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01 May 2003

Text: U.S. Releases Special 301 Report on Intellectual Property

(Ukraine's IPR shortcomings could jeopardize WTO membership, says
USTR) (4590)

The annual U.S. review of global intellectual property rights (IPR)
protection has again cited Ukraine for its "persistent failure" to
protect "optical media" products such as CDs, DVDs, and CD-ROMs, the
Office of the U.S. Trade Representative (USTR) says.

The USTR review, known as the "Special 301" report on global
intellectual property protection, also indicated that Armenia, Greece,
New Zealand and Qatar had shown sufficient improvement over the past
year to qualify for removal from the "watch list" for IPR violations.

The annual Special 301 report, mandated by the U.S. Trade Act of 1988,
was released May 1.

The report cited 50 nations for IPR-related problems, but Ukraine was
the only one designated a "priority foreign country." USTR said
sanctions worth $75 million imposed on Ukraine in 2002 would remain in
place, and warned that the country's continued failure to protect
intellectual property rights could jeopardize its efforts to join the
World Trade Organization (WTO).

USTR placed 36 trading partners on the watch list for IPR violations:
Azerbaijan, Belarus, Bolivia, Canada, Chile, Colombia, Costa Rica,
Croatia, Dominican Republic, Ecuador, Egypt, Guatemala, Hungary,
Israel, Italy, Jamaica, Kazakhstan, Korea, Kuwait, Latvia, Lithuania,
Malaysia, Mexico, Pakistan, Peru, Romania, Saudi Arabia, Slovak
Republic, Tajikistan, Thailand, Turkey, Turkmenistan, Uruguay,
Uzbekistan, Venezuela, and Vietnam.

Another 11 trading partners, including the European Union (EU), were
placed on the priority watch list, which entails a greater level of
scrutiny. The 11 trading partners are Argentina, the Bahamas, Brazil,
EU, India, Indonesia, Lebanon, the Philippines, Poland, Russia, and
Taiwan.

New to the priority list in 2003 are the Bahamas and Poland. Six
countries -- Uruguay, Colombia, the Dominican Republic, Egypt, Hungary
and Israel -- were moved from the priority list to the watch list.

In addition, USTR reported that China and Paraguay are subject to
another part of the statute, Section 306 monitoring, because of
previous agreements reached with the United States to address specific
problems raised in earlier reports.

The report announces no new World Trade Organization (WTO) dispute
settlement proceedings on IPR issues, but says the United States will
consider "all options," including initiation of dispute settlement
consultations, with countries that do not appear to have implemented
their obligations under the WTO Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS Agreement).

USTR also said that implementation of the TRIPS has helped to improve
IPR protection worldwide. USTR cited Egypt's adoption of a
comprehensive intellectual property rights law, noted that Colombia
and Hungary are now protecting confidential medical test data, and
said that Israel and other countries are making necessary investments
in education, police, and judicial resources to improve IPR
enforcement.

"Open markets and rules that guarantee the protection of intellectual
property are critical to the continued health of the creative sectors
of our economy," USTR Robert Zoellick said in the executive summary to
the report.

"This report reflects the administration's continued commitment to
ensure effective intellectual property protection around the world.
While we are heartened that many countries now have the necessary
legislation in place that recognizes intellectual property rights, it
is important that these laws be enforced," Zoellick said.

The entire report and watch lists for 2003 are available on the USTR
web site at: http://www.ustr.gov/reports/2003/special301.htm

Following is the text of the USTR news release followed by the Special
301 report executive summary:

(begin news release)

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
Executive Office of the President
Washington, D.C.

May 01, 2003

"Special 301" Report Finds Some Progress on Intellectual Property
Protection, but Significant Improvements Needed
USTR Releases Annual Special 301 Report

WASHINGTON -- The Office of the U.S. Trade Representative today
released its "Special 301" annual report on the adequacy and
effectiveness of intellectual property protection around the globe.
The report found that lack of intellectual property protection
continues to be a global problem, and some governments need to take
stronger actions to combat commercial piracy and counterfeiting.

"Open markets and rules that guarantee the protection of intellectual
property are critical to the continued health of the creative sectors
of our economy," said U.S. Trade Representative Robert B. Zoellick.
"This report reflects the Administration's continued commitment to
ensure effective intellectual property protection around the world.
While we are heartened that many countries now have the necessary
legislation in place that recognizes intellectual property rights, it
is important that these laws be enforced."

The report noted that ongoing implementation of the WTO Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS) has
helped to improve intellectual property protection worldwide. For
example, Egypt passed a comprehensive intellectual property rights
(IPR) law which represents an improvement in all major facets of
Egypt's intellectual property regime. Colombia and Hungary are now
protecting confidential medical test data in line with their TRIPS
obligations. Many countries, such as Israel, are making the necessary
investments in education, police, and judicial resources to improve
enforcement, thereby protecting U.S. right holders in those countries.

However, ineffective enforcement of intellectual property rights,
commercial piracy and counterfeiting of consumer products continue to
be a global threat. Counterfeit products, from shampoo to auto brakes,
harm not only trademark owners, but can also cause serious health and
safety problems for consumers. Rampant piracy and lack of IPR
enforcement are problems in Russia, Taiwan, Poland, Brazil, and other
trading partners.

The Special 301 Report takes its name from section 301 of the Trade
Act of 1974, as amended. Attached is a summary of the report, which is
available at www.ustr.gov

Background:

Special 301 Report Summary
May 1, 2003

This year's "Special 301" report lists 50 countries or economies as
Priority Foreign Countries, Priority Watch List (PWL), Watch List
(WL), or Section 306.

Priority Foreign Countries are those pursuing the most onerous or
egregious policies that have the greatest adverse impact on U.S. right
holders or products, and are subject to accelerated investigations and
possible sanctions. Ukraine continues to be listed as a Priority
Foreign Country.

Countries or economies on the PWL do not provide an adequate level of
IPR protection or enforcement, or market access for persons relying on
intellectual property protection. This year's report lists eleven
trading partners on the PWL. Priority Watch List countries or
economies include Argentina, the Bahamas, Brazil, EU, India,
Indonesia, Lebanon, the Philippines, Poland, Russia, and Taiwan.

Thirty-six trading partners are placed on the WL, meriting bilateral
attention to address the underlying IPR problem. Watch List countries
or economies include Azerbaijan, Belarus, Bolivia, Canada, Chile,
Colombia, Costa Rica, Croatia, Dominican Republic, Ecuador, Egypt,
Guatemala, Hungary, Israel, Italy, Jamaica, Kazakhstan, Korea, Kuwait,
Latvia, Lithuania, Malaysia, Mexico, Pakistan, Peru, Romania, Saudi
Arabia, Slovak Republic, Tajikistan, Thailand, Turkey, Turkmenistan,
Uruguay, Uzbekistan, Venezuela, and Vietnam.

In addition to the forty-eight described above, China and Paraguay are
subject to another part of the statute, Section 306 monitoring,
because of previous agreements reached with the United States to
address specific problems raised in earlier reports.

The Special 301 report is available at www.ustr.gov.

(end news release)

(begin Special 301 executive summary)

May 1, 2003

2003 SPECIAL 301 REPORT
Executive Summary

United States Trade Representative Robert B. Zoellick today announced
the results of the 2003 "Special 301" annual review, which examined in
detail the adequacy and effectiveness of intellectual property
protection in approximately 74 countries.

USTR notes with disappointment Ukraine's persistent failure 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 worth of
sanctions imposed on Ukrainian products on January 23, 2002 will
remain in place. This continued failure to adequately protect
intellectual property rights could also jeopardize Ukraine's efforts
to join the World Trade Organization (WTO) and seriously undermine its
efforts to attract trade and investment. The U.S. Government continues
to remain actively engaged with Ukraine in encouraging the nation to
combat piracy and to enact the necessary intellectual property rights
legislation and regulations.

The Special 301 report addresses significant concerns with respect to
such trading partners as Brazil, The Bahamas, Mexico, India,
Indonesia, Korea, Lebanon, Taiwan, Poland, the Philippines, Russia,
the European Union (EU), and members of the Andean Community. In
addition, the report notes that the United States will consider all
options, including but not limited to initiation of dispute settlement
consultations with countries that do not appear to have implemented
fully their obligations under the WTO Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS Agreement).

In this year's review, USTR devotes special attention to the growing
issue of counterfeiting and piracy, with particular emphasis on the
ongoing campaign to reduce production of unauthorized copies of
"optical media" products such as CDs, VCDs, DVDs, and CD-ROMs.
Counterfeiting of trademarked goods is an increasing problem in many
countries, including China, Paraguay, Poland, the Philippines, Russia,
Vietnam, and Turkey. In addition, USTR continues to focus on other
critically important issues including internet piracy, proper
implementation of the TRIPS Agreement by developing country WTO
Members and full implementation of TRIPS standards by new WTO Members
at the time of their accession. USTR also continues to encourage
countries to ensure that government ministries use only authorized
software.

Over the past year, many developing countries and newly acceding WTO
Members made progress toward implementing TRIPS obligations.
Nevertheless, full implementation of TRIPS obligations has yet to be
achieved in certain countries, particularly with respect to the
Agreement's enforcement provisions. As a result, piracy and
counterfeiting of U.S. intellectual property remain unacceptably high
in these countries.

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.

We are pleased that the recently concluded free trade agreements
(FTAs) with Chile and Singapore will strengthen the protection of
intellectual property rights in those two countries.

Specifically, the intellectual property chapters of those two
agreements provide for higher levels of intellectual property
protection in a number of areas covered by the TRIPS Agreement. We are
also seeking higher levels of protection and enforcement in the FTAs
that are currently under negotiation with Central America, Morocco,
Australia, and the Southern Africa Customs Union, and in the ongoing
negotiation of a Free Trade Area of the Americas.

USTR will continue to use all statutory tools, as appropriate, to
improve intellectual property protection in such countries where it is
inadequate, such as Ukraine, Russia, Brazil, Peru, Ecuador, Bolivia,
Venezuela, the Dominican Republic, Pakistan, Thailand and Turkey
including through implementation of the Generalized System of
Preferences and other trade preference programs.

Global Scourge of Counterfeiting and Piracy

One area of particular concern in this year's report is counterfeiting
and digital piracy, which has increased dramatically in recent years.
Unfortunately, in the area of counterfeiting what was once a localized
industry concentrated on the copying of high-end designer goods has
now become a massive, sophisticated global business involving the
manufacturing and sale of counterfeit versions of everything from
soaps, shampoos, razors and batteries to cigarettes, alcoholic
beverages and automobile parts, as well as medicines and health care
products.

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 pay no taxes or
duties and do not comply with basic manufacturing standards for the
health and safety of workers or product quality and performance.

Piracy and counterfeiting of copyrighted products in digital format,
as well as counterfeiting of all types of trademarked products, has
grown to such a scale because it offers enormous profits and little
risk for the criminal element of society. Criminals can get into the
counterfeiting business with little capital investment, and even if
caught and charged with a crime, the penalties in many countries are
so low that they offer no deterrent. This is why USTR seeks through
our FTAs, and through our bilateral consultations to ensure that
criminal penalties are high enough to have a deterrent effect, as well
as to ensure that pirated and counterfeit products, and the equipment
used to make them, are seized and destroyed. These products can be
produced and sold at prices much lower than legitimate products, but
still deliver attractive profit margins for the infringer because the
counterfeit and pirated products are usually made with substandard
materials, and undergo little or no quality control or even basic
health and safety testing. 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 to $250 billion per year.

Controlling Optical Media Production

To address existing and prevent future piratical activity, over the
past year some of our trading partners, such as Malaysia and Taiwan,
have taken important steps toward implementing, or have committed to
adopt, much needed controls on optical media production. We await news
of aggressive enforcement of these laws. However, others that are in
urgent need of such controls, including Ukraine, Thailand, Indonesia,
Pakistan, the Philippines, and Russia, have not made sufficient
progress in this regard.

Governments such as those of China, Hong Kong, and Macau that
implemented optical media controls in previous years have clearly
demonstrated their commitment to continue to enforce these measures.
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. USTR is concerned, moreover, about
recent reports of increased piracy and counterfeiting in Bulgaria,
which had been a model in its region for taking the necessary steps to
tackle optical media piracy by, for example, enacting optical media
controls. Particularly troubling are reports that the CD plant
licensing laws may be revised in a manner that would undermine, not
improve, their effectiveness. We will be closely monitoring the
situation and look to the Government of Bulgaria to maintain strong
optical disk regulations.

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 enforcement of these rights. The TRIPS
Agreement is the first broadly-subscribed multilateral intellectual
property agreement that is enforceable between governments, allowing
them to resolve disputes through the WTO's dispute settlement
mechanism.

Developed countries were required to fully implement TRIPS as of
January 1, 1996, while developing countries were given a transition
period - until January 1, 2000. Ensuring that developing countries are
in full compliance with the Agreement now that this transition period
has come to an end is one of this Administration's highest priorities
with respect to intellectual property rights. With respect to least
developed countries, and with respect to the protection of
pharmaceuticals and agriculture chemicals in certain developing
countries, even longer transitions are provided.

Progress continues to be made by developing countries toward full
implementation of their TRIPS obligations. Nevertheless, certain
countries are still in the process of finalizing implementing
legislation and establishing adequate enforcement mechanisms. Every
year the U.S. Government provides extensive technical assistance and
training on the implementation of the TRIPS Agreement, as well as
other international intellectual property agreements, 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 State Department, the
U.S. Customs Service, and the Justice Department, on a
country-by-country basis, as well as in group seminars, including
those co-sponsored with WIPO and the WTO.

Technical assistance involves review of, and drafting assistance on,
laws concerning intellectual property and enforcement. Training
programs usually cover the substantive provisions of the TRIPS
Agreement, as well as 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
where additional progress is not achieved in the near term, the United
States will pursue our rights through WTO dispute settlement
proceedings.

One the key implementation priority that we have focused on in this
review is the implementation of Article 39.3, which requires WTO
Members to protect test data submitted by drug companies to health
authorities against disclosure of that data and against "unfair
commercial use" of that data. [Note: Such data is typically required
by authorities in order to establish the safety and efficacy of a
drug, and obtain government approval to market the drug.]

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
second-comers seeking to market an identical product to one that has
already been approved. Generally, these second applicants may be
required to demonstrate only the bioequivalence of their products with
the product of the first company, and will not be required to 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 expense involved in producing the safety and
efficacy data needed to obtain marketing approval, the TRIPS Agreement
recognizes that the original applicant should be entitled to a period
of exclusivity during which second-comers may not rely on the data
that the innovative company has created to obtain approval for their
copies of the product. During this period of exclusive use, the data
cannot be relied upon by regulatory officials to approve similar
products. This period of exclusivity is generally five years in the
United States and six to ten years in the EC member States. Other
countries that provide a period of exclusivity against reliance on
data include Australia, Canada, China, Czech Republic, Estonia, Japan,
Jordan, Korea, Mexico, New Zealand, Slovenia, and Switzerland. We
commend Hungary and Colombia on their recently implemented decrees
that provide data protection. We urge all WTO members to swiftly
complete their implementation of Article 39.3 including the rest of
the countries in the Andean Community, as well as Israel.

Internet Piracy and the WIPO Copyright Treaties

Throughout the world, countries have begun to recognize the importance
of the Internet as a vehicle for economic expansion. However, despite
the promise that the Internet holds for innovative and creative
industries, it also creates significant challenges, as it serves as an
extremely efficient global distribution network for pirate products.
We are currently working with other governments, and consulting 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 the World Intellectual Property Organization (WIPO) when
it concluded two copyright treaties in 1996: the WIPO Copyright Treaty
(WCT) and the WIPO Performances and Phonograms Treaty (WPPT), referred
to as the WIPO Internet Treaties. These treaties help 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.

These treaties 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 incorporate the highest standards of protection for
intellectual property into appropriate bilateral and regional trade
agreements that we negotiate. We had our first success in this effort
by incorporating the standards of the WIPO Internet Treaties as
substantive obligations in our FTA with Jordan. The Jordan FTA laid
the foundation for pursuing this goal in the free trade agreements we
negotiated with Chile and Singapore as well as in the Free Trade Area
of the Americas (FTAA) and other FTAs currently under negotiation and
yet to be launched. Moreover, our proposals in these negotiations will
further update 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 a new 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 inappropriate government use of illegal software.

The United States has achieved considerable progress under this
initiative. Countries that have issued decrees mandating the use of
only authorized software by government ministries include Bolivia,
China, Chile, Colombia, Costa Rica, the Czech Republic, France,
Ireland, Israel, Jordan, Paraguay, Thailand, the U.K., Spain, Peru,
Greece, Turkey, Hungary, Korea, Hong Kong, Macau, Lebanon, Taiwan and
the Philippines. Ambassador Zoellick was 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

In announcing the results of the 2003 Special 301 review, Ambassador
Zoellick reiterated that USTR would not change the present approach to
health-related intellectual property issues. That is to say,
consistent with the United States' protection of intellectual
property, we remain committed to working with countries to develop
workable programs to prevent and treat HIV/AIDS, malaria, tuberculosis
and other epidemics.

We have informed countries that, as they take steps to address a major
health crisis like the HIV/AIDS crisis in sub-Saharan Africa, they
should be able to avail themselves of the flexibilities afforded by
the TRIPS Agreement, provided that any steps they take comply with the
provisions of the Agreement. The Declaration on the TRIPS Agreement
and Public Health agreed upon at the WTO Doha Ministerial in November
2001 is a reflection of this commitment.

The U. S. Government also remains committed to a policy of promoting
intellectual property protection, including for pharmaceutical
patents, because of intellectual property rights' critical role in the
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.

WTO Dispute Settlement

The focus this year is on resolving the WTO disputes that were
announced through previous Special 301 determinations, either through
informal consultations and settlement, which can be more efficient and
are therefore the preferred manner of resolving disputes, or where
those are unsuccessful, through full utilization of the dispute
settlement process. The following section provides updates of
previously announced WTO cases, highlighting the progress made in the
past year.

ARGENTINA

On May 6, 1999, the United States filed a WTO dispute settlement case
challenging aspects of Argentina's system of patent protection and
protection for confidential test data. In late April 2002, the United
States and Argentina agreed to harvest progress made during
consultations and partially settle this dispute.

On the two outstanding issues that remain, that of data protection and
the ability of patentees to amend pending applications to claim
certain enhanced protection provided by the TRIPS Agreement, the
United States retained its right to seek resolution under the WTO
dispute settlement mechanism and is currently working with Argentina
to resolve these issues.

EUROPEAN UNION

At the conclusion of the 1999 Special 301 review, the United States
initiated a WTO dispute settlement case against the EU, based on the
apparent TRIPS deficiencies in EU Regulation 2081/92, which governs
the protection of geographical indications (GIs) for agricultural
products and foodstuffs in the EU. The regulation appears to deny
national treatment to foreign GIs.

According to the plain language of the regulation, only EU GIs may be
registered. With respect to trademarks, the regulation permits
dilution and even cancellation of trademarks when a GI is created
later in time. Our initial WTO consultation request alleged that this
regulation denies national treatment to foreign geographical
indications, and does not provide sufficient protection to trademarks
that are similar or identical to a GI and appears, therefore, in
violation of the Agreement on Trade-Related Aspects of Intellectual
Property (TRIPS). The United States requested consultations regarding
this matter on June 1, 1999, and numerous consultations have been held
since then. The United States appreciates that the EU has recently
issued some amendments to its regulation. However, these amendments do
not address our principal concerns with respect to full national
treatment and appropriate protection for trademarks.

On April 4, 2003, the United States submitted an additional request
for consultations on EU Regulation 2081/92 to the EU. This additional
request alleges that the EU Regulation is not consistent with the
national treatment obligations and the most-favored-nation obligations
of Articles I and III of the General Agreement on Tariffs and Trade
1994. In this request, we have also reiterated the concerns raised in
our original consultation request. Under WTO rules, other Members may
request to join consultations if they share our concerns and have a
substantial trade interest. In addition, Australia has requested
separate consultations with the EU regarding Regulation 2081/92.

The United States will continue to seek a solution with the EU while
remaining prepared to take any appropriate action to pursue its rights
in this matter.

Potential Dispute Settlement Cases

No new dispute settlement proceedings are being announced at this
time. However, the United States will continue to monitor WTO Members'
compliance with the TRIPS Agreement and remains prepared to take
appropriate action when necessary.

Several countries do not appear to meet their TRIPS obligations. The
United States will consider all options, including but not limited to
possible initiation of new WTO dispute settlement cases, in working
with these countries toward full TRIPS implementation. The United
States will continue to consult in the coming months with all of these
countries in an effort to encourage them to resolve outstanding TRIPS
compliance concerns as soon as possible.

(end Special 301 executive summary)

(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)