Ten Years Later, U.S. Report On IPR Compliance Still Questioned

Ten years after the signing of a multilateral agreement pitched as a vehicle to help developing countries defend against unilateral actions against them by larger countries, the Office of the U.S. Trade Representative’s (USTR) annual report on trading partners’ protection of U.S. intellectual property rights is still questioned for its fairness or even legality, according to government and non-governmental sources.

One of the arguments used to get developing countries at the World Trade Organization to sign on to the 1995 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was that it would give them a multilateral process for managing issues of intellectual property rights with larger economies like the United States, thereby minimizing the size disparities that could affect the outcome.

But the U.S. government continues to leverage various unilateral mechanisms to push countries toward desired ends, and in the case of USTR’s annual Special 301 report, issued on 29 April, nations and non-profit critics quietly continue to voice their dislike of the system and suggest that it may violate international trade rules.

The Special 301 annual review, established in 1988, is part of a process designated under Section 301 of the U.S. Trade Act of 1974, which gives statutory authority to the government to impose trade sanctions against countries seen as violating U.S. trading rights. The Special 301 report is issued 30 days after the release of the annual report on foreign trade barriers faced by U.S. companies, which is normally issued on March 31. Countries are rated by how problematic they are found to be, the worst being “priority foreign countries,” followed by the “priority watch list” and the “watch list.”

Under Special 301, USTR evaluates the “adequacy and effectiveness” of countries’ protection for U.S. intellectual property rights, and whether access to their markets is “fair and equitable.” For the few countries deemed to be the worst offenders — the priority foreign countries — the office decides whether to launch an investigation. After six months (sometimes extended to nine), if the conditions for the investigation are deemed to still exist, then USTR decides what action to take, if any. Actions can include bilateral trade sanctions for priority foreign countries. Only one country, Ukraine, currently is facing sanctions, valued at $75 million.

Experts have interpreted the Special 301 evaluation to be limited to performance under existing laws and agreements. But critics charge that USTR uses the mechanism to push for gains that go beyond what exists, as it does in negotiations for free trade agreements. In addition, questions have arisen about the criteria for judging countries, as it could be argued that any position unfavourable to the United States could land a country on a problem list.

They also question the accuracy of the findings in the report as they are based primarily on U.S. industry accounts, and the degree to which nations cited in the report have a say either before or after it comes out. Furthermore, it is not legal in international law to unilaterally sanction another country and not provide due process, said David Vivas-Eugui, an attorney and program manager at the International Centre for Trade and Sustainable Development.

There are places in the latest Special 301 report that push countries beyond TRIPS, said Frederick Abbott, law professor at Florida State University. For instance, Canada, Germany and others are cited for pharmaceutical price controls, which is not in TRIPS.

In addition, Abbott said, USTR complains that countries are not adopting U.S.-preferred market exclusivity rules on pharmaceutical data (necessary to get marketing approval in a country). TRIPS Article 39.3 states that data submitted for testing must be protected from unfair use. The United States interprets that as five years, and criticized Israel in the report for a potentially briefer span of protection. And the United States also complained in the report that countries are not linking their patent regimes to their health regulation regimes, which could have the effect of blocking drug registrations and is “clearly not required by the TRIPS agreement,” he said.

Taking On Goliath

But the U.S. system has not proved an easy target for a legal challenge, with USTR stopping short of sanctions in most cases. And Ukraine is not a member of the WTO, so the use of sanctions cannot be questioned in that context.

Many experts say it is unclear whether a challenge would succeed, perhaps the main reason why it has not been tried after years of complaints by officials. In fact, most government officials who were asked, whether from developed or developing countries, were reluctant to publicly criticize the U.S. system. For developing countries in particular, the possibility of retaliation in some other way is daunting, said Vivas-Eugui. “When you fight with Goliath, you have to make sure you kill him or he will come back to get you,” he said.

Still, the fact that USTR so infrequently goes to the level of sanctions could be causing the Special 301 process to be losing some of its bite, others say. But they add that the simple placement on the list signals that the problem is a priority for USTR in a given country and can be expected to be addressed through any of the various means available to USTR.

After the completion of the Uruguay Round in 1996, the United States added to its law the ability to bring actions against countries even if they are in compliance with TRIPS, which developing countries saw as unfair since they thought they had escaped that by agreeing to TRIPS, said Abbott.

But the U.S. “good-faith” perspective is that there are areas, such as satellite broadcast rights, which may not be covered by TRIPS, he said.

Abbott said the recent European Union challenge to the Section 301 brought at the WTO did not include a complaint that the United States was exceeding WTO rules. But it did give the United States the opportunity to “defy” anyone to show a case where it had violated WTO rules, and none stepped forward.

Another phenomenon is that the number of non-compliant countries cited on the watch lists continues to be high. The 2005 Special 301 report cited 57 countries.

2005 Report Highlights Piracy

The 2005 report focuses strongly on reducing piracy and counterfeiting of goods, and stresses compliance with TRIPS. But it also calls attention to USTR’s efforts to raise the levels of intellectual property protection worldwide, and to concerns such as data exclusivity on pharmaceuticals. In addition, it highlights the array of tools the office may use to punish errant countries.

For instance, the report states that “the United States will consider all options, including but not limited to, dispute settlement consultations.” It highlights U.S. policies being pursued through bilateral and regional trade negotiations, acknowledging that higher levels of intellectual property protection than in TRIPS are being sought through those negotiations.

“USTR will continue to use all statutory tools, as appropriate, to improve intellectual property protection in countries where it is inadequate,” it said. The report lists the countries – Brazil, Kazakhstan, Lebanon, Pakistan, Russia and Uzbekistan – whose intellectual property practices are being examined under threat of losing trade benefits unilaterally offered under the Generalized System of Preferences.

At the same time, the report stresses adherence to international agreements and principles protecting the rights and abilities of developing countries to take necessary actions to protect public health.

In the case of Canada, University of Ottawa law professor Michael Geist argued this week in the Toronto Star that through the Special 301 the United States is pushing Canada to implement a U.S. version of internationally negotiated copyright treaties, “which extend well beyond international requirements.”

Geist said USTR’s criticized Canada’s new plans for copyright reform, inserting itself into the nation’s policy debate about future laws. He goes further to say that USTR is using this process and negotiations for bilateral trade agreements to “bully” countries into adopting stronger intellectual property provisions that are internationally accepted or even found in the United States itself.

Geist called for a “mirror list” to the Special 301, including countries already successfully “bullied” by the United States (12 countries), along with a “watch list” of countries currently being bullied. He concludes by urging Canadian policy makers not to end up on the “Bullied List” in the face of an expected “onslaught” of U.S.-backed lobbying in Canada.

China Moves Up List

The report singles out China and the Ukraine for careful examination, and specifies “significant concerns” with Argentina, Brazil, Egypt, India, Indonesia, Israel, Kuwait, Lebanon, Pakistan, Paraguay, the Philippines, Russia, Turkey, and Venezuela.

A week after the report, Deputy USTR Josette Shiner issued a statement praising Pakistan for recent steps to bolster its intellectual property system. Pakistan was renamed to the priority watch list this year, but she cited the creation of a government organisation to oversee all types of intellectual property, and a series of crackdowns on pirated CDs and tapes.

Piracy in China was again dubbed a top priority for the Bush administration, as China rose a level to a priority watch country. USTR reported on the results of an “out-of-cycle” review of China’s implementation of commitments it made at the April 2004 meeting of the U.S.-China Joint Commission on Commerce and Trade. It concluded that there has not been a significant reduction in intellectual property rights infringements throughout China, as had been committed to.

USTR said it would work with U.S. industry and others to possibly use WTO procedures to bring China into compliance. It also will invoke WTO TRIPS agreement “transparency” provisions, which will require China to produce detailed documentation of intellectual property enforcement. Furthermore, China was elevated to the “priority watch list,” which is a step closer to possible economic sanctions. USTR also will continue to work through the joint commission, it said.

On the day of the report’s release, 20 bipartisan senators, including Senate Majority Leader Bill Frist, R-Tennessee, Finance Committee Chairman Charles Grassley, R-Iowa, and the committee’s top Democrat Max Baucus of Montana, urged President Bush to take stronger action against China’s intellectual property rights violations.

In the 29 April letter, the senators charged that China has not lived up to year-old promises to “substantially reduce IPR [intellectual property rights] infringement.” They said the theft is having a “real impact” on a variety of U.S. industries, with losses to piracy valued at between $2.5 and $3.8 billion. Finally, they pressed the Bush administration to “intensify” its efforts to ensure China’s compliance with obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) made upon joining the WTO in 2001. This includes pursing dispute settlement, “as appropriate,” they said.

Industry Reaction Mixed

A number of industry groups reacted to the report. Billy Tauzin, president and CEO of the Pharmaceutical Researchers and Manufacturers of America, said in a statement he particularly applauded the addition of Israel to the priority watch list because that country has “hurt both its own patients and its ability to commercialize Israeli biotech breakthroughs by weakening the commercial environment for research-based bio-pharmaceutical companies.” Tauzin mentioned a number of other countries as well.

Eric Smith, president of the International Intellectual Property Alliance, which cuts across copyright industries, stopped short of praising the report, and said it is “deeply concerned” that USTR chose not to suspend Russia’s eligibility for GSP benefits. Retaining Russia on the priority watch list “fails to convey a clear warning that unless the situation dramatically changes, we are on a collision course with respect to Russia’s hoped-for WTO accession,” Smith said in a statement.

Smith also took a swipe at USTR’s unwillingness to take tougher action against Brazil, Bulgaria, Pakistan and Thailand.

Neil Turkewitz of the Recording Industry Association of America echoed the unhappiness about Russia, and highlighted problems with Bulgaria, Canada, Korea, Pakistan and Ukraine