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Info Service on WTO and Trade Issues (May25/04) Yerevan, 30 Apr (D. Ravi Kanth) — The United States has placed eight countries – Argentina, Chile, China, India, Indonesia, Mexico, Russia, and Venezuela – on its controversial “Priority Watch List” for allegedly failing to provide adequate and effective IP (intellectual property) protection and enforcement for US “inventors, creators, brands, manufacturers and service providers”. An 86-page Special 301 Report issued by the Office of the United States Trade Representative (USTR) on 29 April maintained that the lack of adequate and effective IP protection and enforcement continues to “harm American workers whose livelihoods are tied to America’s innovation- and creativity-driven sectors.” Though the Report did not provide any figures for the number of American workers dependent on IP-related activities, which are primarily driven by the collection of monopoly rents, it expressed a wide range of concerns. These concerns include “(a) challenges with border and criminal enforcement against counterfeits, including in the online environment; (b) high levels of online and broadcast piracy, including through illicit streaming devices; ( c) inadequacies in trade secret protection and enforcement in China, Russia, and elsewhere; (d) troubling policies on “indigenous innovation” and forced technology transfer (which can range from state- sponsored theft of trade secrets to transfer under pressure from state actors) that may unfairly disadvantage US right holders in markets abroad; and (e) other ongoing systemic issues regarding IP protection and enforcement, as well as market access, in many trading partners around the world.” The Report says that in the coming days and weeks, depending on the gravity of the US concerns that are not addressed by countries in the Priority Watch List, Washington will take “appropriate actions, which may include enforcement actions under Section 301 of the Trade Act or pursuant to World Trade Organization (WTO) or other trade agreement dispute settlement procedures.” PRIORITY WATCH LIST The USTR Report says Mexico has been moved from the Watch List to the Priority Watch List “due to long-standing and significant IP concerns that have not been resolved, many of which relate to Mexico’s implementation of the United States-Mexico-Canada Agreement (USMCA).” The specific concerns against Mexico include “enforcement against trademark counterfeiting and copyright piracy, protection of pharmaceutical-related IP, pre-established damages for copyright infringement and trademark counterfeiting, and plant variety protection.” As regards Indonesia, the USTR Report says that “Indonesia lacks effective enforcement against widespread piracy and counterfeiting, particularly as local manufacturing of counterfeits has increased and counterfeit sales have shifted online. Significant concerns remain in areas such as border enforcement, copyright exceptions, pharmaceutical-related IP, and patent law implementation.” As regards China, which has been repeatedly included in the Priority Watch List, the Report says “serious concerns remain regarding long-standing issues like technology transfer, trade secrets, counterfeiting, online piracy, copyright law, patent and related policies, bad faith trademarks, and geographical indications.” The Report alleges that “China has failed to implement or only partially implemented a number of its commitments on intellectual property under the United States-China Economic and Trade Agreement (Phase One Agreement)”, adding that “the United States will continue to monitor closely China’s implementation.” WTO PANEL REPORT Significantly, the USTR’s latest findings against China can be contrasted with a WTO dispute panel report (DS543) issued in September 2020, which found that the US tariff measures on certain goods from China are inconsistent with the WTO rules. The panel report dealt with “China’s challenge to the additional duties that the United States imposed on certain products from China.” According to the panel report, “the United States imposed these additional duties pursuant to the findings of a Section 301 Report addressing China’s practices related to technology transfer, intellectual property, and innovation, which the United States considers to be unfair and distortive policies of “state-sanctioned theft”, misappropriation of US technology, intellectual property, and commercial secrets.” China challenged “the 25% additional duties imposed in June 2018 on a first set of products with an approximate annual trade value of USD 34 billion (List 1); and the additional duties on a second set of products with an approximate annual trade value of USD 200 billion (List 2), initially imposed in September 2018 at 10% and subsequently raised in May 2019 to 25%.” China claimed that these additional duties were inconsistent with Articles I:1 and II:1(a) and (b) of the GATT 1994. In response, the US raised two main sets of arguments: * By engaging in bilateral negotiations to address several trade concerns – including some matters covered by this dispute – the parties had decided to settle their dispute outside the WTO, and thus reached a “settlement of the matter” within the meaning of the third sentence of Article 12.7 of the DSU; for that reason the Panel should confine its report to a brief statement of the facts and a notation that a settlement has been reached; and * In any event, the additional duties were justified under Article XX(a) of the GATT 1994, as measures necessary to protect US public morals. The United States argued that China’s acts, policies, and practices addressed in the relevant Section 301 Report amounted to “state-sanctioned theft” and misappropriation of US technology, intellectual property, and commercial secrets, and this violated the public morals prevailing in the United States. Significantly, despite the fact that “an ongoing bilateral process was taking place between China and the United States”, the Panel found that “the challenged additional duties were prima facie inconsistent with Article I:1 of the GATT 1994 because they applied only to products from China; and prima facie inconsistent with Article II of the GATT 1994, because they were applied in excess of the rates to which the United States bound itself in its Schedule of Concessions.” In a similar vein, “with respect to the United States’ defence under Article XX(a) of the GATT 1994,” the Panel adopted a holistic approach to determining whether the measures at issue were “necessary to protect public morals.” With respect to the identification of the public morals objective invoked by the United States, the Panel observed that the “standards of right and wrong” invoked by the United States (including norms against theft, misappropriation and unfair competition) could – at least at a conceptual level – be covered by the concept of “public morals” in Article XX(a). With respect to the necessity of the measures, the Panel focused its analysis on the United States’ explanation of how the specific measures that it chose to impose, i.e. additional duties on a wide range of selected products from China, contributed to the public morals objective invoked. The Panel directed its enquiry towards seeking to identify the nexus between the measures the United States had chosen and the US public morals concerns, in order to inform the examination of the question of whether and how the measures contributed, and could therefore be demonstrated to be “necessary”, to protect public morals within the meaning of Article XX(a). Subsequently, regarding the imposition of additional duties on List 1 products, the Panel found that the United States had not provided an explanation demonstrating a genuine relationship of ends and means between the imposition of additional duties on these products and the public morals objective invoked by the United States. Regarding the imposition of additional duties on List 2 products, the Panel found that the United States had not provided an explanation that would allow the Panel to understand an “ends and means” relationship between the additional duties on List 2 products and the public morals objective invoked by the United States. In conclusion, the Panel said that “the United States had not provided an explanation demonstrating how the imposition of additional duties on the selected imported products in List 1 and List 2 was apt to contribute to the public morals objective invoked, and, following on from that, how they were necessary to protect public morals.” The Panel found, accordingly, that the United States had not met its burden of demonstrating that the measures are provisionally justified under Article XX(a). The Panel report contained additional “Concluding Comments” emphasising the Panel’s awareness of the wider context in which the WTO system currently operates, which was “one reflecting a range of unprecedented global trade tensions”. Finally, the Panel expressed its encouragement to the parties to continue to work for a mutually agreed solution to the matters raised in the dispute. Undoubtedly, there appears to be a major legal lacuna in the US arguments in justifying its actions under the Special 301 provisions. WATCH LIST The USTR Report also placed 18 countries on its Watch List. These include Algeria, Barbados, Belarus, Bolivia, Brazil, Bulgaria, Canada, Colombia, Ecuador, Egypt, Guatemala, Pakistan, Paraguay, Peru, Thailand, Trinidad and Tobago, Turkiye and Vietnam. It listed several concerns with different countries under the so-called Watch List. For example, regarding Vietnam, the Report says that although Hanoi “took some steps to improve criminal enforcement, it remains a leading source of online piracy.” It added that “there has been little or no progress on other serious IP issues, including counterfeit goods, copyright exceptions, pharmaceutical-related IP, and geographical indications.” Regarding Brazil, the Report says that the country lacks “effective enforcement against the widespread importation and sale of counterfeit goods, has not joined international treaties that update copyright protection for the digital environment, and takes significantly longer than most countries to grant patents.” Amidst the many alleged violations of the WTO rules, as evidenced by the tariffs imposed by the Trump administration over the past 100 days, the latest USTR Report seems to contain a slew of likely unilateral actions on account of so-called IP violations by China, India, and others.
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