Trading charges

India should be concerned about the pressure that is bound to follow with the passage of the Trade Facilitation and Trade Enforcement Act of 2015

Updated - December 04, 2021 11:35 pm IST

Published - April 20, 2016 12:35 am IST

The U.S. already scrutinises developments of IP law in its trading partners; Trade Facilitation Act will only heighten it.

The U.S. already scrutinises developments of IP law in its trading partners; Trade Facilitation Act will only heighten it.

On February 24, 2016, U.S. President Barack Obama signed the Trade Facilitation and Trade Enforcement Act of 2015, which introduces important measures relating to intellectual property rights (IPR) issues. The focus of the law is to enhance enforcement of IPR over the U.S.’s trading partners. The U.S. already scrutinises developments of IP law in its trading partners; this Act will only heighten it. Consequently, the Trade Facilitation Act is bound to impact India’s ability to develop an IP policy suited to its own developmental needs.

Traditionally, the United States Trade Representative (USTR), which is an agency that is part of the executive office of the President, has the twin task of negotiating trade agreements and overseeing enforcement of U.S. trade policy, including IP policy. As part of its duties, the USTR creates an annual list of countries, known as the Special 301 list. Countries featured on this list are those that the USTR believes have either national laws or regulations that detrimentally affect U.S. trade or the rights of IP holders. Essentially, if a trading partner is on this list, the USTR report indicates to it that the U.S. believes that the country is providing inadequate “IPR protection, enforcement, or market access for persons relying on intellectual property.”

The USTR also groups these countries in three categories. The most egregious violators are designated as Priority Foreign Countries (PFC), serious offenders are listed on the Priority Watch List (PWL), and less serious offenders in the Watch List (WL). Any country falling within the PFC or PWL is subject to USTR scrutiny in the form of investigations and possible sanctions under the procedures set out under the Trade Act, 1974. Over the years, the USTR has increased the number of countries that are put on the PWL, but reduced countries designated as PFCs. The Special 301 list has consistently featured India, most often as a PWL country, since its institution in 1989. This has caused some consternation within India, which has been disappointed that its proactive steps to improve domestic IP protection and engage with the U.S. have been unsuccessful in placating the U.S.

Complying with benchmarks Given these conditions, Trade Facilitation Act will increase the level of pressure to comply with the USTR’s requirement for countries like India that feature on the PWL for more than a year. First, the Act specifically requires the USTR to develop action plans with benchmarks for such countries. The USTR has traditionally developed action plans in consultation with the country in question. However, under Trade Facilitation Act, the USTR is not required to consult with the listed country.

“Benchmarks” refers to legislative or other institutional action that a sovereign country like India will need to establish to facilitate U.S. trade. Notably, the role of USTR is focussed on U.S. trade. Thus, it is not obliged to take developmental or public health needs of the trading partner into account when developing action plans or listing benchmarks. Instituting benchmarked changes remains the only way to remove a country from the Special 301 list. A country that refuses to comply with the benchmarks within a year can face “appropriate action”, which means it could be elevated to the status of a PFC, which in turn will result in further unilateral investigations followed by punitive trade sanctions. Such trade sanctions can include denial of preferential duty for exports, which developing countries rely on to export goods to the U.S.

Under World Trade Organisation jurisprudence, legality of unilateral actions over sovereign countries remains questionable. Given this, the U.S. tends to stay away from imposing unilateral sanctions, but tries to bring about change in a country’s domestic IP law through mechanisms like the Special 301 list.

Second, the Act creates a new position within the office of the USTR titled ‘Chief Innovation and Intellectual Property Negotiator’ (IP negotiator). The IP negotiator’s role is to serve as a “vigorous advocate” on behalf of U.S. innovation and IP interests. The IP negotiator is required to “take appropriate actions to address acts, policies, and practices of foreign governments that have a significant adverse impact on the value of U.S. innovation.” Thus, the Trade Facilitation Act clarifies that the IP negotiator’s role is to enforce U.S. priorities in IP more vigorously and to ratchet up the pressure towards this cause. With a view to facilitating such unilateral actions, the Act creates a Trade Enforcement Trust Fund for legal actions against foreign countries to ensure “fair and equitable market access for U.S. persons.”

India’s accommodation Over the years, India has become more transparent, engaged, and even willing to accommodate U.S. concerns. Critics argue that India’s accommodation of U.S. interests, particularly those of U.S. pharma on issues such as compulsory licensing, is unwarranted. Further, given that India’s position is seemingly in compliance with the Trade-Related Aspects of IPR agreement, scrutiny from the U.S. is difficult to justify. Under U.S. laws though, compliance with WTO obligations is immaterial. Thus, a country that is compliant with WTO rules can be the subject of investigations if the USTR believes that U.S. trade is detrimentally affected by that country’s IP laws.

Thus, India’s traditional defence that it is in compliance with WTO obligations has limited reach. India should be concerned about the heightened pressure that is bound to follow with the passage of the Trade Facilitation Act, especially on issues where its compliance with its TRIPS obligations is not disputed. As India continues to strategically engage with the U.S., it is time to develop a coalition of like-minded countries to monitor demands for legislative actions that result in WTO-plus standards.

Moushami P. Joshi is foreign attorney at Pillsbury Winthrop Shaw Pittman LLP. Srividhya Ragavan is Professor of Law, Texas A&M University School of Law.

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