BACKGROUND ON SPECIAL 301
The “Special 301” provisions
of the Trade Act of 1974, as amended, require USTR to identify
foreign countries that deny adequate and effective protection
of intellectual property rights or fair
and equitable market access for U.S. persons that rely on
intellectual property protection.
Special 301 was amended in the 1994 Uruguay Round Agreements
Act to clarify that a country
can be found to deny adequate and effective intellectual
property protection even if it is in
compliance with its obligations under the TRIPS Agreement.
It was also amended to direct
USTR to take into account a country's prior status under
“Special 301,” the history of U.S.
efforts to achieve stronger intellectual property protection,
and the country’s response to such
efforts.
Once the foreign countries are identified, the USTR is required
to decide which, if any, should be
designated a Priority Foreign Country, which is one that:
(1) has the most onerous and egregious acts, policies, and
practices which have the
greatest adverse impact (actual or potential) on the relevant
U.S. products; and
(2) is not engaged in good faith negotiations or making
significant progress in
negotiations to address these problems.
If a trading partner is identified as a Priority Foreign
Country, USTR must decide within 30 days
whether to initiate an investigation of those acts, policies,
and practices that were the basis for
identifying the country as a Priority Foreign Country. A
Special 301 investigation is similar to
an investigation initiated in response to an industry Section
301 petition, in some circumstances.
In addition to identifying Priority Foreign Countries as
required by statute, USTR also uses the
Special 301 Report to identify "Priority Watch List"
and "Watch List" countries or economies.
Trading partners who fall under the Priority Watch List
are those that do not provide an adequate
level of IPR protection or enforcement, or market access
for persons relying on intellectual
property protection. Trading partners on the Watch List
merit bilateral attention to address IPR
problems. Certain other countries with serious IP-related
problems are subject to another part of
the statute, Section 306 monitoring, because of previous
bilateral agreements reached with the
United States to address specific problems raised in earlier
reports.
The interagency Trade Policy Staff Committee that advises
USTR on the implementation of
Special 301 obtains information from the private sector,
U.S. embassies, the United States'
trading partners, and the National Trade Estimates report. |
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Based on a lengthy process of information-gathering
and analysis, the United States Trade Representative (USTR)
has identified 52 countries that are designated in the categories
of Priority Foreign Country, Section 306 Monitoring, Priority
Watch List, or Watch List. The Special 301 Report reflects
the Administration’s resolve to take consistently strong
actions under the Special 301 provisions of the Trade Act.
The 2005 Special 301 annual review examines in detail the
adequacy and effectiveness of intellectual property rights
(IPR) protection in 90 countries.
This Administration is determined to ensure
the adequate and effective protection of intellectual property
and fair and equitable market access for U.S. products.
The designations and corresponding requisite measures announced
result from close consultations with affected industry groups,
other private sector representatives, and Congressional
leaders, and demonstrate the Administration's commitment
to use all available methods to resolve IPR issues. Addressing
weak IPR protection and enforcement in China continues to
be one of the Administration’s top priorities. These
IPR issues, outlined in the China section of the Special
301 Report, are critical in light of the rampant counterfeit
and piracy problems that plague China’s domestic market
and the fact that China has become a leading exporter of
counterfeit and pirated goods to the world. In the China
section of the Special 301 Report, we are announcing the
results of the out-of-cycle review conducted in early 2005.
This year’s Special 301 Report also sets forth the
United States’ plan to work with U.S. industry and
other stakeholders to further build a factual record and
to develop arguments with an eye toward utilizing World
Trade Organization (WTO) procedures to bring China into
compliance with its WTO Trade-Related Aspects of Intellectual
Property Rights (TRIPS Agreement) obligations, to invoke
the transparency provisions of the TRIPS Agreement, to elevate
China to the Priority Watch List, and to maintain Section
306 monitoring. We will be monitoring closely China’s
IPR activities throughout the coming year.
USTR notes the continued need for Ukraine to take effective
action against significant levels of
optical media piracy and to implement intellectual property
laws that provide adequate and
effective protection. As a result, Ukraine will continue
to be designated a Priority Foreign
Country, and the $75 million in sanctions, first imposed
on Ukrainian products on January 23,
2002, will remain in place. Ukraine’s failure to protect
IPR jeopardizes its efforts to join the
WTO and undermines its ability to attract trade and investment.
The United States notes with
optimism, however, that Ukraine has recently renewed efforts
to enact needed optical media
legislative amendments, and has expressed its commitment
to resolving IPR issues. The United
States encourages Ukraine to enact necessary IPR laws and
regulations as well as increase its
enforcement efforts to combat piracy, and today announces
the commencement of a Special 301
out-of-cycle review to monitor Ukraine’s progress
in providing effective copyright protection
and IPR enforcement.
The Special 301 report addresses significant concerns with
respect to such trading partners as
Argentina, Brazil, Egypt, India, Indonesia, Israel, Kuwait,
Lebanon, Pakistan, Paraguay, the
Philippines, Russia, Turkey, and Venezuela. In addition,
the report notes that the United States
will consider all options, including, but not limited to,
initiation of dispute settlement
consultations, in cases where countries do not appear to
have implemented fully their obligations
under the TRIPS Agreement.
In this year’s review, USTR devotes special attention
to the need for significantly improved
enforcement against counterfeiting and piracy. We place
particular emphasis on the ongoing
campaign to reduce production of unauthorized copies of
optical media products such as
compact discs (CDs), video compact discs (VCDs), digital
versatile discs (DVDs), and compact
disc read-only memory (CD-ROMs), as well as on the counterfeiting
of trademarked goods.
Optical media piracy and trademark counterfeiting are increasing
problems in many countries,
including Brazil, Bulgaria, China, India, Indonesia, Lebanon,
Mexico, Pakistan, Paraguay, the
Philippines, Russia, Thailand, Venezuela, and Vietnam. At
issue in these and other countries is
the foreign governments’ political will to effectively
address piracy and counterfeiting. In
addition, USTR continues to focus on other critically important
issues, including Internet piracy,
proper implementation of the TRIPS Agreement by developed
and developing country WTO
Members, and full implementation of TRIPS standards by new
WTO Members at the time of
their accession. USTR also continues to insist that other
countries’ government ministries use
only authorized software.
Over the past year, many developing countries
and newly acceding WTO Members have made progress toward
implementing their TRIPS obligations. Nevertheless, full
implementation of TRIPS Agreement obligations has yet to
be achieved in certain countries, particularly with respect
to the TRIPS Agreement’s enforcement provisions. Levels
of piracy and counterfeiting of intellectual property remain
unacceptably high in these countries. The annual Special
301 review provides an opportunity to assess these issues,
and the Special 301 Report sends a necessary message to
the governments of countries where serious IPR-related problems
exist.
The United States is committed to a policy
of promoting increased intellectual property protection.
In this regard, we are making progress in advancing the
protection of these rights through a variety of mechanisms,
including through the negotiation of Free Trade Agreements
(FTAs). The intellectual property chapters of the FTAs provide
for higher levels of intellectual property protection in
a number of areas covered by the TRIPS Agreement. We are
pleased that the recent FTAs with Morocco and Australia
will strengthen the protection of IPR in those countries.
When the pending Bahrain FTA and Central American Free Trade
Agreement (CAFTA-DR) (with Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua, and the Dominican Republic) are adopted,
we look forward to seeing strengthened IPR regimes in those
countries as well. We are also seeking higher levels of
protection and enforcement in the FTAs that are currently
under negotiation with Panama, Thailand, the Southern Africa
Customs Union, the Andean countries, the United Arab Emirates,
and Oman, and in the ongoing negotiation of a Free Trade
Area of the Americas. Another opportunity we are using to
strengthen the protection and enforcement of intellectual
property is the increasing number of Trade and Investment
Framework Agreement (TIFA) negotiations with several countries
in regions such as the Middle East and Asia.
USTR will continue to use all statutory
tools, as appropriate, to improve intellectual property
protection in countries where it is inadequate. For example,
USTR examines IPR practices through the implementation of
trade preference programs, such as the ongoing Generalized
System of Preferences (GSP) reviews of countries, including
Brazil, Kazakhstan, Lebanon, Pakistan, Russia, and Uzbekistan.
Global Scope of Counterfeiting and
Piracy
Global IPR theft and trade in fakes have
grown to unprecedented levels, threatening innovative and
creative economies around the world. Counterfeiting and
digital piracy remain areas of particular concern in this
year’s report. Counterfeiting has developed from a
localized industry concentrated on the copying of high-end
designer goods into a massive, sophisticated global business
involving the manufacturing and sale of counterfeit versions
of a vast array of products, including soaps, shampoos,
razors, batteries, cigarettes, alcoholic beverages, golf
clubs, automobile parts, motorcycles, medicines, and health
care products, to name a few. Counterfeiting of such a broad
range of products on a global scale affects more than just
the companies that produce legitimate products. While it
has a direct impact on the sales and profits of those companies,
counterfeits also hurt the consumers who waste their money
and sometimes put themselves at risk by purchasing fake
goods. It also hurts the countries concerned by decreasing
tax revenues and deterring investments. In addition, counterfeiters
generally pay neither taxes nor duties, and do not comply
with basic manufacturing standards for the health and safety
of workers or product quality and performance. Piracy of
copyrighted products in digital, print (e.g., books, journals,
and other printed materials), and other analog formats,
as well as counterfeiting of all types of trademarked products,
have grown rapidly because these illegal activities offer
enormous profits and little risk for the criminal element
of society. Criminals can enter into the counterfeiting
and pirating business with little capital investment, and
even if caught and charged with a crime, the penalties actually
imposed in many countries are so low that they offer no
deterrent.
The global scope of piracy and counterfeiting
requires stronger and more effective border enforcement
to stop the import, export, and transit of pirated and counterfeit
goods. For example, effective enforcement efforts are needed
at the national and local levels in free trade zones in
Belize, Panama, and the United Arab Emirates.
This is why USTR seeks through our FTAs
and our bilateral consultations to maximize the deterrent
effect of remedies, including requirements that pirated
and counterfeit products, as well as the equipment used
to make them, are seized and destroyed. The economic damage
caused by counterfeiting to the legitimate companies whose
products are counterfeited is enormous. Losses to U.S. industries
alone are estimated at $200-$250 billion per year.
STOP!
Initiative
USTR is actively engaged in implementing
the Administration’s Strategy
Targeting Organized Piracy (STOP!) initiative. Announced
in October 2004, STOP! brings together all the major players
– the federal government, private sector and trade
partners – to take concerted action in cracking down
on piracy and counterfeiting. The initiative is part of
an effort to enhance coordination among all relevant U.S.
Government agencies and U.S. trading partners to tackle
this global problem. As part of STOP!, USTR is advocating
international adoption of best practices guidelines incorporating
enhanced enforcement disciplines drawn from the IP chapters
of recent FTAs. USTR is also introducing in multilateral
fora new initiatives to improve the global intellectual
property environment that will aid in disrupting the operations
of pirates and counterfeiters. Key initiatives are currently
underway in the G-8, Organization for Economic Cooperation
and Development (OECD), and the Asia-Pacific Economic Cooperation
(APEC) forum. As part of the STOP! Initiative, USTR requests
recommendations from interested parties on criteria to be
used in the Special 301 Report with respect to individual
businesses that have been found to have significantly infringed
IPR.
Transshipment and Transiting of
Goods
“Transshipment” and “in
transit goods” are expanding problems that USTR highlights
in this year’s Special 301 Report. Transshipped goods
enter the customs territory of a country, are transferred
from one importing means to another, and then leave from
the same port for another destination. In transit goods,
on the other hand, move “under customs control”
from one customs office to another customs office. In transit
goods may move entirely within one customs territory or
may cross borders from one customs territory to another
customs territory. Frequently goods moving under one of
these procedures will be “diverted” for consumption
into the customs territory where they first arrive. Transshipped
and in transit goods pose a high risk for counterfeiting
and piracy because those customs procedures may be used
to disguise the true country of origin of the goods or to
enter goods into customs territories where border enforcement
for transshipped or in transit goods is known to be weak
with the intention of passing the goods through those customs
territories to their destination. The Special 301 Report
notes that transshipment or in transit goods are growing
problems in Ukraine, Belize, Canada, Latvia, Lithuania,
Taiwan, and Thailand. We urge these countries to provide
stronger intellectual property border enforcement protections,
and the United States will work together with these countries
to improve their IPR border enforcement systems.
Free Trade Zones
We are concerned with the growing problem
of pirated and counterfeit goods moving through “free
trade zones,” which are geographic areas considered
to be outside of a nation’s customs territory for
the purposes of collecting import duties and taxes. Free
trade zones range in size from small commercial warehouses
to complexes housing hundreds of businesses. Free trade
zones are generally established by governments to promote
legitimate trade and offer the advantage of providing a
free trading environment whereby a minimum level of regulation
is demanded of companies approved to operate within them.
Permissible operations within free trade zones include preserving
goods, preparing goods for shipping, and handling goods
in order to improve their packaging or marketing to manufacturing
processes. Free trade zones present a considerable risk,
however, of serving as a conduit for counterfeit and pirated
goods, and as a situs of manufacturing of IPR infringing
goods. The United States has received complaints from U.S.
industry regarding the Colon Free Zone in Panama, the Jebel
Ali Free Zone in the United Arab Emirates, the Corozal Commercial
Free Trade Zone in Belize, and the Manaus Free Trade Zone
in Brazil, among others. The United States urges all countries
having free trade zones located within their territories
to bring the operation of the free trade zones under the
rule of law and its consistent application. The United States
is working with Panama through the FTA negotiations to strengthen
IPR enforcement in Panama’s Free Zones.
Controlling Optical Media Production
Over the past year some of our trading partners,
such as the Philippines, Poland, and Indonesia, have taken
important steps toward implementing much-needed controls
on optical media production in order to address and prevent
future pirate activity. We have seen particular progress
this year in the Philippines’ enforcement of its optical
media law. However, other countries urgently need to implement
controls or improve existing inadequate measures, including
India, Pakistan, Russia, Ukraine, Thailand, and Bulgaria,
none of which have made sufficient progress in this regard.
Some governments, such as those of Hong Kong and Macau,
which implemented optical media controls in previous years,
have clearly demonstrated their commitment to continue to
enforce these measures. Malaysia is steadily improving its
enforcement efforts, and Taiwan continues to make significant
progress in providing improved IPR enforcement. The effectiveness
of such measures is underscored by the direct experience
of these governments in successfully reducing pirate production
of optical media. We continue to urge our trading partners
facing the threat of pirate optical media production within
their borders to adopt similar controls or aggressively
enforce existing regulations in the coming year.
Implementation of the WTO TRIPS
Agreement
One of the most significant achievements
of the Uruguay Round was the negotiation of the TRIPS Agreement,
which requires all WTO Members to provide certain minimum
standards of protection for patents, copyrights, trademarks,
trade secrets, geographical indications, and other forms
of intellectual property. The Agreement also requires countries
to provide effective IPR enforcement. The TRIPS Agreement
is the first broadly-subscribed multilateral intellectual
property agreement that is subject to mandatory dispute
settlement provisions.
Developed countries were required to fully
implement the TRIPS Agreement as of January 1, 1996, while
developing countries were given a transition period for
many obligations until January 1, 2000. Ensuring that developing
countries are in full compliance with the TRIPS Agreement
obligations now that this transition period has come to
an end is one of this Administration’s highest IPR
priorities. The least-developed countries have until January
1, 2006 to implement the TRIPS Agreement, and the United
States looks forward to the successful completion of this
transition. However, in order to address the concerns raised
by the leastdeveloped countries, the United States suggested,
and all other WTO members agreed, to extend the transition
period for ten years, until 2016, for the least-developed
countries to implement their TRIPS obligations for patent
and data protection for pharmaceutical products.
Developing countries continue to make progress
toward full implementation of their TRIPS obligations. Nevertheless,
certain countries are still in the process of finalizing
implementing legislation and establishing adequate IPR enforcement
mechanisms. Every year the U.S. Government provides extensive
technical assistance and training on the implementation
of the TRIPS Agreement to a large number of U.S. trading
partners. Such assistance is provided by a number of U.S.
Government agencies, including the U.S. Patent and Trademark
Office, the U.S. Copyright Office, the Department of State,
the U.S. Agency for International Development, U.S. Customs
and Border Protection, the Department of Justice, and the
Department of Commerce. This assistance is provided on a
country-by-country basis, as well as in group seminars,
including those co-sponsored with the World Intellectual
Property Organization (WIPO) and the WTO. In addition, U.S.
industry is actively involved in providing specific enforcement-oriented
training in key markets around the world. Technical assistance
involves the review of, and drafting assistance on, laws
concerning intellectual property and enforcement. Training
programs usually cover the substantive provisions of the
TRIPS Agreement, including IPR enforcement. The United States
will continue to work with WTO Members and expects further
progress in the near term to complete the TRIPS implementation
process. However, in those instances in which additional
progress is not achieved, the United States will consider
other means of encouraging implementation, including the
possibility of dispute settlement consultations.
One of the key implementation priorities
that we have focused on in this year’s review is the
implementation of Article 39.3 of the TRIPS Agreement, which
requires WTO Members to protect test data submitted by companies
to health authorities against “unfair commercial use”
for pharmaceutical and agricultural chemical products.1
Most countries, including the United States,
impose stringent regulatory testing requirements on companies
seeking to market a new drug or agricultural chemical product.
Many countries have recognized, however, the value of allowing
abbreviated approval procedures for “secondcomers”
seeking to market a product identical to one that has already
been approved. Generally, these second applicants may be
required to demonstrate the bioequivalence of their products
with the product of the first company, and will be allowed
to rely on the test data, rather than repeat all of the
expensive and laborious clinical tests conducted by the
first company to prove the safety of the product.
However, because of the considerable effort
involved in producing the safety and efficacy data needed
to obtain marketing approval, the TRIPS Agreement requires
that the original applicant must receive protection for
that data against unfair commercial use. Accordingly, the
United States and other countries provide a period of protection
during which second-comers may not rely on the data submitted
by the innovative company to obtain approval for their copies
of the product. This means that, during the period of exclusivity,
the data provided by the originator cannot be relied upon
by regulatory officials to approve similar products. This
period of protection is five years in the United States
and six to ten years in the EU Member States. Other countries
that provide a period of protection against reliance on
data include Australia, China, Japan, Jordan, Korea, Mexico,
New Zealand, and Switzerland. We commend Bulgaria on its
recent implementation of data protection for pharmaceutical
and agricultural chemical products. We urge all WTO members
to swiftly complete their implementation of TRIPS Article
39.3, including certain Andean countries, Israel and Turkey.
1 Such data is typically required by
health authorities in order to establish the safety and
efficacy of a drug,
and to obtain government approval to
market the drug.
Internet Piracy and the WIPO Internet
Treaties The Internet has undergone explosive
growth and, coupled with the increased availability of broadband
connections, serves as an extremely efficient global distribution
network for pirated products. The explosive growth of copyright
piracy on the Internet is a serious problem. We are continuing
to work with other governments, and consult with U.S. industry,
to develop the best strategy to address Internet piracy.
An important first step in the fight against Internet piracy
was achieved at WIPO when it concluded two copyright treaties
in 1996: the WIPO Copyright Treaty (WCT) and the WIPO Performances
and Phonograms Treaty (WPPT) (collectively, the “WIPO
Internet Treaties”). The WIPO Internet Treaties help
to raise the minimum standards of intellectual property
protection around the world, particularly with respect to
Internet-based delivery of copyrighted works. They clarify
exclusive rights in the on-line environment and specifically
prohibit the devices and services intended to circumvent
technological protection measures for copyrighted works.
Both treaties entered into force in 2002. As of April 29,
2005, there are 51 members of the WCT and 49 members of
the WPPT; this number will rise significantly when the EU
joins, which, by internal arrangement, is expected to occur
when the last five EU Member States complete their implementation
processes. Even more countries have implemented in their
national laws key provisions of these treaties even though
they have not yet formally ratified them. At this point,
therefore, the WIPO Internet Treaties are now part of the
international IPR legal regime and represent the consensus
view of the world community that the vital framework of
protection under existing agreements, including the TRIPS
Agreement, should be supplemented to eliminate any remaining
gaps in copyright protection on the Internet that could
impede the development of electronic commerce.
In order to realize the enormous potential
of the Internet, a growing number of countries are implementing
the WIPO Internet Treaties and creating a legal environment
conducive to investment and growth in Internet-related businesses
and technologies. In the competition for foreign direct
investment, these countries now hold a decided advantage.
We urge other governments to ratify and implement the two
WIPO Internet Treaties.
Other Initiatives Regarding Internet
Piracy
We are seeking to heighten the standards
of protection for intellectual property, by incorporating
standards of the WIPO Internet Treaties as substantive obligations
in the bilateral and regional trade agreements that we negotiate.
Moreover, our proposals in our FTA negotiations will continue
to include up-to-date copyright and enforcement obligations
to reflect the technological challenges we face today as
well as those that may exist at the time negotiations are
concluded.
Government Use of Software
In October 1998, the United States announced
an Executive Order directing U.S. Government agencies to
maintain appropriate and effective procedures to ensure
legitimate use of software. In addition, USTR was directed
to undertake an initiative to work with other governments,
particularly those in need of modernizing their software
management systems or about which concerns have been expressed,
regarding government use of illegal software.
The United States has achieved considerable
progress under this initiative. Countries and territories
that have issued decrees mandating the use of only authorized
software by government ministries include Bolivia, Chile,
China, Colombia, Costa Rica, the Czech Republic, France,
Greece, Hong Kong, Hungary, Ireland, Israel, Jordan, Korea,
Lebanon, Macau, Paraguay, Peru, the Philippines, Spain,
Taiwan, Thailand, Turkey, and the United Kingdom. The United
States is pleased that these governments have recognized
the importance of setting an example in this area and expects
that these decrees will be fully implemented. The United
States looks forward to the adoption of similar decrees,
with effective and transparent procedures that ensure legitimate
use of software, by additional governments in the coming
year.
Intellectual Property and Health
Policy
The Administration is dedicated to addressing
the serious health problems, such as HIV/AIDS, afflicting
African and other least-developed countries. The United
States is firmly of the conviction that intellectual property
protection, including for pharmaceutical patents, is critical
to the long term viability of a health care system capable
of developing new and innovative lifesaving medicines. Intellectual
property rights are necessary to encourage rapid innovation,
development, and commercialization of effective and safe
drug therapies. Financial incentives are needed to develop
new medications; no one benefits if research on such products
is discouraged.
At the same time, the United States is committed
to the principle that international obligations such as
the TRIPS Agreement have sufficient flexibility to allow
countries, particularly developing and least-developed countries,
to address the serious public health problems that they
face.
At the WTO Doha Ministerial in November
2001, WTO Ministers issued a separate Declaration on the
TRIPS Agreement and Public Health, acknowledging the serious
public health problems afflicting Africa and other developing
and least-developed countries, especially those resulting
from HIV/AIDS, malaria, tuberculosis, and other epidemics.
Ministers agreed that intellectual property rules contain
flexibilities to meet the dual objectives of, on the one
hand, meeting the needs of poor countries without the resources
to pay for cutting edge pharmaceuticals and, on the other
hand, ensuring that the patent rights system continues to
promote the development and creation of new lifesaving drugs.
The United States proposed, and all WTO
members agreed, that the Doha Declaration should provide
an additional ten year transition period (until 2016) for
least-developed countries to implement the pharmaceutical-related
provisions of the TRIPS Agreement. This extended transition
period balances the interests of intellectual property rights
holders and the needs of the least-developed countries.
In addition, in paragraph 6 of the Declaration,
Ministers recognized that WTO Members with “insufficient
or no manufacturing capacities in the pharmaceutical sector”
could have difficulty using the compulsory licensing provisions
of the TRIPS Agreement and directed the TRIPS Council to
find an expeditious solution to this problem. In December
2002, the United States announced a framework to ease WTO
rules to allow countries in need to import life-saving drugs.
On August 30, 2003, the WTO General Council
adopted the TRIPS/health “solution,” which is
comprised of a Decision and an accompanying Chairman’s
Statement that sets out the shared understandings of WTO
Members on how the Decision should be interpreted and applied.
Under the solution, Members are permitted, in accordance
with specified procedures, to issue compulsory licenses
to export pharmaceutical products to countries that cannot
produce drugs for themselves.
The United States strongly supports effective
and appropriate use of the TRIPS/health solution to facilitate
access to life-saving medicines by countries in need. The
United States would be willing to discuss the need to provide
technical assistance if some Members encounter difficulties
in implementing or utilizing the solution.
In fact, the United States has already taken
steps to ensure that the solution can be implemented. For
example, in July 2004, the United States reached an agreement
with Canada to ensure that NAFTA's provisions will not impede
implementation of the TRIPS/health solution.
The TRIPS Council is under instructions
to incorporate the solution into an amendment of the TRIPS
Agreement. The United States supports an amendment that
reflects the agreement reached in August 2003, and will
remain committed to working with the other Members to reach
a consensus for an amendment as expeditiously as possible.
In order to move towards an amendment, the United States
submitted a paper at the March 2005 meeting of the WTO TRIPS
Council expressing support for the amendment and setting
out a simple and effective approach to do so. The solution
will continue to be available as a WTO waiver until an amendment
is finalized.
In the recent Free Trade Agreements with
CAFTA-DR, Morocco, and Bahrain, the United States has clarified
that the intellectual property provisions in the agreements
do not stand in the way of measures necessary to protect
public health. Specifically, the United States has confirmed
that the intellectual property chapters of the FTAs do not
affect the ability of the United States or our FTA partners
to take necessary measures to protect public health by promoting
access to medicines for all, in particular concerning cases
such as HIV/AIDS, tuberculosis, malaria, and other epidemics
as well as circumstances of extreme urgency or national
emergency. The United States has also made clear that the
intellectual property chapter of the FTAs will not prevent
effective utilization of the TRIPS/health solution.
Sustainable Innovation
The ability of innovative industries to
continue to develop new products depends largely upon two
factors: (1) a strong and effective intellectual property
system; and (2) the capacity to market new products effectively
during the period of time when the exclusive intellectual
property rights exist. Although intellectual property protection
is a necessary condition for encouraging innovation in all
sectors, it is the ability to market products effectively
that provides the incentive for continued innovation and
generates the returns on investment necessary to fund new
research and development and production of new products.
This cycle of innovation produces significant economic and
social benefits by accelerating economic growth and raising
standards of living.
The Special 301 process focuses on analyzing
the intellectual property protection and enforcement of
our trading partners, and this has been the primary subject
of industry comments. In addition, however, industries –
and in particular the pharmaceutical industry – have
focused attention on regulatory barriers that impede their
ability to sustain the cycle of innovation and may inhibit
the availability of new, ground-breaking products. These
types of regulatory barriers include, for example, non-transparent
administrative regimes; decision-making that lacks a scientific
basis; and cumbersome and lengthy drug listing and other
administrative processes.
In the conference report accompanying the
U.S. Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (House Report 108-391), the Congress directed
the Secretary of Commerce, in consultation with the International
Trade Commission, the Secretary of Health and Human Services
and the United States Trade Representative, to prepare a
report regarding trade in pharmaceuticals designed in part
to provide an “[e]stimate of the impact . . . price
controls, intellectual property laws, and other such measures
have on fair pricing, innovation, generic competition, and
research and development in the United States and each [OECD]
country identified.” Regarding pharmaceutical price
controls, the conference report directed the Administration
to examine drug pricing practices of OECD countries and
assess, among other things, “whether those practices
utilize nontariff barriers with respect to trade in pharmaceuticals.”
The conference report directive reflects
a concern in the United States that the regulatory practices
of many other countries may be slowing the development of
the next generation of lifesaving drugs for use worldwide.
Implicit in this proposition is a concern that, by adopting
such mechanisms, foreign countries are not contributing
adequately to research and development for new life-saving
medicines.
The U.S. Department of Commerce released
its report in December 2004, and found that regulatory practices
in the OECD countries studied are reducing the funds available
globally for pharmaceutical research and development and
the creation of new, innovative life-saving drugs, and are
driving up prices for generic pharmaceuticals. These practices
include price controls, approval delays and procedural barriers,
non-transparent processes, restrictions on dispensing and
prescribing, and low reimbursement levels. The study also
determined that addressing such practices in OECD countries
would result in increased research and development in the
pharmaceutical sector, development of three to four new
innovative drugs each year, and lower prices of generic
drugs.
The United States has worked with countries
such as Australia, Japan, Korea, and China to address these
types of issues and will continue to do so. Regarding Australia,
our FTA has allowed us to address key issues relating to
transparency and accountability that will improve market
access for U.S. pharmaceutical companies. The Australian
Government is following through on its commitments in this
agreement, by setting up a transparent review system for
appealing pharmaceutical listing decisions and working with
U.S. officials to prepare for the first meeting of the Medicines
Working Group.
With respect to Japan, pharmaceutical and
medical device issues are an integral part of the Administration’s
regulatory reform work. The United States has made steady
progress in improving transparency in this sector, ensuring
that foreign pharmaceutical and medical device manufacturers
have meaningful opportunities to provide input into important
regulatory matters, and facilitating the introduction of
innovative new pharmaceuticals and medical devices into
the Japanese market.
Separately, the Administration has had a
longstanding dialogue with Korea on pharmaceutical issues
and, as a result, has seen considerable improvement over
the past decade in U.S. pharmaceutical companies’
access to the Korean market. The Administration is continuing
these consultations and has made recent progress, focusing
on further improvements in market access and transparency,
and ensuring competition in this sector of the Korean market.
In January, Korea’s Health Insurance Reimbursement
Agency began providing written justifications for its decisions
on pricing and listing of new drugs.
With respect to China, the Administration
has pressed the Government of China to price innovative
drugs fairly and to add new drugs to its national formulary,
which controls access to medicines for China’s nearly
1.3 billion people. The Administration also is pressing
the Government of China to address the production and export
of counterfeit pharmaceuticals that both endanger lives
and disrupt markets.
The Administration is examining other countries’
practices including, for example, those of Canada and Germany.
Canada’s Patented Medicine Prices Review Board (PMPRB)
regulates patented pharmaceutical products, but not generic
products. The PMPRB sets the launch price for drugs when
they enter the market and then limits further increases.
Under the PMPRB's pricing system, the price for a new innovative
drug cannot exceed the median of prices in seven developed
countries that Canada uses as a basis for comparison (the
United States, the United Kingdom, France, Germany, Sweden,
Switzerland, and Italy). In addition, Canada’s pharmaceutical
approval process is protracted and the procedures for provincial
listing decisions can be lengthy and inconsistent.
Germany is in the process of implementing
significant changes to its reference pricing system, which
could impact the development and availability of innovative
pharmaceuticals in that country. In 2004, the German Government
required innovative drug makers to pay a 16 percent rebate
on patent-protected pharmaceuticals (i.e., a mandatory price
cut on patented-drug producers, but not generics). On January
1, 2005, Germany reduced the rebate to 6 percent, but put
in place a reference pricing regime for patent-protected
medicines. This new regime combines for the first time patent-protected
and off-patent pharmaceuticals in “jumbo” reference
pricing groups. This approach arbitrarily diminishes the
value of innovative medicines by equating them with generic
medicines for purposes of government reimbursement. Of the
12 new reference pricing groups established, four are jumbo
groups, covering a wide range of innovative patented medicines.
It has been estimated that reference price cuts for some
of the most innovative drugs in the new jumbo groups are
as much as 40 percent, which has the potential to affect
the availability of such novel medicines and may lead to
an increased burden on American patients in paying for the
newest ground-breaking drugs. Although manufacturers of
patented pharmaceuticals can seek to have certain patented
drugs excluded from the jumbo groups if they demonstrate
that such products provide “significant therapeutic
improvement,” only two patented drugs, produced by
German and Swiss manufacturers, have been excluded and the
process for determining whether a drug provides significant
therapeutic improvement lacks transparency. The only two
requests by U.S. manufacturers to exclude patented products
from the new jumbo groups were rejected. The German Government
may put additional classes of drugs under its jumbo reference
pricing system later this year.
It is important to understand how these
types of regulatory regimes affect patient welfare, research
and development funding, and innovation. The Department
of Health and Human Services, along with USTR and other
U.S. health and economic policy agencies, are jointly approaching
individual OECD countries through bilateral consultations,
such as with Germany and Canada. USTR, in close coordination
with U.S. health and other economic policy agencies, also
will lead efforts with such countries in FTA negotiations,
such as with Australia. These discussions are tailored to
the specific circumstances of each country, but utilize
a common set of principles aimed at advancing U.S. interests,
including promoting innovation in the pharmaceutical sector
and enhanced patient access to innovative and generic drugs.
These efforts, coupled with the ongoing analysis of global
intellectual property protection through the Special 301
process, should provide a more complete picture of the impact
of regulatory and intellectual property protection regimes
on innovation and offer potential opportunities to encourage
continued strong development worldwide by innovative industries,
such as the pharmaceutical sector.
WTO Dispute Settlement
Dispute settlement efforts this year continue
to focus on resolving disputes that were announced through
previous Special 301 determinations, using the full range
of tools available. These tools include informal consultations
and settlement, which can be more efficient and are therefore
the preferred manner of resolving disputes, or where those
are unsuccessful, full utilization of the dispute settlement
process.
At the conclusion of the 1999 Special 301
review, the United States initiated dispute settlement consultations
concerning the European Union’s (EU) regulation on
food-related geographical indications (GIs), based on concerns
that the regulation was inconsistent with the EU’s
TRIPS Agreement obligations. These consultations were based
on the United States’ long-standing complaint that
the EU GI system discriminates against foreign products
and persons – notably by requiring that EU trading
partners adopt an “EU-style” system of GI protection
– and provides insufficient protections to trademark
owners. Because those consultations failed to resolve the
matter, on August 18, 2003, the United States requested
the establishment of a panel, and panelists were appointed
on February 23, 2004.
On April 20, 2005, the WTO Dispute Settlement
Body (“DSB”) adopted a panel report ruling in
favor of the United States that the EU GI regulation is
inconsistent with the EU’s obligations under the TRIPS
Agreement and the General Agreement on Tariffs and Trade
1994. In the panel report adopted by the DSB, the panel
agreed that the EU’s GI regulation impermissibly discriminates
against non-EU products and persons. The panel also agreed
with the United States that Europe could not, consistent
with WTO rules, deny U.S. trademark owners their rights;
it found that, under the regulation, any exceptions to trademark
rights for the use of registered GIs were narrow, and limited
to the actual GI name as registered. The DSB recommended
that the EU amend its GI regulation to come into compliance
with its WTO obligations.
A full
version of the 2005 Special 301 Report is available
on the USTR Website.
Source: USTR
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