INTERNATIONAL IP PROTECTION
3.4.2 The Use of Trade Retaliation by the US and the EC during the Uruguay Round
Pressures were directed mainly towards specific developing countries, such as Argentina, Brazil, India, South Korea and India, aimed at forcing them to change their domestic IP legislation and to agree to an IP framework under the auspices of GATT.97
Between the two industrialised blocs, the US was more active during that time and was able to achieve considerable results. This was mainly due to its ability to use two policy tools. The first was the threat of denying developing countries the benefits of the General System of Preferences (GSP) under which selected countries are entitled to special preferential treatment from the US.98 The second concerns the use of section 337 of the US Tariff Act of 1930 and section 301 of the Trade Act of 1974. Both enable the US to make credible threats, and in some cases to execute them, against countries which, according to its view, provided inadequate IP protection.99 Section 337 is more domestically orientated and allows for punitive action to be taken against imported products of which IP rights were violated.100
Section 301, particularly after its amendment by the Omnibus Trade and Competitiveness Act of 1988, is much more internationally orientated and allows the US to impose unilateral sanctions against countries engaging in ʻunfair competitionʼ, which includes the field of IP.101 The US Trade Representative (USTR) uses section 301 (known as Special or Super 301 after 1988) to identify Priority Foreign Countries which, according to US criteria, provide inadequate protection for IPRs thereby causing the greatest adverse impact on US right holders or products.102 The USTR, before retaliating against such a foreign country, is required to launch an investigation within 30 days in order to study the case or cases leading to that identification.103 The USTR has also established a Priority Watch List and a Watch List for countries whose actions meet some, but not all, of the criteria for identifying priority foreign countries.104
According to Nogués, the R&D-based pharmaceutical industry in the US was the main driving force behind the creation of Special 301.105 Pressuring the US government towards taking a much more hawkish position against IP violations,
the R&D pharmaceutical industry sought to amend the original section 301 in order to make it much more operational.106
The use of section 301, and later Special 301, was particularly intensive during the second half of the 1980s. The cases of Korea and Brazil are two known examples of the use of trade pressures regarding patent protection for pharmaceutical products. In the case of the former, considerable reforms were made in Koreaʼs IP legislation mainly because of US pressures and in spite of fierce domestic opposition.107 Initially, Korea did not grant patent protection for chemical and pharmaceutical products but only to processes. At that time extensive violations of copyrights were also taking place in South Korea. Bilateral negotiations between the two governments during the period of 1983 to 1985 did not produce a satisfactory outcome as far as the US was concerned. As a result, in 1985 the Reagan administration used section 301 to launch an investigation concerning Koreaʼs IP legislation.108 In its announcement the White House argued that South Koreaʼs IP legislation ʻappears to deny effective protection for US intellectual propertyʼ and that among other things the protection for ʻchemicals and pharmaceuticals is limited to process patentsʼ.109
Koreaʼs decision to amend its IP laws in 1986, including the granting of patents to pharmaceutical and chemical products, was a result of a settlement between the US and Korean governments.110 These changes were introduced despite fierce domestic opposition particularly from the Korean Pharmaceutical Association and the Korean Publishersʼ Association.111 Gadbaw and Richards argue that the ʻprocess of reform of Koreaʼs intellectual property regime was achieved almost exclusively because of US trade leverageʼ.112 They note that South Korea is a country ʻin which the government was able to achieve broad intellectual property rights reform where domestic opposition far outweighed internal supportʼ.113 Gadbaw and Richards also conclude that a strong association exists between countriesʼ dependence on exports to the US and their willingness to strengthen their domestic IP legislation because of US pressures.114
While the threat of trade retaliation was sufficient to change South Koreaʼs domestic IP legislation, in the case of Brazil the US had actually retaliated before achieving concessions from the Brazilian government. The dispute between the US and Brazil started when the research-based pharmaceutical industry in the US, represented by the Pharmaceutical Manufacturers of America (PMA), filed a petition complaining that Brazilʼs patent law did not provide protection for pharmaceutical products and processes.115 In July 1988 the USTR launched an investigation against Brazil. However, consultations between the two governments did not produce any favourable outcome for the US. As a result, the US decided in October 1988 to use Special 301 to impose a 100 per cent ad valorem tariff increase on selected Brazilian goods including some pharmaceutical products. Brazil, as a counter-measure, used the GATT dispute settlement process to lodge a complaint against the US
arguing that the US decision to impose sanctions contradicted US obligations to non-discriminatory practices.116 Brazil claimed that the lack of protection for pharmaceutical products and processes in its patent law was in accordance with its international legal obligations. Yet despite overwhelming support for the Brazilian side from the GATT panel, the US did not suspend its decision. The dispute came to an end in June 1990 when the Brazilian government declared that it would seek legislation to provide patent protection for pharmaceutical products and processes.117 The USTR in turn agreed to terminate its retaliation measures arguing that ʻBrazil was taking satisfactory measures to eliminate the practices that were determined by the president to be unreasonable and a burden or restriction on US commerceʼ.118
The use of trade retaliation as a tool for forcing countries to strengthen their IP legislation and to enter into multilateral IP agreements did not come to an end with the conclusion of the TRIPs agreement. Many interest groups argued, and continue to do so, that the US must enforce IPRs globally. For example, the Intellectual Property Committee (IPC), a group consisting of some leading US companies, issued a position paper in 1994, immediately after the final version of the TRIPs agreement was concluded, in which it urged the US to continue to use the bilateral dimension in order to secure a stronger IP environment:
The United States cannot be complacent. The US private sector needs a strategy to deal with what we believe to be a unique situation facing TRIPs – the long transition period when our ʻmultilateralʼ hands are tied – and the continued assaults on our intellectual property – the very lifeblood of US creativity and competitiveness...The IPC urges the administration to continue the current Special 301 program in support of strong intellectual property protection abroad.119
The EC has also taken measures for retaliating against IP-violating countries.
Commencing in 1986, the EC has adopted legislation enabling it to protect its external frontiers by preventing the free circulation of counterfeited goods originating from non-member countries.120 The so-called New Trade Policy Instruments of 1984, and particularly the Trade Barriers Regulation, allows the EC to ʻengage in trade retaliation against illicit commercial practices of non-union countriesʼ, though this tool has not been used as frequently and as aggressively as its US parallel.121
One exception is the case of Koreaʼs IP legislation in 1987. Koreaʼs patent law, as agreed upon in the US–Korean settlement, was amended in a way that provided patent protection only to US pharmaceutical firms. Naturally, the EC has regarded the amendments as discriminatory and retaliated in 1987 by excluding Korea from its GSP.122 As a result, Korea has agreed to amend its patent law to also protect pharmaceutical firms based in Europe.
Hence, the use of trade retaliation by developed countries, notably the US and the EC, has been, in many cases, a successful tool for securing greater
commitment to a stronger domestic and international IP system. The decision of many developing countries to change their domestic IP legislation and to agree to a multilateral IP agreement under a GATT framework (TRIPs) did not derive from the conclusion that there are clear economic benefits to the introduction of IPRs. In some countries, such as Korea and Brazil, there was fierce domestic opposition to the introduction of stronger IP legislation. These countries decided to commit themselves to a stronger IP agenda mainly because of fears of retaliation from the US and the EC.
Even today, despite the existence of the TRIPs agreement and its built-in dispute settlement mechanism, the US and the EU still maintain the right to retaliate against countries with weak IP protection. The reason for this probably lies in the knowledge that convincing developing countries, particularly those with weak IP capabilities, that it is in their own economic interest to strengthen their domestic IP legislation may prove a difficult task. For this purpose the use of trade retaliation, a politically constituted tool, seems to be much more effective.