USTR Reports On 2018, Lays Out IP Priorities For 2019; China A Main Target

The Office of the United States Trade Representative has issued its annual report on trade relations with other nations, essentially a report on progress and problems from last year and an agenda for what’s coming this year. Multilateral approaches came in for touch criticism, and on intellectual property rights, a vigorous, repeated focus is China.

The nearly 400-page USTR 2019 Trade Policy Agenda and 2018 Annual Report is available here [pdf].

2019 Agenda

In the chapter on intellectual property rights (p. 139), USTR lists its involvement in the activities of the World Trade Organization Council on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which as usual met three times in 2018. The chapter also contains a summary of expected activities for 2019, reprinted below:

“In 2019, the TRIPS Council will continue to focus on IP and innovation as well as its built-in agenda, on the relationship between the TRIPS Agreement and the Convention on Biological Diversity, on traditional knowledge and folklore, as well as on enforcement and other relevant new developments.

U.S. objectives for 2019 continue to be to:

• resolve differences through consultations and use of dispute settlement procedures, where appropriate;
• continue efforts to ensure that developing country Members fully implement the TRIPS Agreement;
• engage in constructive dialogue with WTO Members, including regarding the technical assistance and capacity-related needs of developing countries, and especially LDCs, in connection with TRIPS Agreement implementation;
• continue to encourage a fact-based discussion within the TRIPS Council regarding TRIPS Agreement provisions and defend against Members seeking to use the TRIPS Council as a forum to criticize robust IP protection and enforcement;
• ensure that provisions of the TRIPS Agreement are not weakened;
• continue to advance  discussions  on  IP  and  innovation,  including  through  data-driven  discussions  on  IPR that promote concrete outcomes; and,
• intensify discussions within  the  TRIPS  Council  on  the  application  of  non-violation  and  situation  complaints under the TRIPS Agreement.”

China, Multilateral Shortcomings, and Regional Trade Deals

A significant focus of the report is aimed at China, whose practices in recent years it says have threatened the very economy of the United States. It said the multilateral system offered no help, leading to the United States’ well-documented criticism of the multilateral process. And it continued its explanation of why regional trade agreements such as the Trans-Pacific Partnership (TPP) were too problematic for the US (including that it would have actually benefited China) and the deals that have been reworked instead, with Canada and Mexico, and with South Korea, are a much more advantageous way to proceed.

Reprinted below are several sections capturing the rhetoric and details of USTR’s concerns related to IP:

China

“[T]he  United  States  faced  another  major  crisis  that  threatened  the  very  future  of  its  economy.   For  a  country  like  ours  that  depends  on  innovation  and  creativity  for  much  of  its  economic  growth, strong protection of intellectual property and technology is vital.  But the Trump Administration inherited  a  situation  in  which  China  was  using  a  variety  of  unfair  and  market-distorting  tactics  to  take  valuable  U.S.  intellectual  property.    These  tactics  included  joint  venture  requirements  and  other  foreign  investment  restrictions,  which  effectively  pressured  U.S.  investors  in  China  to  partner  with  Chinese  companies  and  provided  these  Chinese  “partners”  access  to  the  intellectual  property  of  their  U.S.  counterparts.    Furthermore,  when  U.S.  intellectual  property  owners  were  permitted  to  license  their  technology  in  China,  they  had  to  do  so  under  discriminatory  regulations  that  barred  U.S.  owners  from  receiving  market-rate  returns.    China  had  also  implemented  outbound  foreign  investment  programs  to  obtain U.S. intellectual property through the acquisition of targeted U.S. companies.  Finally, in repeated cyber  intrusions  into  U.S.  commercial  networks,  the  Chinese  government  had  targeted  the  business  confidential information and other sensitive data of American companies – despite pledges not to do so.

In  addition,  China’s  policies  effectively  deprived  U.S.  companies  of  the  full  value  of  their intellectual property and technology, and inhibited U.S. companies from fairly competing in China’s large market.  Theft of U.S. intellectual property was also threatening American companies’ technological competitive edge in global markets by denying fair returns for American intellectual property investment and discouraging reinvestment in future innovations.

Once  again,  the  multilateral  trading  system  offered  no  practical  solution  for  the  United  States.    Many of the worst actions undertaken by China – such as the numerous informal methods of pressuring U.S. companies to share their technology with Chinese partners – were not captured by China’s obligations at  the  WTO.    Furthermore,  key  U.S.  trading  partners  showed  little  willingness  to  take  practical  steps  to  pressure China on these issues.  Nevertheless, the United States had to find some way to persuade China to stop its predatory actions.”

TPP

“As more and more countries moved their production to countries like China, Vietnam, and Malaysia, further loss of U.S. intellectual property and technology would have been inevitable.  If anything, it seems likely that over time, even U.S. companies would relocate more of their research and development efforts to be closer to their production facilities.” This would have led to an advantage for China, USTR said.

USMCA

“For the first time, the USMCA will include strong standards to discourage Canada and Mexico from issuing rules on new geographical indications that would prevent U.S. producers from using common names  for  food  products,  and  establishes  a  consultation  mechanism  for  new  geographical  indications  recognized by free trade agreements.   The  USMCA  also  includes  robust  protection  of  copyrights,  including  full  national  treatment,  as  well as a minimum term of copyright protection that exceeds the TPP standard but does not change U.S. law.  The agreement imposes strong measures against circumvention of technological protection measures that often protect digital music, movies, and books.  Finally, the USMCA establishes appropriate copyright safe harbors, which protect intellectual property and provide predictability for legitimate enterprises that do not  directly  benefit  from  infringement,  consistent  with  U.S.  law.    The  USMCA  also  requires  parties  to  implement the most comprehensive enforcement measures of any trade agreement, including enforcement measures with regard to the digital environment.”

Multilateral System

“Meanwhile, President Trump inherited a multilateral trade system that had largely broken down.  No new significant multilateral market access agreement has been made at the World Trade Organization (WTO) since it was formed in 1994.  The last major effort to reach such an agreement – the Doha Round –collapsed in 2008.  While a few members are still trying to revive the Doha Round, such an effort would be  a  mistake –  the  Doha  Development  Agenda  (DDA)  is  outdated  and  fails  to  properly  address  modern  issues such as digital trade.  Indeed, Ministers at the WTO’s Tenth Ministerial Conference in December 2015 – more than a year before President Trump took office –  collectively acknowledged that there was no consensus  to  reaffirm  the  DDA’s  mandates.24    Some  WTO  rules  are  unable  to  keep  up  with  modern economic challenges and today’s unfair trade practices.  The WTO’s inability to adequately differentiate among developing country Members, combined with misaligned expectations about which Members should contribute to negotiated outcomes, are among the factors accounting for the WTO’s lack of achievements in new negotiations.Another important reason for the failure of multilateral negotiations is that judicial activism at the WTO’s  Appellate  Body  tempted  countries  to  demand  special  privileges  through  litigation  –  rather  than  seeking  to  build  consensus  through  negotiation.    For  many  years,  the  WTO  Appellate  Body  repeatedly  seized more power for itself – while undermining and disregarding the very rules under which the dispute settlement system was created.  The Appellate Body’s actions led to a lack of trust in the decisions that emerged  from  its  process.    Years  of  complaints by  prior  U.S.  Administrations  about  activism  at  the  Appellate Body were ignored.  Furthermore, this activism had the disastrous effect of making it harder for market-based countries like the United States to push back against unfair practices abroad and discouraged them from adjusting their own trade policies in response to growing concerns about globalization.  In fact, one of the most striking developments of recent years is that while the United States has long expressed concerns about the Appellate Body, China – an enormous non-market economy – advocates for giving that body even more power over trade policy.”

 

Image Credits: USTR