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Executive Summary

U.S. trade sanctions imposed against Brazil under Section 301 of the Trade Act will not be lifted unless the South American nation honors pharmaceutical patents, U.S. Trade Representative Carla Hills testified at a March 2 hearing before the House Commerce/Oversight Subcommittee. The U.S. has "indicated that we cannot nor do we intend to terminate retaliation without provision by Brazil of product patent protection for pharmaceuticals and fine chemicals," Hills said in prepared testimony. Trade sanctions under Section 301 of the Trade Law were initiated against Brazil last summer after extensive negotiations failed to persuade the country to honor pharmaceutical patents. Brazil has appealed to GATT (General Agreement on Tariffs and Trade), arguing that the U.S. action violates the agreement ("The Pink Sheet" Feb. 27, "In Brief" and July 25, T&G-2). The Pharmaceutical Manufacturers Association, which requested the 301 action against Brazil, listed four countries where U.S. drug patents are not honored. Testifying on the first day of the March 1-2 hearing, PMA President Mossinghoff urged that the USTR list Argentina, India, Thailand, and Brazil as countries with unfair trade practices. The four countries "do not provide adequate patent protection for pharmaceuticals and do not seem to be disposed to redress that unfair trade practice," Mossinghoff said. Therefore, he continued, "those countries should be the subject of the special mechanisms provided by the Omnibus Trade and Competitiveness Act of 1988." The trade law requires the U.S. Trade Representative to develop, by this spring, a list of countries that are not trading fairly with the U.S. The USTR would then begin negotiations with those countries and, if the alleged trading inequities are not resolved within a specified period of time, impose appropriate sanctions. The purpose of the hearing was to give industry witnesses the opportunity to "discuss the new trade law as they expect it will be applied to chronic unfair trade practices their industries encounter in the world marketplace," Subcommittee Chairman Dingell (D-Mich.) said in an opening statement. Mossinghoff outlined the patent situation in each of the four countries he cited. For example, he noted that the USTR has conducted initial negotiations with the Argentine government following a PMA petition for action under Section 301 of the trade act filed last August. However, Mossinghoff said, "initial negotiations . . . indicate that they are not disposed to improve their patent law, and thus retaliatory measures seem likely." India "has not only rejected all bilateral efforts to bring about appropriate respect for intellectual property, but also has led the charge against multilateral efforts in GATT," Mossinghoff asserted. "At the same time," he continued, "India is enjoying the benefits of science and technology agreements with the United States." The association filed a 501 trade petition against Thailand, Mossinghoff noted, and some sanctions have been imposed as a result. However, adequate pharmaceutical patent protection in Thailand "has not yet happened," he maintained. Asserting that the Bush Administration's trade policy will attempt to open markets, not to close them, Hills maintained that trade sanctions must be used judiciously. The question "is when to use the crowbar and when the handshake," she said. "After years of trying to resolve ]Brazil's refusal to honor pharmaceutical patents[ bilaterally, we concluded that we would have to take countermeasures under Section 301." The U.S. "determined that action in the area of intellectual property simply would not afford effective leverage with respect to Brazil," Hills explained. Consequently, she added "we decided that the most effective step would involve restrictions on merchandise imports from Brazil." After Brazil challenged the retaliatory actions in the GATT, the U.S. "responded that Brazil's charges against us ignore the fundamental problem in the case," Hills said. The problem includes not only the "lack of patent protection by Brazil for the pharmaceutical and chemical sector," but also "the absence of effective international rules and an international dispute settlement mechanism to protect against such unfair trade practices," she said. The U.S. has "told Brazil and other GATT contracting parties, many of whom are sympathetic with Brazil's position, that there should be no illusion that a GATT panel can help resolve this matter simply by examining Brazil's contentions under existing GATT rules in this case," Hills continued. "We have put the world on notice in this case that we will not rule out trade-restrictive measures that may be necessary to respond to the theft of U.S. intellectual property," she said. Regarding Hills' decision to let a GATT panel review the U.S. sanctions against Brazil for failing to protect pharmaceutical patents, Mossinghoff commented: "We are aware of current moves to use the mechanism of GATT to block U.S. efforts to root out unfair trade practices bilaterally," he said. "It would be a sad irony indeed if those moves were to succeed." The PMA president also recommended that on a multilateral level, the World Intellectual Property Organization work "to achieve harmonization of patent systems at an appropriately higher level of protection drawing upon the most advanced patent systems of the world." The association president added: "We hope, too, that the General Agreement on Tariffs and Trade . . . will be amended during the Uruguay Round quite properly to assure that patent piracy is declared to be a GATT-actionable unfair trade practice." Commerce Department Secretary Robert Mosbacher also testified that trade sanctions are a last resort in efforts to open other countries' markets to U.S. exports. On the other hand, Mosbacher said, the Commerce Department is "working closely with the U.S. Trade Representative to implement the amendments to Section 301, contained in the 1988 Omnibus Trade Act." The department's efforts include "the development of a list of priority countries that deny adequate and effective protection of intellectual property rights and the initiation of investigations by June 29, 1989." Mosbacher said his department "intends to fight the intolerable widespread infringement of American intellectual property rights in countries around the world." The problem of protecting intellectual property rights abroad illustrates "the relationship between technological advancement and the investment in R&D," the secretary maintained. If domestic companies that make a large investment in R&D "cannot be assured that they will get a fair return on their investment in know-how and technology development, then R&D will dry up," Mosbacher said. "Too often our ideas, protected in the U.S., are brazenly stolen, copied, and marketed by others."

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