USTR Postpones Decision on India's IP Environment

  • photo courtesy of Chris Potter
    May 1, 2014

    Q1: What did the Special 301 Report detail on India?

    Yesterday, in its Special 301 Report, the Office of U.S. Trade Representative (USTR) kept India on the Priority Watch List (PWL). There was speculation that India may be downgraded to a Priority Foreign Country (PFC), a tag given to the worst offenders of intellectual property rights (IPR). However, USTR will conduct an out-of-cycle review (OCR) on India starting in the fall of 2014. OCRs provide USTR an “opportunity for sustained and effective engagement” with a trading partner to address and remedy IPR issues outside of the annual review.

    Q2: What is the outcome of an OCR?

    In 2013, USTR initiated an OCR on El Salvador, despite the country being unlisted on the Special 301 Report. USTR proceeded to engage in bilateral discussions with that nation, conducting training programs on IPR enforcement. Subsequently, no further action was taken against El Salvador, and the nation was not included in the 2014 report. In another example, an OCR was conducted on a listed nation—Italy in 2011—and USTR determined that Italy’s Internet piracy regulations were “insufficient.” On passing satisfactory legislation in December 2013, Italy was removed from the report in 2014.

    Q3: What IPR concerns took precedence in the months leading up to the report?

    Ahead of the report’s release, several U.S. industry groups criticized India over the invalidation of pharmaceutical patents and requested that India be classified a PFC. India, on the other hand, has asserted its compliance with the World Trade Organization’s (WTO) trade-related aspects of intellectual property rights (TRIPs) and stated that any unilateral action by the United States would warrant WTO consultations. See Table 1 and Table 2. Listed in Table 2 are recent notable cases that caused significant concern.

    Q4: What is the Special 301 Report, and how many times has India been on it in the past?

    The Special 301 Report is an annual review of IPR protection and enforcement of the United States’ trading partners, which is released around April 30. Countries can be designated under the Priority Foreign Country list, Priority Watch List (PWL), and Watch List (WL), with PFC nations exhibiting the most onerous IPR infringements.
    Since the inception of the report in 1989, several countries have been listed every year, including Chile, China, India, Indonesia, Thailand, and Turkey. However, India is the only country to have been listed under PWL or higher every year.

    Q5: What happens once a country is labeled a Priority Foreign Country?

    Once on the list, a nation is potentially subject to an investigation by USTR under Section 301 of the Trade Act of 1974. USTR initially seeks to negotiate a settlement with the foreign country.

    Following the successful conclusion of such an agreement, the country can be placed under Section 306 to monitor compliance with the agreed-upon measures and/or be lowered from a PFC to a PWL status. However, if U.S. concerns related to egregious IPR policies are not allayed, the U.S. government can take punitive action. Punitive actions include stripping the country of its Generalized System of Preferences (GSP) program benefits—preferential duty-free entry into the U.S. market from 129 designated countries—and/or having sanctions imposed. In addition to such action, the U.S. government has employed the use of the WTO dispute settlement mechanism on several occasions.

    Q6: What actions were taken against India in 1991?

    After India was first included in the PFC list in April 1991 due to inadequate copyright protection and compulsory licensing provisions, USTR initiated an investigation within 30 days. Following inconclusive consultations, the U.S. government suspended GSP benefits worth $60 million from India in April 1992, which was extended to $80 million two months later. India was moved to the PWL in 1994 after implementing a new copyright act, but the Special 301 Report maintained that India needed to enact more “modern patent legislation.” Consequently, the United States filed a trade dispute against India at the WTO on the alleged absence of patent protection on pharmaceutical products, which was resolved in April 1999.

    Q7: Which countries were listed as PFCs in the last decade and what happened?

    Ukraine was designated a PFC in both 2001 and 2013. No other country has been accorded this status since the start of the century.

    Following a nine-month-long investigation, USTR concluded in February 2014 that despite Ukraine’s egregious IPR policies, no action was suitable in light of the political situation there. Ukraine also made the PFC list in April 2001 due to “significant levels” of optical media piracy. The U.S. government then suspended Ukraine’s GSP benefits and imposed $75 million worth of sanctions on Ukrainian imports. Both times, the United States did not take recourse to action at the WTO.

    Similar to India’s case, upon passing legislation in 2005 that strengthened its licensing regime, sanctions on Ukraine were lifted. USTR employed the use of an OCR in early 2006, where Ukraine’s GSP benefits were reinstated and its status lowered from PFC to PWL.

    Richard Rossow is a senior fellow and
    Wadhwani Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Rasika Gynedi is a researcher with the CSIS Wadhwani Chair in U.S.-India Policy Studies.

    Critical Questions
     is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Richard M. Rossow