*EPF410 07/27/00
Text: USTR's Hayes on WTO Dispute Issues
(EC Banana Regime, Dairy Products, India TRIMS, Carousel) (2380)

Deputy U.S. Trade Representative Rita D. Hayes says she has seen nothing new in a report presented by the European Commission (EC) on its compliance with a May 1997 World Trade Organization (WTO) panel finding that its banana import regime violated WTO trade rules.

Ambassador Hayes said July 27 in Geneva, Switzerland there is nothing new in the EU's most recent report, and it was part of a pattern of delaying tactics devised by the EC "to maintain the status quo." The deadline for the EC to bring its banana regime into compliance with the WTO ruling expired in January 1999.

Hayes also made a series of short statements July 27 on a number of international trade issues pending before the WTO's Dispute Settlement Body (DSB).

At the request of the United States, the July 27 DSB adopted a panel to examine the auto import regime in India, where manufacturers cannot obtain import licenses for automobiles and automotive components unless they agree to a series of local content, trade balancing and foreign exchange balancing requirements.

"The Indian auto regime denies India's trading partners the opportunity to supply India's markets and unfairly burdens manufacturers operating within India," Hayes said. She emphasized that the U.S. remains open to further discussions with the government of India and expressed the hope that the matter could be resolved "on a mutually agreeable basis."

Later during the same meeting, the United States rejected the European Union's request to establish a panel on Section 211, the Omnibus Appropriations Act of 1998. Section 211 limits the right to renew or register a trademark in the United States which was confiscated from the original owner.

Havana Club Holdings, a joint venture between the Cuban government and the French firm Pernod Ricard, has brought a suit against Bacardi and the family which owned the "Havana Club" trademark up until 1961 when Castro's regime confiscated it. During litigation earlier this year in New York, a judge found in favor of Bacardi and the original owners of the Havana Club trademark citing Section 211.

"We regret that the EC has chosen to request the establishment of a panel," Hayes said. "As the EC is aware, the very issues raised by the EC in its panel request are the subject of ongoing private litigation in the U.S. courts. We note that, indeed, this ongoing private litigation appears to have prompted the EC's panel request."

Following are terms and acronyms used in the text:

-- WTO: World Trade Organization.

-- DSU: Dispute Settlement Unit.

-- DSB: Dispute Settlement Body.

-- EC: European Commission.

-- EU: European Union.

Following is a text of Hayes' remarks as prepared for delivery:

(begin text)

[Office of the U.S. Trade Representative
Geneva, Switzerland
July 27, 2000]

Item 1a. Surveillance of implementation -- EC Banana regime

-- "We are concerned about the EC's report because it again represents a delay in complying with WTO rulings on bananas."

-- The EC's report portrays problems with the historic licensing system as being new and as being due to differences over the reference period. In fact, the main problem the EC faces with a historic based licensing system is its intention to retain for EC companies a vastly larger share of the market than those companies had before the banana regime came into effect.

-- Thus, the EC wants to maintain the status quo, either by simply delaying compliance or by insisting on a "new" regime that essentially duplicates the current one. In short, the EC wants to keep a WTO-inconsistent system in place.

-- We do not see why the EC had not already analyzed a first-come-first system, since that too has been an alternative for many months. Indeed, the United States provided the EC criteria for such a system last year.

-- Likewise, last year the United States provided the EC a detailed analysis of a tariff-only system. However, until the member States grant the Commission the authority to negotiate such a system, it is difficult to take that option seriously.

-- In short, we see nothing new in the Commission report. It is just more of the same.

Item 1c. Surveillance -- Canada -- Measures affecting the importation of milk and exportation of dairy products

-- When Canada provided its first status report on implementation at the June 7 DSB meeting, the United States voiced its concern regarding the direction taken by several of Canada's milk producing provinces. Information then available indicated that a number of provinces soon would be instituting new export programs to supplement the special class system that the DSB found to be an export subsidy.

-- Our grave reservations regarding the various provincial proposals were confirmed during consultations with Canada last month. Canada provided the United States and New Zealand with information pertaining to the programs being considered in eight of its provinces. Each of the provincial proposals would make milk available to processors for export at prices that are below those otherwise available for the sale of milk into Canada's domestic market. Furthermore, each province would require that all milk made available to processors at such reduced prices be exported. The reduced milk prices are, thus, contingent on the export of the processed dairy products.

-- The unstated objective of such programs is to allow Canada to maintain exports of dairy products at the same volume levels achieved under the export subsidy measures that the DSB found were inconsistent with Canada's export subsidy reduction commitments. New provincial programs that are the same in substance, both legally and economically, as the export subsidies that they are designed to replace will not accomplish the full compliance that Canada has assured will be achieved by the conclusion of the implementation period.

-- The United States will continue its efforts to persuade Canada to abandon the pursuit of new export subsidies which appear likely only to aggravate Canada's breach of its export subsidy commitments.

-- Canada's claim in this regard always has been a red-herring. The United States has never contested Canada's supply management system for dairy in the WTO. Canada is fully able to maintain its supply management system and to export dairy products consistent with its WTO obligations. However, in order for Canada to fulfill its export subsidy commitments, the volume of Canada's subsidized exports of dairy products must be no greater than the amount established by such commitments. Canada cannot fulfill its WTO obligations and at the same time maintain an excessive level of dairy exports by continuing to introduce new forms of export subsidies.

Item 1d. Surveillance -- India -- Balance of payments quantitative restrictions on agricultural, textile and industrial products

-- We would like to thank the Indian delegation for the status report it circulated on this matter.

-- As the report indicates, the United States and India concluded an agreement with respect to the reasonable period of time in this dispute in December of last year.

-- Because today is the first time that this matter has come up since then, we would like to take this opportunity to express our appreciation for the cooperation and flexibility shown by the Government of India in those discussions. The agreement that came out of our negotiations has been hailed in both of our countries.

-- We are also extremely pleased to be able to confirm that India has implemented the first stage of our agreement. We congratulate India for taking the important step of eliminating those quantitative restrictions in accordance with the schedule to which we agreed.

-- We look forward to India's removal of the remaining restrictions by April 1 of next year.

Item 3. India -- Measures affecting trade and investment in the motor vehicle sector (complaint by the U.S.)

-- The United States is renewing its request for the establishment of a panel to examine India's trade-related investment measures for firms that manufacture motor vehicles.

-- As we explained at last month's meeting of the DSB, motor vehicle manufacturers cannot obtain import licenses for automobiles or automobile kits and components unless they agree to a series of local content, trade balancing and foreign exchange balancing requirements.

-- As a result, the Indian auto regime denies India's trading partners the opportunity to supply India's markets and unfairly burdens manufacturers operating within India. They are precisely the sort of measures that are inconsistent with India's obligations under Articles III:4 and XI:1 of the GATT 1994 and Articles 2.1 and 2.2 of the Agreement on Trade-Related Investment Measures.

-- At last month's meeting we noted that India had not replied to several questions that we asked them during our consultations last July. In the meantime, the Indian delegation has provided us with the answers. We would like to thank them for doing so.

-- Unfortunately, those answers did not provide us with any comfort on the major difficulty that we see with these Indian measures. India's answers have confirmed that manufacturers will continue to be legally bound by those TRIMs even after India removes its import licensing requirements for automobiles and auto parts next April.

-- Mr. Chairman: Earlier today I had the pleasure of thanking the Indian delegation for its flexibility and cooperation in reaching an agreement in a different dispute. We regret very much that, as far as these TRIMs are concerned, we have not yet been able to reach a mutually satisfactory solution with India. We hope that will change, and that we will eventually resolve this matter on a mutually agreeable basis. My Government remains open to further discussions with the Government of India towards that end.

-- However, because the matter still remains unresolved at this time, we are today renewing our request for establishment of a panel.

-- The Government of India put these TRIMs in place in December 1997 -- in other words, almost three years after the WTO Agreement came into force. They have never qualified for cover under Article 5.1 of the TRIMs Agreement.

Item 4. United States -- Section 211 omnibus appropriations act of 1998 (complaint by the EC)

-- The United States is not prepared to accept the establishment of a panel at this meeting.

-- The EC's panel request claims that Section 211 is inconsistent with "several" provisions of the TRIPS Agreement, and says that it finds these inconsistencies "notably" with respect to several articles of TRIPS and the Paris Convention. Article 6 of the DSU requires that the panel request provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly. Accordingly, the EC panel request fails to meet the requirements of Article 6 of the DSU.

-- We regret that the EC has chosen to request the establishment of a panel. We had hoped that the consultations would have addressed the EC's concerns.

-- As the EC is aware, the very issues raised by the EC in its panel request are the subject of ongoing private litigation in the U.S. courts. We note that, indeed, this ongoing private litigation appears to have prompted the EC's panel request. Therefore, we believe it would be prudent for the EC to await the outcome of this litigation, in order to determine what actual effect it has on the EC's view of section 211.

-- In any case, section 211 reflects a long-standing policy against giving effect in other countries to decrees of a country confiscating property in that country that claim to affect property located in the United States. This policy is not unique to the United States. It addresses the fundamental question of who is and who is not the owner of confiscated trademarks, trade names, and commercial names -- an issue not directly addressed by either the TRIPS Agreement or the Paris Convention. Consequently, an inquiry into the identity of the true owner of the right and an inquiry into whether he or she has expressly consented to the use of that right by a third party are legitimate under TRIPS. As this is a policy that does not depend on the nationality of the claimant, no "national treatment" or "most favored nation" issues arise.

Item 5. United States -- Section 110(5) of the US copyright act -- report of the panel

-- The United States is pleased that the Panel agreed with us that the correct standard by which to evaluate a Member's exception or limitation to a right provided in the TRIPS Agreement is Article 13 of that Agreement, unless provided otherwise.

-- We are also pleased that the Panel clarified that the legitimacy of exceptions or limitations may not be subjectively judged.

-- Most important, we are pleased that the Panel agreed with us that Section 110(5)(A), the home style exemption, is consistent with Article 13, and therefore consistent with our obligations under the TRIPS Agreement.

-- However, we are disappointed that, applying the same standard, the Panel concluded that Section 110(5)(B), the 1998 amendment, is inconsistent with the TRIPS Agreement.

-- Therefore, the United States does not join in a consensus to adopt this panel report, but recognizes that, in the absence of a consensus to reject it, the report will be adopted today.

Consultations in EC challenge to Section 407 of the Trade and Development Act of 2000 (so-called "Carousel")

-- The United States would recall that under Article 4, paragraph 11 of the Dispute Settlement Understanding, a Member may be joined in consultations only if "the Member to which the request for consultations was addressed agrees that the claim of substantial interest is well-founded."

-- In the consultations requested by the EC concerning Section 407 of the Trade and Development Act of 2000, the United States examined the issue of substantial interest on a case-by-case basis. In the case of Japan and certain other delegations, the United States could not agree that the claim of substantial trade interest was well-founded.

-- The United States therefore was fully within its rights under Article 4.11 to not include certain other delegations in the consultations.

(end text)

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