Special 301

Overview
Section 301 of the Trade Act of 1974 (Pub. L. No. 93-618), as amended, is the principal U.S. statute for identifying foreign trade barriers due to inadequate intellectual property protection. The 1988 Omnibus Trade and Competitiveness Act (Pub. L. No. 100-418) strengthened Section 301 by creating Special 301 provisions, which require the U.S. Trade Representative (USTR) to conduct an annual review of foreign countries’ intellectual property policies and practices. By April 30th of each year, the USTR must identify countries that do not offer “adequate and effective” protection of IPR or “fair and equitable market access to United States person that rely upon intellectual property rights.” According to an amendment to the Special 301 provisions by the Uruguay Round Agreements Act (Pub. L. No. 103-465), the USTR can identify a country as denying sufficient intellectual property protection even if the country is complying with its TRIPS commitments. These findings are submitted in the USTR’s annual “Special 301” report.

Special 301 Country Lists
Within 30 days of submitting the annual National Trade Estimates of Foreign Trade Barriers report, the USTR must determine which of the identified countries are “Priority Foreign Countries.” Countries that “have the most onerous or egregious acts, policies or practices that deny intellectual property protection and limit market access to U.S. persons or firms depending on intellectual property rights protection” and “have the greatest adverse impact (actual or potential) on the relevant United States products” may be identified as “Priority Foreign Countries.” These countries may be investigated under section 301 provisions of the Trade Act of 1974. The USTR cannot identify countries as Priority Foreign Countries if they have entered into good faith negotiations or have made significant progress in improving their intellectual property protection record.

If a country is named as a “Priority Foreign Country”, the USTR must launch an investigation into that country’s IPR practices. This investigation is conducted in a manner similar to a “Section 301” investigation; the USTR must determine a course of action within six months (9 months if a determination of complex circumstances is made). The USTR may suspend trade concessions and impose import restrictions or duties, or enter into a binding agreement with the priority country that would eliminate the act, policy, or practice that is the subject of the action to be taken. Since the advent of the WTO and its recourse to dispute settlement, the use of the first option may lead to the initiation of dispute settlement proceedings at the WTO for member countries, rather than unilateral retaliation. For countries outside the WTO, the possibility of trade sanctions remain.

The USTR also has created several administrative categories for country identification in the Special 301 Report. “Priority Watch List” countries are those whose acts, policies, and practices warrant concern, but do not meet all of the criteria for identification as a Priority Foreign Country. The USTR may place a country on the Priority Watch List when the country lacks proper intellectual property protection and has a market of significant U.S. interest. “Watch List” countries have intellectual property protection inadequacies that are less severe than those on the Priority Watch List, but still attract U.S. attention.

Just being on one of the Special 301 lists may induce countries to improve their IPR protection. Finally, countries identified for “Section 306” are monitored for compliance with bilateral intellectual property agreements used to resolve investigations under Section 301. Additionally, the USTR launches out-of-cycle reviews on countries to monitor their progress on intellectual property issues. Out-of-cycle reviews are conducted on countries that USTR considers to require further review and may result in status changes for the following year’s Special 301 report.

Country Identification Factors
Identification of countries for the “Special 301” lists is a lengthy process of information gathering and analysis based on the USTR’s annual trade barriers report and consultations with a wide variety of sources, including government agencies, industry groups, other private sector representatives, Congressional leaders, and foreign governments. The Special 301 statute is the overall guideline for identifying countries for the various lists. However, placements are country-specific and take into consideration a host of factors, several of which are mentioned in the Special 301 report. These include the level and scope of the country’s IPR infringement and their impact on the U.S. economy.

Other considerations include the strength of the country’s IPR laws and enforcement of IPR laws. The USTR also evaluates progress made by the country in improving IPR protection and enforcement in the past year. However, even significant progress oftentimes does not change the position or inclusion of a country on the lists. For instance, the USTR may decide not to upgrade a country from the Priority Watch List to the Watch List so that it can continue monitoring the country’s intellectual property practices. Also, the USTR may note significant progress made by a country but not remove the country from the Special 301 list in order to continue highlighting concerns about the country’s practices and limit backsliding.

Another consideration for the USTR is the sincerity of the country’s commitment to multilateral and bilateral trade agreements. There is no weighting criteria for the factors or a formula to determine the placement of a country on the watch list. Furthermore, no particular threshold exists for determining when a country should be upgraded or downgraded on the list.

Criticism
Some observers speculate that the Special 301 rankings are subject to external influences. The lack of a specific framework for placing countries, aside from the general directives from the Special 301 statute, has raised concerns that foreign policy considerations affect the process. For example, an IIPA representative suggested that USTR placement of countries is influenced by geopolitical reasons. This source cites Russia as an example of a country with high IPR infringement that could be named as a Priority Foreign Country but is not due to unrelated foreign policy considerations.