Michael Froman
Last Thursday, the Senate Finance Committee held its confirmation hearing for the Obama Administration’s nominee for U.S. Trade Representative, Michael Froman. The hearing webpage has a webcast and prepared statements by Froman, as well as Chairman Baucus and Ranking Minority Leader Hatch. The opening statements were brief, so most of the hearing was Q&A. Themes that repeatedly came up were intellectual property protection in India and online, and Trade Promotion Authority (TPA). Senators Wyden and Baucus also discussed the transparency of trade negotiations. Baucus closed the hearing with a discussion of the role of the limitations and benefits of conducting trade policy within the multilateral trading system.
IP Protection in India
Senator (and former USTR) Portman expressed concern about India’s “lack of respect for patents” and warned that “basic IP protections are being set aside.” He thinks that the invalidation of drug patents is “a violation of WTO rules” and he worries that other countries might follow India’s example. He asked Froman if he would engage India on IP as USTR, and Froman said he would. Baucus chimed in, saying he agrees with the IPR issues that Portman raised, and said that IP protection is becoming a problem in more and more of the world – but it is especially a problem in India and China. He asked Froman to “think more creatively” than his predecessors about how to deal with the problem.
Sen. Hatch noted that India is a large recipient of benefits under the Generalized System of Preferences (GSP) and asked if it is “appropriate” to continue to give India these benefits considering the controversies over IP. Froman answered that GSP has many purposes. In some cases, benefits are about development, but sometimes U.S. firms rely on imports from GSP for their own production. We need to look at the multiple facets of GSP when India’s participation in the system comes up for renewal. We should especially look at India’s investment and innovation environment.
Hatch emphasized his concern about IP rights in India, saying “the government of India continues to take actions that make it very difficult for US biotechnology companies to secure and enforce their patents.” He is concerned by India’s recent decision to issue a compulsory license on an important medicine on “entirely specious grounds.” Additionally, piracy and counterfeiting are “rampant” and IP enforcement efforts are weak in India. Hatch asked what specific steps Froman would take as USTR to bring about improvement in India’s “anti-IP policies and practices,” and whether he thinks India should still enjoy GSP benefits given that adequate and effective IP protection is supposed to factor into decisions on GSP. Froman said again that his office would engage India on IP.
Sen. Menendez said he has been hearing complaints from both pharmaceutical and high-tech companies that India’s inadequate protection and enforcement of IPRs is a real challenge. He said that Indian compulsory licenses on medicines are “not about access” but rather are intended to protect domestic generic manufacturers at the expense of American firms. He is worried that countries will “begin to emulate India’s actions” if they don’t see “consequences” in India.
Froman assured Menendez that the Obama Administration is very concerned about the investment and innovation environment in India. They are particularly concerned about compulsory licensing, patent issues, preferential market access, and localization. Froman promised to engage India at every opportunity. He said that Secretary of State Kerry will bring up the issues next month when he travels to India for an “interagency strategic dialogue at the highest levels.” The matters will be brought up next July when Indian officials visit the United States. He suggested that the WTO enforcement mechanism might be useful, and said that they are consulting with industry to consider the best way forward.
Other Intellectual Property Concerns
Sen. Cardin brought up the US-Korea FTA provisions on criminal enforcement, which he views as an important step forward in fighting IP theft in Asia – the introduction of criminal penalties for IP theft that are similar to American law criminal penalties. He asked Froman to make sure the provision would be in other trade agreements. Froman responded that his office will seek to strengthen IP protections around the world, and will also look into the area of cybertheft.
Sen. Hatch asked Froman what steps he would take to fight widespread online theft around the world. Froman said that fighting online copyright theft is a “key enforcement priority.” He noted that the annual Notorious Markets Report has been made part of the Special 301 process. Through it they’ve managed to shut down major sites in China and elsewhere.
Sen. Menendez told Froman that the U.S. is a global leader in IP-intensive goods, so a significant part of our economy will be “subverted” if other countries don’t respect our IP. Therefore, enforcement provisions in trade agreements need to be strong – other countries need to live up to our enforcement standards.
Sen. Thune noted that this week the President recommended a number of legislative actions to strengthen the enforcement of patents; and these included changes to the way that the International Trade Commission (ITC) issues exclusion orders. He asked Froman if he thought the current ITC process needs reform, and if so, why? Froman said he was not an expert on the issue, but promised follow up with the Senator after the hearing.
Sen. Casey said that the U.S. biopharmaceutical industry relies on IP, so it’s a great concern to both parties that “going forward we will not have the type of protection that we’ve had.” It can take $1.3 billion to develop a new product, so firms need a long term of data exclusivity to recoup their costs – specifically a 12 year period of data exclusivity. Casey asked Froman if he’d seek this type of protection as USTR. Froman said USTR is working for “the highest possible standard” of IP protection through the TPP. He said that during negotiations they explain to TPP partners what is in U.S. law, how it works, and why the law says what it does.
Trade Promotion Authority
Sen. Portman said he is concerned about the “crisis of morale” at USTR, and he thinks that re-establishing Trade Promotion Authority (TPA) is important for improving it. He noted that the Administration did not ask Congress for TPA until this year, and he believes that the U.S. has fallen behind in the trade sphere without TPA. Portman asked Froman if he would personally push for TPA this year, and Froman said he was ready to work with the committee on it.
Sen. Thune stated that we need Trade Promotion Authority in order to conclude trade agreements. He has heard rhetoric from the Administration about TPA, but no formal request for TPA. In order for Senate to move on this, it would be helpful if there is a request from the Administration for them to come forward.
Sen. Wyden asked Froman if his office was going to send a TPA renewal proposal to the Hill. Froman said that, if confirmed, he will consult with the Senate Finance Committee and the House Ways and Means Committee to work through TPA. Wyden asked if Froman would “send us your statutory negotiating goals so we can get a sense of what your priorities are.” Froman pledged to work with the Committees, but did not elaborate on whether his office would send text to Congress on their negotiating priorities. [note: the negotiating priorities in the expired TPA law are included in an earlier blog]
Transparency of Trade Negotiations
Sen. Wyden asked Froman about the transparency of trade negotiations. Froman noted that USTR has briefed the Senate Finance Committee staff on every proposal before it is tabled in any negotiation. He pointed to USTR’s “robust program” that allows any member of the House or Senate to see negotiating text. Wyden asked if there could be more discussion in the future on transparency, and said he would like text to be made available online so the American people can see it, and can become fuller participants in trade debates.
Sen. Baucus thanked Froman for his answer, noting that “I’ve read articles recently accusing the administration of not being transparent in trade negotiations,” but that his answer explains that the negotiations are “fully transparent with respect to members of Congress … I encourage you to keep that up because there’s nothing worse than the American people thinking something is being hidden, something secret.”
Unilateral Actions and the Global Trading System
At the end of the hearing, Sen. Baucus asked Froman to discuss what limits he faced that might prevent his office from fulfilling its goals. Baucus was specifically concerned with legal limits. He noted that the U.S. could “bring unilateral actions before we joined the WTO” but now our ability to bring them is “severely restricted.”
Froman said that the question deserves a “more thoughtful answer” than he could come up with on the spot, but said he would like to continue a discussion on this matter after the hearing. He noted that the “WTO may constrain our ability to bring unilateral action but it constrains everybody else’s ability too.” The WTO dispute resolution system has generally been open and fair, and the U.S. has aggressively pursued its interest through the system.
Regarding the international trading system that exists today, “it would be better if all countries played by the same rules,” and if the common set of rules supported the current WTO system. Froman believes the U.S. needs to advance the commons set of rules in bilateral dealings with emerging market economies as they rise. He thinks USTR needs to advance this goal through TTIP – the agreement should not only involve the US and EU opening their markets to each other, but the two sides should “work together vis-à-vis the rest of the world,” to help raise international standards, including IPR standards.
