Why Does the US Trade Representative Keeps Trying To Piss Off Our Trading Partners?

Everyone talks about promoting our exports and hooking in to the emerging economies as the means of leveraging our economic blahs. With Americans consumers still considered the walking dead, and likely to remain so for some time, anyone hoping for job growth and overall improvement in the American economy recognizes that we need to get other countries to buy our stuff.

Unfortunately, someone seems determined to piss off our potential trade partners. Worse, that “someone” is the office of U.S. Trade Representative (USTR), the folks in charge of getting trade agreements negotiated and boosting trade. If that seems odd, take a look at the most recent Special 301 Report (aka “the IP Naughty List”) released by the USTR at the end of April. Pretty much everyone we want to trade with is on either the “naughty” or “very naughty” list. True, some countries, such as Russia and China, appear genuinely naughty — in the sense that massive wholesale counterfeiting and infringement appears to be going on while the governments appear relatively uninterested in enforcement. But a large number of other countries — Canada, Israel and Brazil, to name a few — appear on the list because they failed to modify their laws to suit the demands of the U.S. pharmaceutical industry and the U.S. entertainment industry.

My colleague at Public Knowledge Rashmi Rangnath, has written up a general summary of what USTR got wrong (again!). I want to focus here on how this fits into a creeping systemic problem with USTR’s approach.  While the U.S. remains a strong market, we no longer rule the roost. The time when we could simply dictate to other countries what we expected of them and could force them to amend their constitutions, sell off vital natural resources, and dance for our amusement as a condition of getting access to our markets are pretty much over. You would think after holding up ACTA for three years trying to get other countries to adopt the MPAA’s wish list and then finally being forced to cave at the end would have impressed this point on the good folks at USTR, if not on the utterly uneducable lobbyists that make up the vanguard the IP Mafia. Alas, to judge by the USTR’s conduct here, USTR still lives in a fantasy-land where it can snap its fingers and the world hastens to do our IPR bidding. Anyone hoping for a more sensible approach in the negotiations around the Transpacific Partnership Agreement (TPPA) should prepare for disappointment, which is bad news for all those businesses hoping for a trade deal with some of the world’s fastest growing economies.

More below . . .

For those just tuning in, the “Special 301 Report” grows out of Section 182 of the Trade Act of 1974 (don’t worry about how the number 301 got into this, just bear with me here). Like so many industry-dominated ultimately self-destructive things, this started out in response to a real problem. Most developing countries go through a stage where it is much easier to steal other people’s copyrighted or patented work than to pay royalties, and where no one cares if you are ripping off major conglomerates in some more developed oppressor foreign country everyone hates anyway. The United States went through a similar stage in the 19th Century, starting our industrial revolution by steeling British textile manufacture technology and generally ignoring foreign copyrights and patents until the 20th Century. Unsurprisingly, once we became a more developed country and our corporations had their our own set of patents and copyrighted works, we developed a marked interest in enforcement of these rights at home and abroad. Also unsurprisingly, other countries with less developed economies were now in the “steal from others stage.”

So Congress passed a law requiring the USTR to identify countries that fail to provide adequate protection for U.S. intellectual property (19 U.S.C. 2242), and designate the worst offenders, those who behave in an “onerous and egregious” fashion and refuse to engage in negotiations to address the identified issues, as “Priority Foreign Countries.” Once a country gets officially recognized as a “priority” under Special 301, lots of bad things kick in automatically. So to avoid making this an all or nothing system with no opportunity for countries to address these issues, USTR annually publishes a “Special 301 Watch List” (aka “the naughty list”) for countries with problems, and the “Special 301 Priority Watch List” (aka “the super naughty list”) for countries that are seriously in danger of being labeled “Priority Foreign Countries” and getting all the mandatory bad stuff and sanctions (although these days, the USTR is likely to go to the World Trade Organization (WTO) first to get official international blessings before punishing the super naughty).

All this is very well and good, and potentially serves a valuable purpose. After all, a lot of our trade hinges on the goodwill associated with our products and on the the ability to produce cutting edge stuff.  Trademarks serve valuable purposes in protecting consumers from shoddy — or even dangerous — counterfeit products and allowing companies that work to develop goodwill and customer loyalty to receive an appropriate reward in the marketplace (thus encouraging them to continue to provide good products and good service).  Patent and copyright, when used properly, encourage innovation and allow rights holders to receive rewards for their labors. So there is nothing wrong with the overall idea of the legislation. And, in an ideal world, USTR would issue an annual report saying: “We are pleased to report that our trading partners provide adequate protection for intellectual property. That doesn’t mean we agree with all their policies, but no one is being naughty.”

Unfortunately, it has not worked out that way. Instead, the process has been co-opted by the good folks over at the International Intellectual Property Association (IIPA). Over the years, apparently lacking a sufficient number of real problems. the IIPA has provided USTR with a new definition of “adequate” when it comes to failing to provide “adequate” protection for intellectual property rights. For Special 301 purposes, IIPA proposes that “failure to provide adequate protection for intellectual property” should mean “failing to comply with everything on IIPA’s wish list without regard to any actual norms of international behavior.

Sadly, USTR has responded to IIPA with increasing enthusiasm as the number of actual problem countries Congress intended the statute to reach diminishes. Indeed, USTR agrees with IIPA’s recommendation a stunning 91% of the time! The result is almost comical. Of the 77 trading partners examined, USTR found 42 (more than half!) to be guilty of practices and or derelictions of duty to be condemned to sit on the IP equivalent of the Group W bench. Because to make the Special 301 Naughty list (should) require more than a mere difference of opinion on policy. To be so naughty that you are in danger of being desgnated a priority country ought to mean you are guilty of father rapin’ and mother stabbin’ not just littering. Can it really be the case that more than half of our trading partners examined are guilty of such practices or derelictions of duty in the area of IP protection that they deserve this kind of treatment?

A closer examination of what USTR cites for reasons would seem to indicate “no, unless you are being totally mind controlled by the IP Mafia and/or have taken leave of your senses.” Canada is on the Super Naughty Priority Watch List because it failed to pass the equivalent of the DMCA because their stupid electorate threw an absolute hissy fit and those irresponsible conservatives preferred to stay in office rather than ram through unpopular legislation at the behest of the U.S. Entertainment industry. Naughty Canada! You are in <i>such</i> big trouble! How dare you refuse to change you law in a fundamental way just because your voters objected? Israel is listed on the Super Naughty Priority Watch List because they declined to extend the length of patents on medicine like Pharama wants them too — which would just incidentally cripple generic drug manufacturer Teva, a major competitor of Pharma’s members globally. Bad Israel! So very naughty, not crippling one of your major industries just because the American Pharmaceutical industry tells you too! Brazil is on the naughty list because, despite adopting all the right laws and putting additional  resources into enforcement, “piracy remains rampant.” Mind you, since IIPA says the same thing about piracy in the U.S., I don’t see how we can say Brazil deserves to go on the Naughty 3012 Watch List. But at least they aren’t on the Super Naughty Priority Watch List! Good Brazil! All you need to do is just apply yourself better.

For years, folks in the public interest community got upset about this as an expression of neo-imperialism, forcing people to change their laws to benefit our multinational conglomerates, etc. Needless to say, no one outside the public interest community gave a rats patootie about that. Now, however, the actual harm this annual exercise in pissing off our potential trading partners is somewhat more significant. Here is a list of countries by GDP growth for 2010. Compare it to the USTR Special 301 Naughty list. Notice something? The countries on the Naughty List are countries we want to trade with because their economies are growing faster than ours! While it is one thing where that growth is coming in part from stealing our stuff, like in China and Russia. But that is simply not the case in countries like Canada, Israel, Brazil, Turkey, and many others, where the reason given for being on the naughty list is “IIPA doesn’t like your policy choices.”

Which brings us to the question I find myself asking more and more. When is USTR gonna learn that we can no longer dictate to the rest of the world and tell them to obey every insane deamnd from Pharma, MPAA, and the rest of the IP Mafia or risk losing access to our markets? At best we look ridiculous. At worst we are seriously pissing off our potential trading partners. If you are someone like Ford, or ALCOA, or Boeing, or other industries that are not the entertainment industry or Pharma, it is about time you woke up to the fact that you are getting majorly screwed by how a handful of narrow industry segments have hijacked the trade process and are getting in the way of your access to those foreign markets. If USTR is going to insist on trying to overreach and waste years of time — like they did with ACTA — couldn’t USTR at least avoid actively pissing off countries we already trade with for no better reason that IIPA doesn’t like them?

Judging by this years Special 301 Report, the answer is apparently “not yet.” USTR still thinks that, in the absence of actual problems with our trading partners, it should just sign off on IIPA’s helpful suggestions. Hopefully, USTR will come around before they manage to piss off too many trading partners.

Stay tuned . . . .

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