Wednesday, August 31, 2005

Intellectual property rights — US, trade sanctions and IPRs

This article was published in The Hindu Business Line on Tuesday, Jun 15, 2004.

DESPITE India's recent endeavour to comply fully with its TRIPS (Trade Related Aspects of Intellectual Property Rights) obligations, the US has put India on the "priority watch list" under Section 301 for failing to provide adequate level of protection for Intellectual Property Rights.

Section 301 and USTR

Section 301 of the US Trade Act, 1974 permits the US to unilaterally treat trade related aspects of Intellectual Property Rights (IPRs) as a part of its trade law. Section 301, through an amendment in 1984, empowered the US President to take action for inadequate protection of IPRs of US citizens in foreign countries.

An investigation under Section 301 may be commenced either by a petition filed by an interested party before the United States Trade Representative (USTR) requesting an investigation of a particular practice of a foreign country or by suo motu action of the USTR. Upon the conclusion of investigation, the US may take retaliatory action against the recalcitrant country.

Action under Section 301 will include suspension or withdrawal of trade concessions, imposition of trade duties and other restrictions and suspension or withdrawal of benefits under the Generalised System of Preferences (GSP). GSP offers preferential treatment for developing countries.

Under Section 301, the denial of adequate and effective protection of the IPRs, even if the foreign country is in compliance with TRIPS, can be a cause for retaliatory action. Thus, the threshold of intellectual property protection mandated under Section 301 is much higher than the protection standards under TRIPS.

Section 301 also provides that where an investigation involves an alleged violation of trade agreement, like the WTO Agreement, the USTR must follow the dispute settlement provisions set out in that agreement. Thus, the power to initiate unilateral action against India for non-compliance with the TRIPS, which forms a part of the WTO Agreements, is inhibited, as the USTR must take recourse to the dispute settlement mechanism under the WTO.

"Special 301" Annual Report
The Annual Report of the USTR identifies countries that are "priority foreign country", where investigations on IPRs infringement were to be launched and action completed within the specified time limit. Though not required by law, the USTR also identifies and puts countries on the "priority watch list" (countries with whom bilateral negotiations are initiated) or the "watch list" (countries whose IPR developments are monitored).

The Special 301 Annual Report issued on May 3 identifies India as a `priority watch list' country and threatens it with trade sanctions, which may be imposed either unilaterally through Section 310 or multilaterally through the WTO system. In spite of complying with its TRIPS obligations, India continue to be monitored under Section 301. This is due to the fact that Section 301 demands a greater protection for IPRs than envisaged in the TRIPS.

Unilateralism vs multilateralism

The conclusion of the TRIPS Agreement was seen as a major gain for the developing countries insofar as they traded a unilateral measure — the Section 301 of the US trade law — for a multilateral agreement. But the US trade policy on the IPRs has cast doubt and makes the TRIPS negotiations seem a pyrrhic victory.

First, Section 301 remains a part of the US trade law and is actively used even after TRIPS came into force, despite the specific prohibition on unilateral measures contained in Article 23 of the WTO Dispute Settlement Understanding (DSU).

Second, what the TRIPS achieved was to arm all WTO member-countries with trade retaliation measures in the form of sanctions, a power which was earlier vested only with the US. This came to be known as the "internationalisation of Section 301".

Third, TRIPS multilateralised the gains from trade sanctions to all the WTO members through the most-favoured-nation (equal treatment) clause in Article 4 of the TRIPS Agreement.

It is not now open for one country to enter into a bilateral arrangement so as to limit the damage to only one trading partner.

Combating sanctions

The TRIPS Agreement can act to check the use of Section 301 actions on matters covered by the WTO Agreements as WTO members can challenge retaliation actions of the US under the WTO Dispute Settlement mechanism.

Moreover, the US is more likely to use the multilateral dispute settlement procedures under the WTO in settling trade issues on IPRs than resort to unilateral measures contained in Section 301 as it happened in 1997 in US vs. India ("mail-box case").

Even if the US sanctions are not challenged before the WTO, these trade sanctions are likely to have very little effect due to the country graduations from the GSP (once a country graduates from the GSP, it will not be affected by withdrawal of benefits under the GSP), product restrictions and the rapidly diminishing tariff margins between the countries.

The chief objective of the WTO is to progressively open national markets for international trade. This is done by the gradual reduction of tariff and the removal on non-tariff barriers such as product restrictions.

The effect of Section 301 actions by the US will be greatly subdued if developing countries opt to voluntarily forgo the GSP benefits granted to them.