Special 301 Report In the 2016 Report, for the first time since 2007, Pakistan was moved from the Priority Watch List to the Watch List. In contrast to yesteryears, the tone of the Report is appreciative of the efforts of the Government including that of IPO-Pakistan, the national IP Office. Two key areas stand out where the US perceives improvements in Pakistani IP governance. The first one is the establishment of IP tribunals in major Pakistani cities such as Lahore, Karachi and Islamabad. The Report acknowledges that the Lahore Tribunal is already fully functional and Karachi and Islamabad will follow suit in the next three months. The next steps are the development of IP Judicial Benchbooks and training of judges by the US in this summer. Second is the Government’s commitment to a transparent process of amendments in the Pakistani IP laws. All major laws such as copyrights, patents and trademarks would be amended by the end of the year, although the Report does not mention what those amendments would be. The fact that the draft of the Plant Breeders Act is now in the National Assembly is also a source of satisfaction for the USTR. The Report further appreciates the digitization of data at the Trade Mark and Copyright registries and its subsequent usage by the Federal Bureau of Revenue (FBR) to control trade in pirated and counterfeit goods at the borders. The FBR Rules on the enforcement of IPRs are also being finalized. The Report also mentions a commitment from the Pakistan officials to engage with the US IPR officials on a regular basis in the areas of judiciary, enforcement and legislative reforms. USTR’s Satisfaction is Relative Nonetheless, for the USTR, all is still not hunky dory when it comes to IPR enforcement. The Report cited other reports, without identifying any, that piracy and counterfeiting in Pakistan, particularly in the areas of pharmaceuticals, printed materials, optical media, digital content, and software remain significantly high. As per the Report, the Pakistani trademark law also does not meet international standards. Lack of an effective system for the protection of safety and efficacy data of pharmaceuticals (test data exclusivity) is also a concern for the USTR, as normally low-priced generic pharmaceutical products acquire registration in the country using the data submitted by an originator product. Two further areas of worry for USTR are the non-deterrent penalties for IPR infringements provided in Pakistani IP, civil and criminal laws as well as the absence of ex-officio authority to IPR enforcement officials. USTR Lights the Way As usual, the USTR prescribes steps to Pakistan to get in line. It exhorts Pakistan to reform its copyright law to tackle piracy in the digital sphere. With regard to violations in other copyrighted or trademarked products, the USTR suggests that Pakistan should introduce deterrent level penalties for criminal IP infringement in addition to giving ex-officio authority to enforcement officials. The USTR also asserts that Pakistan should provide an effective system of protection of the pharmaceutical safety and efficacy data, collective called test data. The section on Pakistan ends with the mention of the Out-of-Cycle Review (OCR) where the quality and timeliness of government’s reform efforts will be evaluated, especially with regard to legislative reforms, effective enforcement measures and success of the IP Tribunals in providing relief to the right holders. USTR: Do I Know that I Know Nothing? The Special 301 Review process itself is violative of international IP legal instruments. For example, it is a unilateral pressure instrument forcing countries to implement IP legislation serving the interests of US commercial entities irrespective of whether they are in line with the national interests of the trading partners. Because of its unilateral nature the whole 301 process as well as the Report violate Article 1 of the TRIPS Agreement. According to this article WTO Members cannot be obliged to implement in their laws stricter protection than required by the TRIPS Agreement. In the case of the use of the Special 301 Report, the USTR forces countries to raise national IP standards irrespective whether they are already compliant with the TRIPS Agreement. This is despite the promises made by the various US negotiators in the run up to the creation of WTO late last century regarding discontinuation of unilateral measures such as Special 301 report if developing countries agreed to the TRIPS Agreement. However, after 21 years of entry into force of the TRIPS Agreement, this unilateral naming and shaming of countries for failures to formulate IP laws and policies solely keeping in view the US commercial interests continues. The threat of not complying with Section 182 for a US trading partner would be the withdrawal of benefits under the Generalized System of Preferences (GSP) program of the US. Under this system, the US allows imports from developing countries on preferential tariffs. The GSP system was agreed in 1979 through a General Agreement on Tariffs and Trade (GATT) decision entitled ‘Differential and more favourable treatment reciprocity and fuller participation of developing countries’. This decision specifically states in paragraph 5 that preference-granting countries (including the US) would not demand any reciprocation from the beneficiary countries (including Pakistan). Therefore, any such sanctioning would violate this GATT decision, which has now been vetted by the WTO Members. The US cannot initiate unilateral retaliatory measures or sanctions, even where a country fails to comply with the existing standards of the TRIPS Agreement. It will have to go through the WTO dispute settlement mechanism. Consequently, the Special 301 Review process is highly problematic in light of Article 23.2 of the Dispute Settlement Understanding of the WTO, which expressly prohibits Members from making a ‘determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded.’ It may appear to the readers that the GSP system is a favor from the developed to the developing countries. But, this is far from true. This system allows tremendous benefits to the preference provider as well. For example, a 2006 US Chamber of Commerce study found that the GSP program provides the following advantages to the US: it keeps US manufacturers competitive because of cheaper raw materials; finished consumer goods sold by the U.S. retailers accounted for 25% of GSP imports in 2005; it provides savings to many small businesses in the US allowing them to compete with their far stronger counterparts; and that the program supported at least 82,000 jobs alone in 2005. In addition to the direct benefits, the program also locks in the exporter to the US market, as the former would develop its business network there, and in some cases even invest in downstream activities like distribution and marketing. Therefore, at least some businesses would keep exporting to the US, unless they perceive the costs-benefit ratio to be negative. In any case, the threat of withdrawal of the GSP benefits is perceived to be bigger than it actually is – a conclusion supported by Pakistan’s exports and FDI statistics in recent years. Pakistan’s total exports to the US stood at $3.6 billion 2013. Of this, only $195 million qualified under the GSP scheme. This means that of the total Pakistan’s export, merely 5% (in terms of value) benefitted from the GSP. Moreover, of the $19.9 billion US imports under GSP from all developing countries in the same year, Pakistan’s share of the pie was a measly 1%. As a proportion to total Pakistani exports to the world the number shrinks even further: 0.7%. The flipside of the coin presents a gloomier picture. In 2015, the US FDI in Pakistan fell to its lowest in the last 10 years to $ 209 million. That is an astounding 84% decrease since FY 2007-08. A less than 1% of preferred access and 84% decrease in FDI surely fail to make a case for a continuous shaming spanning over three decades. To top it all, the US GSP program may end on December 31, 2017. It is not certain if it would be extended (which may happen because US also benefits from the program). The changes demanded by the US in national IP laws, on the other hand, are in most cases permanent. It is generally unlikely that the IP legal standards are rolled back once any external pressure subsides. Pakistan does not need to hire a Socrates to assess the implications of the trade-off between short-term benefits and long-term costs to its economy, especially if the latter are adopted without analyzing national socio-economic imperatives. But the Emperor has No Clothes! In the submissions of the major industry associations in this year’s Special 301 Review process, there is hardly any mention of Pakistan. The country was mentioned only once during the 301 hearing. This year’s Report also does not cite any credible source to back up its claim of losses suffered by the US nationals because of perceived disregard of IPRs by Pakistan. The most baffling question then is why does the US keeps juggling Pakistan between the two lists on Special 301 reports? The answer is least perplexing. It is the growing potential of the middle class in Pakistani market as well as Pakistan’s importance as a strategic political player in this region as well as on the global stage that keeps the pressure going. Pakistan’s GDP growth has risen to hover between 4 to 5% in the last couple of years. The present government has taken major steps towards infrastructure development that are key to future economic growth. The public private partnership mechanism is gathering momentum in the country. Pakistan’s FDI and import policy are getting gradually liberal. And on the political front, with the growing volatility in the Middle East as well as increasing clout of China, Iran and India, Pakistan has upheld its own value over the last several years. Traditionally, IP law and policy have had a notoriously inconspicuous presence on the government’s agenda. In the same vein, the chances of any attention towards Special 301 Report are quite bleak, especially in the current political environment where politicians are embroiled in an intense brouhaha over corruption allegations emanating from the Panama Papers. Nevertheless, it is high time that Pakistan took an earnest diplomatic initiative and engaged with the USTR on the use of the Special 301 Report. In this process, it may find allies in countries like China, India and Russia that regularly feature on the 301 lists. The agenda of such discussion would be straightforward: Pakistan has the sovereign right to determine its own IP law and policy without any nudging from another country as long as it meets international commitments under multilateral, regional and bilateral agreements. The IP policy and legislation in Pakistan should be determined keeping in perspective the interests of Pakistani socio-economic realities. In this regard, Pakistani policy makers as well as trade negotiators need to reorient themselves as to the meaning of IP protection. A life-time of looking at IP from the trade lens has kept these policymakers and negotiators on the back foot. IP policy and legislation is also about access to IP protected goods as much as it is about commercial benefits, if not more. Irrespective of the merits of USTR’s recommendations in Special 301 reports over the years, local stakeholders, both public and private and commercial and non-commercial are best placed to determine the acceptable mix of rights and duties in Pakistan’s IP regime. Therefore, if the US, or any other trading partner, wants stronger IPR standards, it should align its interests with that of Pakistan, first and foremost of which would be focus on knowledge creation in Pakistan by Pakistani enterprises and nationals. This can be done through investing in Pakistani technological startups and assist the country in creating a viable entrepreneurial ecosystem. This endeavor should be rationalized through a yearly schedule where both the US public and private sector be required to make minimum investments through funding and trainings of Pakistani entrepreneurial teams. Like the other countries of the region, especially its immediate partners, Pakistan has to aim to graduate from an economy relying on exports of input goods to high technology products. Today this comes from highly specialized teams with entrepreneurial spirit and an open innovation culture. Such a Pakistan is beneficial for the US, the EU and for the rest of the world. [*] Visiting Lecturer, EU Business School, Munich; Consultant, Hassan Shaikh & Company. PhD (Law), Ludwig Maximilians University, Munich; LL.M, University of Augsburg, Augsburg; MBA, Institute of Business Administration, Karachi. Email: firstname.lastname@example.org; LinkedIn: https://de.linkedin.com/in/owaisshaikh. Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Related "Guilty As Charged? Pakistan And The Special 301 Reports" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.