June 16, 1999

GSP Subcommittee

Office of the U.S. Trade Representative

600 17th Street NW, Room 518

Washington, DC 20508

Re: Request for Review of the Intellectual Property Rights Practices of Armenia in the 1999 Annual GSP Country Eligibility Practices Review, 64 Fed. Reg. 20046 (April 23, 1999)

To the Subcommittee:

            On April 23, 1999, the Trade Policy Staff Committee (TPSC) of the Office of the United States Trade Representative (USTR) published in the Federal Register a notice announcing the 1999 Annual Generalized System of Preferences (GSP) Product and Country Eligibility Practices Review. USTR indicated that interested parties "may submit petitions to have the GSP status of any eligible beneficiary developing country reviewed with respect to any of the designation criteria listed in subsections 502(b) or 502(c) of the 1974 Act (19 U.S.C. 2462(b) and (c))." See 64 Fed. Reg. 20047.

            The International Intellectual Property Alliance (IIPA) hereby submits its request that the eligibility of Armenia as a GSP beneficiary developing country be reviewed, and that its GSP benefits be suspended or withdrawn, in whole or in part, if requisite improvements are not made by Armenia to remedy the deficiencies (outlined below) which adversely affect U.S. copyright owners. In 1998, Armenia exported goods valued at $510,00 to the U.S. which received preferential duty-free treatment under the GSP Program. This represents approximately 50.4% of its total imports to the U.S., according to U.S. government statistics. Last year, Congress reauthorized the GSP program through June 30, 1999. Currently there are several bills pending before Congress which would extend the GSP program.

Petitioner and its Interest: The International Intellectual Property Alliance

            IIPA is a coalition of seven trade associations that collectively represent the U.S. copyright-based industries -- the motion picture, music and recording, business and entertainment software, and book publishing industries. IIPA’s member associations are the Association of American Publishers (AAP), AFMA (formerly the American Film Marketing Association), the Business Software Alliance (BSA), the Interactive Digital Software Association (IDSA), the Motion Picture Association of America (MPAA), the National Music Publishers’ Association (NMPA) and the Recording Industry Association of America (RIAA).

            These member associations represent over 1,350 U.S. companies producing and distributing works protected by copyright laws throughout the world -- all types of computer software including business software and entertainment software (such as videogame CDs and cartridges, personal computer CDs and multimedia products); motion pictures, television programs, home videocassettes and DVDs; music, records, CDs and audiocassettes; and textbooks, tradebooks, reference and professional publications and journals (in both electronic and print media).

           

These U.S. copyright-based industries represent the leading edge of the world's high technology, entertainment and publishing industries. According to the most recent edition of the report, Copyright Industries in the U.S. Economy: The 1998 Report, prepared for IIPA by Economists, Inc., these core copyright industries accounted for $278.4 billion in value added to the U.S. economy, or approximately 3.65% of the Gross Domestic Product (GDP) in 1996 (the last year for which complete data is available). The total copyright industries accounted in 1996 for $433.9 billion in value added, or approximately 5.68% of GDP. The core copyright industries’ share of the GDP grew more than twice as fast as the remainder of the U.S. economy between 1977 and 1996 (5.5% vs. 2.6%). Employment in the core copyright industries grew at close to three times the employment growth in the economy as a whole between 1977 and 1996 (4.0% vs. 1.6%). More than 6.5 million workers were employed by the total copyright industries, about 5.15% of the total U.S. work force, in 1996. The core copyright industries accounted for an estimated $60.15 billion in foreign sales and exports in 1996, a 13% gain over the $53.25 billion generated in 1995. This report has been made widely available to officials working on country and IPR issues at USTR, and throughout other agencies, including the State Department, the Commerce Department, the U.S. Patent and Trademark Office, and the U.S. Copyright Office. A summary of this report is available on IIPA’s website, at http://www.iipa.com/html/pr_05071998.html.

            The U.S. creative industries represent one of the few sectors of the U.S. economy that regularly contributes to a positive balance of trade. It is essential to the continued growth and future competitiveness of these industries that our trading partners provide free and open markets and high levels of protection to the copyrights on which this trade depends. Inexpensive and accessible reproduction technologies make it possible for U.S. copyrighted works to be pirated -- stolen -- in other countries, and including specifically for the purposes of this petition, Armenia. However, the copyright industries represented in IIPA lose an estimated $20-22 billion annually due to piracy outside the United States. These staggering losses, if not halted, could reverse this path of growth in these sectors, threaten the high wage employment that these industries bring to the U.S. economy, and damage U.S. competitiveness. In addition to the worldwide problem of piracy, several foreign countries have erected market access barriers to U.S. copyright products. To combat these dual problems in developing countries, the U.S. copyright-based industries joined with the Administration and Congress to fashion new legislation and negotiating tools. IIPA and its members have supported various trade tools with IPR provisions over the years, including the GSP Program, Special 301, Section 301, the Caribbean Basin Economic Recovery Act, and the Andean Trade Preferences Act.

 

Action Requested by Petitioner

            Pursuant to Section 501 et seq. of the Trade Act of 1974, as amended, 19 U.S.C. 2461 et seq., and 15 C.F.R. Part 2007, and pursuant specifically to Section 502(c)(5) of the Trade Act (19 U.S.C. 2462(c)(5)), and 15 C.F.R. 2007.0(b), IIPA, on behalf of its seven trade association members, hereby petitions the President to review the eligibility of Armenia as a GSP beneficiary developing country, and if requisite improvements are not made by Armenia, then IIPA requests the President to suspend or withdraw GSP benefits of Armenia, in whole or in part, for its failure to provide adequate and effective copyright protection for U.S. copyright owners.

Legal Authority for this Petition and Discussion of the IPR Criteria in the GSP Statute

            Provisions tying intellectual property protection to trade benefits were first added to the Trade and Tariff Act of 1984 [hereinafter "TTA 1984"]. Title V of the TTA 1984, known as the GSP Renewal Act of 1984, renewed the GSP Program which had been introduced in the Trade Act of 1974 [hereinafter "TA 1974"], and specifically required the President to consider intellectual property protection in determining whether to designate a developing country as eligible for GSP benefits. The GSP Program provides unilateral, non-reciprocal duty-free tariff treatment to over 4,400 articles imported from more than 140 countries and territories designated beneficiary countries and territories (these are less developing countries) to aid their economic development through preferential market access. An additional 1,700 articles are eligible for GSP treatment for specified least developing countries. While there has been a minor change in the statutory language between the GSP Renewal Act of 1984 and the GSP Renewal Act of 1996, the Act remains essentially the same as in 1984. The legislative history of the 1984 Renewal Act is particularly instructive on the important link between GSP benefits and strong IPR protection.

            The GSP Renewal Act of 1984

            In the GSP Renewal Act of 1984, Congress specified conditions that GSP beneficiary countries must meet in order to gain and maintain their preferential trading status. In particular, one of these express conditions (which Congress also delineated as one "purpose" of the GSP Program) was to encourage developing countries "to provide effective means under which foreign nationals may secure, exercise, and enforce exclusive intellectual property rights."

            The legislation required the President to apply mandatory and discretionary criteria with respect to IPR protection as a condition to a country achieving "beneficiary" status under the GSP Program. The mandatory criterion prohibited the designation of a country from becoming a "beneficiary developing country" if, for example, "such country has nationalized, expropriated, or otherwise seized ownership or control of property, including patents, trademarks, or copyrights, owned by a United States citizen or by a corporation, partnership, or association which is 50 percent or more beneficially owned by United States citizens." See Section 503(b)(4) of the GSP Renewal Act of 1984, now codified at 19 U.S.C. 2462(b)(2)(D).

            The GSP Renewal Act of 1984 added as a discretionary criterion, in determining whether to designate a developing country as eligible to receive GSP duty-free trade treatment, that

            the President shall take into account ... the extent to which [each] country is providing adequate and effective means under its laws for foreign nations to secure, to exercise, and to enforce exclusive rights in intellectual property, including patents, trademarks, and copyrights.

Section 503(c)(5) of the GSP Renewal Act of 1984, codified at 19 U.S.C. 2462(c)(5). The Senate Finance Committee Report explained that:

            To determine whether a country provides "adequate and effective means," the President should consider the extent of statutory protection for intellectual property (including the scope and duration of such protection), the remedies available to aggrieved parties, the willingness and ability of the government to enforce intellectual property rights on behalf of foreign nationals, the ability of foreign nationals effectively to enforce their intellectual property rights on their own behalf and whether the country’s system of law imposes formalities or similar requirements that, in practice, are an obstacle to meaningful protection.

S. Rep. No.98-485, 98^th Cong., 2d Sess. At 11 (1984). The Senate Report also noted:

            In delegating this discretionary authority to the President, it is the intent of the Committee that the President will vigorously exercise the authority to withdraw, to suspend or to limit GSP eligibility for non-complying countries ....

            Where valid and reasonable complaints are raised by U.S. firms concerning a beneficiary country’s market access policy or protection of intellectual property rights, for example, it is expected that such interests will be given prominent attention by the President in deciding whether to modify duty-free treatment for that country.

Id. at 12-13 (emphasis added). The House Ways and Means Committee stated that "countries wishing to reap the benefits of preferential duty-free access to the U.S. market must fulfill international responsibilities" in the intellectual property area. House Rep. No. 98-1090, 98^th Cong., 2d Sess. at 12 (1984).

            The IPR criteria are a condition, not only for obtaining GSP benefits in the first place, but also for retaining them. The 1984 Act authorized the President to "withdraw, suspend, or limit the application of the duty-free treatment accorded under Section 501 of this title with respect to any article or any country" and requires the President, when taking any such action, to "consider the factors set forth in Sections 501 and 502(c)." TTA 1984 Section 505(a)(1); TA 1974 Section 504(a)(1), as amended; 19 U.S.C. 2464(a)(1) (emphasis added). The Act also created a system of "general reviews" to ensure that these statutory criteria are met. TTA 1984 Section 505(b); TA 1974 Section 504(c)(2)(A), as amended; 19 U.S.C. 2464(c)(2)(A); see also 15 C.F.R. 2007.3.

            This GSP Subcommittee is asked to follow the explicit intent of Congress, and advise the President to "vigorously exercise" his authority to withdraw, suspend or limit GSP eligibility of Armenia for its non-compliance with the statutory criterion on IPR in the GSP Program.

            Over the years, retaining GSP benefits has figured prominently in the decisions of a number of countries to improve their IPR protection. In the 1980s, such leverage was used to encourage Singapore, Indonesia and Malaysia to adopt new copyright legislation. IIPA has filed petitions against several countries for their failure to provide adequate and effective copyright protection. IIPA petitions which have been accepted by USTR over the past ten years (1989-1998) include: Indonesia, Thailand, Cyprus, Egypt, El Salvador, Turkey and Poland. IIPA has participated in GSP IPR reviews involving Malta, Guatemala, the Dominican Republic, Honduras, Panama, and Paraguay (all of which were initiated by other petitioners or by USTR). IIPA also filed petitions in 1995 against the Russian Federation, the Philippines, Bolivia and Peru which, we learned in October 1996, were not accepted by USTR for the 1995 GSP Annual Review. A GSP petition which IIPA filed against Turkey in June 1993 remains under investigation.

            The GSP Renewal Act of 1996

            When the GSP Program was reauthorized in August 1996, the language of the IPR discretionary criterion for GSP eligibility in Section 502(c)(5) was simplified slightly and now requires the President to "take into account the extent to which such country is providing adequate and effective protection of intellectual property rights." The expired law specified (as discussed above) that each beneficiary country provide "adequate and effective means under its laws for foreign nationals to secure, to exercise and to enforce exclusive rights in intellectual property, including patents, trademarks, and copyrights." Otherwise, the GSP Renewal Act contains identical IPR provisions, including "mandatory" criteria denying GSP status to countries that directly or indirectly expropriate U.S. property (including intellectual property), and authorizing the President to withdraw, suspend or limit GSP privileges based on failure to meet the IPR criteria.

Armenia fails to provide "adequate and effective protection" of United States copyrights. It also is in violation of its bilateral treaty obligations with the United States to provide adequate and effective protection and enforcement.

            This information on Armenia has been previously presented to members of various U.S. government interagency groups, including the Special 301 interagency group, several members of the GSP Subcommittee, as well as the Trade Policy Staff Committee, in the context of USTR’s Annual Special 301 review. On February 16, 1999, IIPA filed its annual Special 301 submission to Assistant USTR for Services, Investment and Intellectual Property Joseph Papovich; this submission was widely distributed among the interagency for its internal consideration in the 1999 Special 301 Annual Review. IIPA’s entire report is available on our website, http://www.iipa.com. A description of the deficiencies in Armenia’ copyright legal and enforcement regime appears in Appendix 1, which outlines the practices violating agreements between the United States and the countries of the Confederation of Independent States (C.I.S.).

            In sum, the U.S. should suspend Armenia’s GSP eligibility or withdraw GSP benefits (in whole or part) because Armenia fails to provide adequate and effective copyright protection and is in violation of its bilateral treaty obligations with the United States. It has not provided the legal framework it obligated itself to provide in 1992, nor has it established an effective enforcement regime. The C.I.S. is becoming a hub for an increasing number of pirate producers of CD (and CD-ROM) musical recordings, as well as business and entertainment software; production of musical cassettes is also a major problem. These illegal manufacturers are swamping the entire region with illegal product, completely disrupting markets in Central and Eastern Europe, and elsewhere in the Confederation of Independent States (C.I.S.). Since pirates move across borders into environments with the least adequate legal and enforcement regimes, this absence of "adequate and effective protection and enforcement" (as required under Article VIII of bilateral agreement) in Armenia is causing harm to the copyright industries.

            In April 1992, Armenia and the United States signed a bilateral trade agreement. This agreement entered into force on April 7, 1992 (see Article VIII of the bilateral agreement for the IPR obligations, as well as the separate IPR Side Letter). The failure to comply with the obligations of the bilateral trade agreement has become of increasing concern to the copyright industries as they consider investments and distribution of copyrighted products in the C.I.S. (all of the former republics of the Soviet Union). All twelve of these countries entered into bilateral trade agreements with the U.S. in exchange for receiving MFN (now known as Normal Trade Relations or "NTR") treatment. These identical agreements contain provisions obligating each country to meet certain IPR obligations as a quid pro quo for MFN (NTR) treatment. Many years after the treaty went into force, Armenia has not enacted adequate copyright laws, nor met its enforcement obligations thus failing to meet its obligations in the copyright (and other IP) areas as required by the bilateral agreement. These failures are long past the deadlines set in the agreement to take such action.

The background of the U.S.-Armenian 1993 agreement is as follows: in 1990, the U.S. and the Soviet Union signed a far reaching bilateral trade agreement including extensive intellectual property rights obligations. These obligations included the enactment and enforcement of a modern copyright regime, as measured by the standards pertaining prior to the TRIPS Agreement. As a result of the tumultuous events of August 1991, the 1990 U.S.-U.S.S.R. Trade Agreement, which required the U.S.S.R. to adopt a Berne-compatible copyright law by December 31, 1992, never entered into force because the USSR did not implement it before it dissolved. The U.S. government determined that each country of the C.I.S. could re-sign the 1990 U.S.-U.S.S.R. Trade Agreement with only minor technical amendments, including new deadlines to meet the Agreement’s obligations, and a statement from each country of the C.I.S. acknowledging its succession to the Soviet Union’s Universal Copyright Convention obligation, dating from May 27, 1973.

            All twelve of the former republics of the Soviet Union did sign these agreements. Once each agreement was signed, it was agreed it would enter into force upon an exchange of diplomatic notes between the U.S. and each new country. All twelve countries, including Armenia, have now put the agreements into force. At such time each country would be eligible for "most favored nation" (now "Normal Trade Relations") status. Once in force, each country (other than the Russian Federation), agreed to make its "best efforts" to enact all of the IPR components of the Trade Agreement by December 31, 1993. (The Russian Federation agreed to complete its obligations by December 31, 1992.)

            The obligations of the Armenian bilateral trade agreement (Article VIII of the Agreement and in the accompanying Side Letter on IPR) include:

            (1) joining the Berne Convention (Paris Act); (2) providing protection for sound recordings, including a right of reproduction, distribution (and importation), and a commercial rental right; (3) providing a point of attachment for foreign (U.S.) sound recordings and making best efforts to join the Geneva Phonograms Convention; (4) providing full retroactivity (per Article 18 of Berne); (5) protecting computer programs and databases (as "literary works" consistent with Berne, and now TRIPS); (6) providing adequate and effective protection and enforcement (which is understood to include deterrent civil and criminal penalties, as well as border measures); and, (7) establishing a working group with each country to monitor the continuing progress of copyright and other IP protection and enforcement.

            Armenia is not a member of the Berne Convention. In addition, Armenia is not providing any of the required protection and rights to U.S. or any other sound recordings, nor is Armenia a member of the Geneva Phonograms Convention — two obligations of the trade agreement. So, U.S. sound recordings are completely unprotected, more than six years after the bilateral trade agreement required such protection.

            Armenia does not clearly provide retroactive protection for works or sound recordings as required by the clear obligation in its bilateral trade agreement, as well as by Berne (Article 18), national treatment obligations, and the TRIPS Agreement (Article 14.6 for sound recordings and Article 9 for works). Armenia must clearly provide retroactive protection for works and sound recordings to meet these obligations.

           

            Armenia is providing legal protection in the statute, though no actual enforcement, for computer programs and databases as required under the bilateral trade agreement.

            Armenia has not amended its Criminal Code, following passage of its new copyright law, to adopt criminal provisions for IPR violations, in breach of the bilateral agreement. In addition, Armenia is not providing "adequate and effective" enforcement with any meaningful police or prosecutorial activity, as required by the bilateral trade agreement, even if some (albeit weak) civil and administrative provisions do exist. Also, border enforcement is very weak in Armenia, allowing illegal copies that are produced in any country in the region (like Ukraine and Belarus) to freely cross borders for sale in others.

            The failure to provide an adequate legal and enforcement regime in Armenia is causing significant harm to the copyright industries. The environment is ripe for illegal optical media production facilities as well as other organized criminal production facilities. The Business Software Alliance (BSA) estimates that trade losses due to software piracy in all of the C.I.S. other than Russia was $34.1 million in 1998, and that the level of piracy is 93%. Attached as Appendix 2 is the methodology used by IIPA members to calculate losses due to piracy. This methodology was also submitted to the USTR in IIPA’s 1999 Special 301 submission.

           

CONCLUSION

            For the reasons stated in this submission (including the Appendices), IIPA requests that the TPSC initiate a review the country eligibility of Armenia for its failure to provide adequate and effective copyright protection and enforcement for U.S. copyright owners. If requisite improvements are not made in Armenia to remedy these deficiencies, then IIPA requests that the U.S. suspend its eligibility or withdraw GSP benefits of Armenia, in whole or in part.

           

                                                                        Respectfully submitted,

 

 

                                                                        Eric H. Smith

                                                                        President

                                                                        International Intellectual Property Alliance