And 12 Points go to ... Ukraine

Uncle Sam, under the authority of 
the USTR, wants you to behave...

Despite what the title might suggest, this post is not about the European's beloved festival of kitsch, where washed-up pop acts from the 90's and overzealous casting stars gather to celebrate some form of "Europan integration". This Kat's attention is not so much attracted by the soft diplomacy of yesterday's Eurovision Song Contest [although there is something intriguing about it] but rather by the harsh rhetorics of U.S. trade policy that we witnessed earlier this month.

We know that Uncle Sam doesn't get tired of flexing his muscles; and that he has a passion for lists, particularly for black ones. One of his favourite is the yearly Special 301 Report, where all IP rough states that deny "adequate and effective protection of intellectual property” or “fair and equitable market access for U.S. firms that rely on intellectual property" are pilloried. The Report distinguishes between bad states, which are placed on a "priority watch list", and evil states, which are classified as  "priority foreign countries" (PFC). In the post-TRIPS world, only three countries have experienced the honour of that status: China in 1996, Paraguay in 1998 and Ukraine from 2001 until 2005. The Ukraine has been spared for the past eight years (it has been on the watch list since then), but Uncle Sam's patience is wearing thin. In the 2013 Special 301 Report (see here), our eastern neighbours have once again been awarded with the highest distinction from Washington: a PFC classification.

According to this year's Report, the downgrading of Ukraine is the "cumulation of several years of growing concern over widespread IP theft, including the growing entrenchement of IPR infringement that is facilitated by government actors". The Report criticizes

(1) the unfair, nontransparent administration of the system governing collecting societies, which are responsible for collecting and distributing royalties to U.S. and other rights holders;
(2) the widespread and admitted use of pirated software by Ukrainian Government agencies;
(3) the persistent failure to implement an effective system to combat online piracy, including the lack of transparent and predictable provisions on intermediary liability and liability for third parties that facilitate piracy, limitations on such liability for Internet Service Providers (ISPs), and enforcement of takedown notices for infringing online content.

As a consequence of Ukraine's PFC designation, the U.S. Trade Representative has 30 days to initiate an investigation with respect to the contested acts, policies and practices (see 19 USC §2242). Possible remedies include the suspension of benefits of trade agreement concessions, the imposition of duties or other import restrictions and the suspension of the Generalized System of Preferences (GSP), which grants preferential treatment to developing countries (see 19 USC §2411).

The Special 301 Report is not just another example of the United States' devotion to rigorous IP protection, both at home and abroad. It raises a more fundamental question about the relationship between Section 301, which authorizes the U.S. Trade Representative to sanction other countries for an act, policy, or practice which either "violates, or is inconsistent with, the provisions of, or otherwise denies benefits to the United States under, any trade agreement", or, "is unjustifiable and burdens or restricts United States commerce" (see 19 USC §2411), and the autonomy of international trade law. Inspired by a recent post by Katfriend Sean Flynn, this Kat has been wondering whether such unilateralism is compatible with WTO law. According to Art. 23 of the Dispute Settlement Understanding, "Members seeking the redress of a violation of TRIPS obligations shall have recourse to, and abide by, the rules and procedures if that understanding. They shall not make a determination to the effect that a violation has occurred, except through recourse to WTO dispute settlement". Although [or perhaps precisely because, says Merpel] the complaints against Ukraine do not seem to be directly related to a violation of the TRIPS Agreement, but rather to a lack of TRIPS-plus protection, they leave a bitter aftertaste. Unilateral threats to suspend concessions or other obligations under GATT as a sanction for allegedly "inadequate and ineffective" IP protection disrupt the very stability and equilibrium which multilateral dispute resolution is meant to foster.

Whatever the merit and the outcome of the upcoming Section 301 investigation, our friends from across the pond have once again lived up to their reputation as IP colonialists. Ukraine is probably not the right candidate to step up against the world's largest economy and one of its major trading partners. But there are a few potential PFC candidates on the priority watch list that will be delighted to challenge the aggressive unilateralism in U.S. trade policy.