Editorial Today – Trade Facilitation Act and Its Impact

Trade Facilitation and Trade Enforcement Act, 2015
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. Though U.S. already scrutinizes developments of IP law in its trading partners; this Act will only heighten it.

Thus it would have adverse impact on India’s ability to develop an IPR policy according to its development needs as India is also a trading partner of US and thus US would scrutinize development of IP law in India.

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

1. Negotiating trade agreements and
2. Overseeing enforcement of U.S. trade policy, including IP policy.

The USTR also creates an annual list of 301 countries. Countries which are believed to have laws or regulation which is detrimental to US trade and rights of IP holders feature in the list.

i.e. being in the list means, the US believes that the  country is providing inadequate “IPR protection, enforcement, or market access for persons relying on intellectual property.”

USTR groups these countries into three categories:-

1. Priority Foreign Countries (PFC) – Most grievous violators are listed here.

2. Priority Watch List (PWL) – Serious offenders are listed here

3. Watch List (WL) – Less serious offenders are listed here.

Country falling within the PFC or PWL is subject to USTR scrutiny in the form of investigations and possible sanctions.

India has consistently featured in special 301 list most often as PWL country.

Thus India is disappointed that its proactive steps to improve domestic IP protection and engage with the U.S. have been unsuccessful in pacifying the U.S.

Complying with benchmarks

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.(“Benchmarks” refers to legislative or other institutional action that a sovereign country like India will need to establish to facilitate U.S. trade.)

Earlier USTR used to consult listed countries before developing any action plan however under Trade Facilitation Act it is not required to consult with the listed countries.

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. Whereas developing countries like India needs to take developmental and public health needs while framing IPR policy like evergreening and compulsory licensing.

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.

Legality of unilateral actions over sovereign countries remains questionable under WTO thus 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). It 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.

The Act also 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 Position:
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, compliance with WTO obligations is immaterial i.e. even if  a country  is compliant with WTO rules it 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.