Ukraine Given a Pass on Special 301 Threats

The United States Trade Representative (USTR) recently announced that it would not seek sanctions against Ukraine following its designation as a Priority Foreign Country in the Special 301 process last year. The notice states that the USTR sticks by its finding that “certain intellectual property rights (IPR) acts, policies, and practices of Ukraine are unreasonable and burden or restrict United States commerce and are thus actionable under section 301(b) of the Trade Act of 1974, as amended (Trade Act).” But it is not taking action “[i]n light of the current political situation in Ukraine.” There is another reason USTR is not taking any action – sanctioning Ukraine or any other World Trade Organization member under Special 301 would violate the WTO.Special 301 is an offshoot of the more general pre-WTO “Section 301” program which authorizes the USTR to unilaterally impose trade barriers on any country for “unreasonable” conduct that burdens U.S. commerce. Special 301 creates a “watch list” of countries being threatened for possible sanctions for “unreasonable” intellectual properties that harm U.S. commerce. Being named a “Priority Foreign Country” is the most direct threat – requiring USTR to launch a Section 301 investigation and determine what sanctions should follow. (See Special 301, A Historical Primer).

Section and Special 301 were created before the WTO. After the WTO their use is highly circumscribed.

First, the U.S. cannot sanction any WTO member for an intellectual property policy covered by the WTO’s Agreement on Trade Related Aspects of Intellectual Property (TRIPS). The WTO dispute settlement understanding states clearly:

“Members shall not make a determination to the effect that a violation has occurred . . . except through recourse to . . . this understanding.”[1]

When the U.S. Congress failed to repeal Section 301 in its WTO implantation legislation it was sued in the WTO. The WTO panel ruled that Section 301 could only remain on the books and used with respect to any WTO covered issue as a tool to implement DSU findings. Unilaterally sanctioning countries for WTO violations not found by a DSU panel would be illegal, the panel held. The panel upheld Section 301 only because of the existence of a “Statement of Administrative Action” pledging to implement 301 in this circumscribed way.[2] Notably, the panel held that its reasoning applied as well to threats of sanction: “a threat of unilateral action, especially when it emanates from an economically powerful Member,” may “disrupt the very stability and equilibrium which multilateral dispute resolution was meant to foster.”[3]

Some in USTR and supporting industries have countered that 301 sanctions can continue to be available for so called “TRIPS-plus” standards not directly covered by the WTO. For such issues in respect to a developing country, it is argued that the U.S. can unilaterally remove Generalized Systems of Preferences benefits. Since such benefits are unilaterally granted in the first instance, the simple argument goes, they can be taken away unilaterally. Indeed, none of the criteria used to list Ukraine as a PFC are directly covered by TRIPS. And the announcement listing Ukraine as a PFC explicitly threatened the country with loss of GSP. But GSP criteria are also regulated by the WTO.

GSP benefits are authorized by the WTO only as an exception to the general Most Favoured Nation (MFN) clause. MFN requires that tariff treatment provided to one member of the WTO be provided to all. An exemption to MFN exists for GSP programs, if the programs are based on criteria that are “generalized, non-reciprocal and non discriminatory” and “addressed to a particular development, financial or trade need” of developing countries.[4] To comply with the WTO, any “TRIPS-plus” intellectual property criteria would have to meet these standards.

There has been further elaboration of the GSP enabling clause by the WTO Appellate Body that makes any effort to justify TRIPS-plus requirements within such programs very difficult. In the EC Tariffs case, the Appellate Body struck down an EU program granting larger benefits to countries cooperating with EU drug eradication programs. In striking down the program, the Appellate Body stressed that GSP criteria must to be tailored to the needs of developing countries, and held that such needs may not be “based merely on an assertion to that effect by . . . a preference-granting country.” Rather, the basis for GSP criteria must be an “objective . . . [b]road-based recognition of a particular need,” such as those “set out in the WTO Agreement or in multilateral instruments adopted by international organizations.”[5]

This holding puts the 301 program into a legal Catch 22. USTR can’t unilaterally adjudicate TRIPS. But it also can’t unilaterally withhold GSP benefits for IP standards not contained in TRIPS or some equivalent multilateral instrument, which by definition TRIPS-plus standards are not.

Perhaps it was the political situation in Ukraine that led to the USTR to take no action. But it was likely also influenced by the political situation in global governance that threatens its continued use of 301 sanctions threats.

The big test will be with India. There is a mounting campaign to elevate India to the PFC list this year. Ukraine may have been unlikely to challenge the U.S. over any sanction that ultimately issued in 301. But India may less reticent to return the favor with a WTO suit. Indeed, “unnamed” officials are already sounding the alarm.