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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 Ukraine 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 Ukraine 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withdrawn, in whole or in part, if requisite improvements are not made by
Ukraine to remedy the deficiencies (outlined below) which adversely affect
U.S. copyright owners. In 1998, Ukraine exported goods valued at $16.78
million to the U.S. which received preferential duty-free treatment under
the GSP Program. This represents approximately 6.37% of 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,
Ukraine. 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
Ukraine as a GSP beneficiary developing country, and if requisite
improvements are not made by Ukraine, then IIPA requests the President to
suspend or withdraw GSP benefits of Ukraine, 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, 98th
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, 98th 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 Ukraine 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.
Ukraine 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 Ukraine 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 full description of the deficiencies in Ukraine’s copyright legal and
enforcement regime appears in Appendix 1, which is the IIPA Special
301 report on Ukraine filed with USTR in February 1999.
In sum, the U.S. should suspend Ukraine’s GSP eligibility or
withdraw GSP benefits (in whole or part) because Ukraine 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. Ukraine has established
itself as a "safe haven" 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, Eastern and
Western Europe, as well as 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 Ukraine is causing harm to
the copyright industries.
On May 6, 1992 Ukraine signed a bilateral trade agreement with the
United States. This agreement entered into force on June 23, 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, Ukraine 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.-Ukraine 1992 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 Ukraine, 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 Ukraine 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.
Ukraine is a member of the Berne Convention. However, Ukraine is
not providing any of the required protection and rights to U.S. or any
other sound recordings, nor is Ukraine a member of the Geneva Phonograms
Convention — two obligations of the trade agreement. So, U.S. sound
recordings are completely unprotected, more than five years after the
bilateral trade agreement required such protection.
Ukraine specifically does not provide retroactive protection
for works or sound recordings in breach of the clear obligation in its
bilateral trade agreement, as well as in violation of Berne (Article 18),
national treatment obligations, and the TRIPS Agreement (Article 14.6 for
sound recordings and Article 9 for works). Ukraine must provide
retroactive protection for works and sound recordings to meet its
obligations.
Ukraine is providing legal protection in the statute, though no
actual on-the-ground enforcement, for computer programs and databases as
required under the bilateral trade agreement.
Although Ukraine did amend its Criminal Code, following passage of
its new copyright law, to adopt criminal provisions for IPR violations,
the penalties are very low and need further revision to be considered
adequate and effective. In addition, Ukraine 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) criminal, civil and administrative provisions
do exist. In addition, border enforcement is very weak in Ukraine,
allowing illegal copies that are produced in any country in the region
(like Ukraine) to freely cross borders for sale in others.
Last, a dangerous development in breach of bilateral trade
agreement obligation, which is not unique to Ukraine but is unfolding in
several C.I.S. countries, is the comprehensive reform of the civil code.
The efforts to revise the civil code will result in the addition of new
copyright provisions inconsistent with Berne, TRIPS and the bilateral
trade agreement. These efforts to revise the civil code in Ukraine should
be opposed. In 1996 a so-called Model Civil Code for the countries of the
C.I.S. was reportedly adopted by the C.I.S. Inter-parliamentary Assembly
in St. Petersburg. Detailed provisions on copyright and neighboring rights
were included that were contradictory to existing international standards
of protection for copyrights. The new civil code provisions on copyright
should not be adopted.
The failure to provide an adequate legal and enforcement regime in
Ukraine is causing significant harm to the copyright industries. The
recording industry (IFPI/RIAA) reports that Ukraine is now the second
largest music market (after Russia) in the C.I.S.; and it is the second
largest pirate music center. The recording industry reports that trade
losses due to piracy are over $120 million in 1998; the piracy level is
estimated at 95%. 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 the level of piracy was 93%. Motion Picture
Association (MPA) estimates that trade losses in 1998 due to audiovisual
piracy in Ukraine was $40 million. The book industry continues to
experience piracy as well, with most of the books illegally printed in the
Ukraine for sale in Russia. 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 Ukraine for its failure to provide adequate and effective
copyright protection and enforcement for U.S. copyright owners. If
requisite improvements are not made in Ukraine to remedy these
deficiencies, then IIPA requests that the U.S. suspend its eligibility or
withdraw GSP benefits of Ukraine, in whole or in part.
Respectfully submitted,
Eric H. Smith
President
International Intellectual Property Alliance