Monday, May 10, 2010

What is so special about Special 301 vis-à-vis China?

Each year, since 2005, IP Dragon dealt with the annual Special 301 reports, as a ritual dance in April which had to be described concisely and quickly. Not this year. The ferociousness of the tone by some (see below Messrs. Masnick and Basheer) against the perceived lack of legitimacy, methodology and flawed content of the report combined with the important subject matter made me take a closer look.

First the legitimisation of the Special 301 procedure and its report is explored; then the content of the report about the adequacy and effectiveness of intellectual property in China (this is IP Dragon, after all) is investigated (see Part II), then some of the criticism will be debunked (see Part , and some comments on a comment on Mr Masnick's article will be made. After that the testimonies of messrs. Donnelly, Smith, Mellis and Palmedo regarding IPR in China during the hearing will be looked into.

Legitimisation: "You are not strange, you are eh... special"
The Office of the United States Trade Representative (USTR) put China also this year on the so called 'Priority Watch List' and is again subject to 'Section 306 monitoring' ("the USTR may apply sanctions if a country fails to satisfactorily implement an agreement", however these sanctions are restricted to bringing a case to the WTO, see 'Statutory language versus undertakings that remove inconsistency' below). The USTR published its annual report in which it reviews the adequacy and effectiveness of the protection of intellectual property rights in and market access to U.S. persons that rely upon the protection of intellectual property rights.

The Special 301 procedure is pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994). It was controversial for some time, because many countries thought that it gave the USTR the right in case of a perceived denial of adequate and effective protection of IPRs or market access to retaliate unilaterally. Therefore the European Communities brought a case to the World Trade Organization, which got the code WT/DS152. See an excellent 63-page summary of the case, here.

The main complaint of the European Communities was that Section 301(c), which became later 19 U.S.C. Section 2411, authorises the USTR to "suspend, withdraw, or prevent the application of, benefits of trade agreement concessions", or "impose duties or other import restrictions on the goods of, and … fees or restrictions on the services of, such foreign country for such time asthe Trade Representative determines appropriate". It also came to the conclusion that because the U.S. is a member of the WTO it should bring its trade conflicts to a panel of the Dispute Settlement Body to solve the problems multilaterally. The same is also applicable to Section 306.

Statutory language versus undertakings that remove inconsistency
According to the panel the statutory language was indeed inconsistent with the obligations under the WTO Agreement. However, such inconsistency could be removed upon examination of the US' undertakings: namely a Statement of Administrative Action (SAA) in which the US promised to follow the route set out by the WTO to settle trade conflicts and made a promise that consecutive US governments will honour this pledge.

To be continued: see Part II, Part III and Part IV.

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