2008 SPECIAL 301 REPORT OFFICE OF THE UNITED STATES…

          2008 SPECIAL 301 REPORT




OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
                                   EXECUTIVE SUMMARY

Introduction

The "Special 301" Report is an annual review of the global state of intellectual property rights
(IPR) protection and enforcement, conducted by the Office of the United States Trade
Representative (USTR) pursuant to Special 301 provisions of the Trade Act of 1974 (Trade Act).
The 2008 Special 301 review process examined IPR protection and enforcement in 78 countries.
Following extensive research and analysis, USTR designates 46 countries in this year's Special
301 Report in the categories of Priority Watch List, Watch List, and/or Section 306 Monitoring
status. This report reflects the Administration's resolve to encourage and maintain effective IPR
protection and enforcement worldwide.

The Special 301 designations and actions announced in this report are the result of close
consultations with affected industry groups and other private sector representatives, foreign
governments, Congressional leaders, and interagency coordination within the United States
Government. This Administration is committed to using all available methods to resolve IPR-
related issues and ensure that market access is fair and equitable for U.S. products of IPR-
intensive industries.

The Administration's top priorities this year continue to be addressing weak IPR protection and
enforcement, particularly in China and Russia. Although this year's Special 301 Report shows
positive progress in many countries, rampant counterfeiting and piracy problems have continued
to plague China and Russia, indicating a need for stronger IPR regimes and enforcement in those
countries.

In addition to China and Russia, the Special 301 Report sets out significant concerns with respect
to such trading partners as Argentina, Chile, India, Israel, Pakistan, Thailand, and Venezuela. In
addition, the report notes that the United States will consider all options, including, but not
limited to, initiation of dispute settlement consultations in cases where countries do not appear to
have implemented fully their obligations under the World Trade Organization (WTO)
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

In this year's review, USTR highlights the need for significantly improved enforcement against
counterfeiting and piracy, Internet piracy, counterfeit pharmaceuticals, transshipment of pirated
and counterfeit goods, requirements for authorized use of legal software by government
ministries, proper implementation of the TRIPS Agreement by developed and developing
country WTO members, and full implementation of TRIPS Agreement standards by new WTO
members at the time of their accession.

Positive Developments

Several countries made significant positive progress on IPR protection and enforcement in 2007.
For example, Russia has increased penalties for copyright crimes and stepped up action against
unlicensed optical disc plants. China has made progress on implementation of measures to
reduce end-user software piracy and agreed to strengthen enforcement against company name
misuse. In Taiwan, prosecutions for business software piracy have increased, and Taiwan passed
legislation making illegal and subjecting to civil and criminal liability services that intentionally
facilitate peer-to peer file sharing. Seizures of counterfeit pharmaceuticals have increased in
Indonesia and Nigeria. India has approved initiating action for accession to the Madrid Protocol.
China and Australia joined the two key World Intellectual Property Organization (WIPO) treaties
for copyright protection. Malaysia launched a new intellectual property (IP) Court, consisting of
15 sessions courts and 6 high courts. Vietnam has taken actions to address the problem of signal
piracy. The country sections of this Report describe numerous other positive developments.

In 2007, the United States worked to strengthen IPR laws and enforcement around the globe.
The three pending free trade agreements (FTAs) all contain world-class IPR provisions, and FTA
partner countries such as the Dominican Republic and Oman overhauled their IPR laws as part of
the FTA implementation process.

In addition, USTR is pleased to announce that the following countries are having their status
improved in the Special 301 Report or are being removed entirely because of progress on IPR
issues this past year:
    ·        Belize is being removed from the Watch List due to improvements in IPR
             enforcement efforts following heightened engagement with the United States.
    ·        Egypt is being moved from the Priority Watch List to the Watch List due to
             improvements in pharmaceutical IPR protection. The United States urges Egypt to
             make further improvements, however, in its IPR enforcement efforts and to further
             clarify its practices with respect to data protection.
    ·        Lebanon is being moved from the Priority Watch List to the Watch List due to
             improvements in IPR enforcement efforts. Despite this progress, the United States
             urges Lebanon to pass long-awaited IPR amendments.
    ·        Lithuania is being removed from the Watch List due to improvements in IPR
             enforcement and passage of IPR legislation following heightened engagement with
             the United States.
    ·        Turkey is being moved from the Priority Watch List to the Watch List due to
             improvements in IPR protection. The United States encourages Turkey to make
             further improvements to its IPR protection and enforcement regimes.
    ·        Ukraine is being moved from the Priority Watch List to the Watch List due to
             improvements in IPR protection following close engagement with the United States
             during WTO accession negotiations. The United States urges Ukraine to continue,
             however, to make improvements in IPR enforcement and to effectively implement its
             recently passed IPR laws.

The United States commends this positive progress by our trading partners. The United States
will continue to work with these and other countries to achieve further improvements in IPR
protection and enforcement during the coming year.
Free Trade Agreements and Implementation

The United States is committed to promoting strong intellectual property rights through a variety
of mechanisms, including the negotiation of FTAs, which contain intellectual property chapters
that establish strong protections for copyrights, patents, and trademarks, as well as rules for
enforcement.

The United States is pleased to have worked together with many countries to strengthen IPR
protection and enforcement through bilateral and multilateral FTAs. Agreements concluded in
recent years include the Republic of Korea FTA (KORUS FTA), Panama Trade Promotion
Agreement, Bahrain FTA, Oman FTA, the Peru Trade Promotion Agreement, the Colombia
Trade Promotion Agreement, and the Central America-Dominican Republic Free Trade
Agreement (CAFTA-DR) which covers Costa Rica, El Salvador, Guatemala, Honduras,
Nicaragua, and the Dominican Republic. Each of these FTAs has resulted in commitments to
strengthen IPR protection and enforcement in those countries. In regions such as the Middle
East and Asia, the United States has used an increasing number of trade and investment
framework agreement (TIFA) negotiations to enhance intellectual property protection and
enforcement.

Following the conclusion of these agreements, the United States continues to work closely with
our trading partners to ensure proper implementation of FTA obligations under domestic law and
strengthen bilateral cooperation.

Generalized System of Preferences (GSP) Reviews

As another mechanism for promoting strong intellectual property regimes around the world,
USTR reviews IPR practices in connection with the implementation of trade preference
programs such as the Generalized System of Preferences (GSP). USTR will continue to review
IPR practices in Russia, Lebanon, and Uzbekistan under ongoing GSP reviews.

Anti-Counterfeiting Trade Agreement (ACTA)

On October 23, 2007, U.S. Trade Representative Susan C. Schwab announced that the United
States will seek to negotiate an Anti-Counterfeiting Trade Agreement (ACTA). ACTA will
bring together countries that recognize the critical importance of strong IPR enforcement for a
prosperous economy. The ACTA is envisioned as a leadership effort among countries that will
raise the international standard for IPR enforcement to address today's challenges of
counterfeiting and piracy. ACTA will build upon the Administration's prior bilateral and
regional cooperation successes.

STOP! Initiative

USTR is actively engaged in implementing the Administration's Strategy Targeting Organized
Piracy (STOP!) initiative. Announced in October 2004, STOP! brings together all the major
players ­ the federal government, private sector, and trading partners ­ to take concerted action
to crack down on piracy and counterfeiting. The initiative is part of an effort to enhance
coordination among all relevant U.S. Government agencies and U.S. trading partners to tackle
this global problem. As part of STOP!, USTR continues to advocate the adoption of best
practices guidelines for IPR enforcement.

As part of this effort, USTR, in coordination with other agencies, is introducing new initiatives in
multilateral fora to improve the global intellectual property environment that will aid in
disrupting the operations of pirates and counterfeiters. In addition to the ACTA effort described
above, key initiatives have gained endorsement and are undergoing implementation in the G-8,
the U.S.-EU Summit, the Security and Prosperity Partnership (SPP) with Canada and Mexico,
the Organization for Economic Cooperation and Development (OECD), and the Asia-Pacific
Economic Cooperation (APEC) forum.

Implementation of the U.S.-EU Action Strategy for IPR Enforcement has focused on addressing
concerns in key countries such as China and Russia through closer coordination and information
exchange, in addition to increasing customs cooperation and providing technical assistance to
third countries. Through a bilateral working group, the two sides have established regular
information exchanges on efforts to improve China's intellectual property climate, and have
deepened their IPR-related cooperation in the context of Russia's WTO accession. The Parties
have expanded this cooperative dynamic to other regions of the world including Southeast Asia
and Latin America.

The Leaders of Canada, Mexico, and the United States launched the Security and Prosperity
Partnership of North America (SPP) in 2005 to address issues related to economic competition
resulting from shifting patterns of trade and investment worldwide. The governments
subsequently established an Intellectual Property Working Group under the SPP. USTR,
together with the Department of Commerce, jointly leads the U.S. delegation to the SPP IP
Working Group. The SPP IP Working Group developed a trilateral Intellectual Property Rights
Action Plan, which leaders announced at the SPP Summit in Montebello, Canada, in August
2007. The Action Plan constitutes a strategy for governments and the private sector to combat
piracy and counterfeiting in North America. The governments of Canada, Mexico, and the
United States have agreed to take action in three areas: (1) detecting and deterring trade in
counterfeit and pirated goods; (2) increasing consumer awareness of the adverse effects of
counterfeiting and piracy; and (3) measuring the depth and scope of counterfeiting and piracy.

Through efforts by the United States, APEC endorsed the "Anti-Counterfeiting and Piracy
Initiative" in 2005, which paved the way for the adoption of a number of U.S. led proposals.
Some of these initiatives include Model Guidelines on reducing trade in counterfeit and pirated
goods by protecting against unauthorized copies, preventing the sale of counterfeit goods over
the Internet, raising public awareness on IP protection and enforcement efforts, and securing
supply chains. Other initiatives include a paper on innovative techniques for IPR border
enforcement and commitments made by the APEC leadership on combating signal theft, and
addressing markets that knowingly sell counterfeit and pirated goods. The United States will
continue to introduce initiatives that build on past accomplishments.
Global Scope of Counterfeiting and Piracy

The continuing growth of IPR theft and trade in fakes and pirated materials threatens innovative
and creative economies worldwide. Counterfeiting has evolved in recent years from a localized
industry concentrated on copying high-end designer goods to a sophisticated global business
involving the mass production and sale of a vast array of fake goods, including items such as
soaps, shampoos, razors, electronics, batteries, cigarettes, alcoholic beverages, sporting goods,
automobile parts, motorcycles, medicines, and health care products, among others. Not only is
there greater diversification in the types of goods that are being counterfeited, but industry
reports a growing trend in the production of labels and components for these fake products.
Exploiting free trade zones, counterfeiters are establishing a global trade in these items, shipping
them separately to be assembled and distributed in another country.

Counterfeiting not only affects the profits of legitimate producers, but also impacts consumers
who waste money and sometimes risk their safety by purchasing fake goods. It also damages
the economies of the countries in which it occurs by decreasing tax revenue and deterring
investment. Counterfeiters generally pay no taxes or duties, and they often disregard basic
standards for worker health and safety, and product quality and performance. Piracy of
copyrighted products in virtually all formats, as well as counterfeiting of trademarked goods, has
grown rapidly because these criminal enterprises offer enormous profits and little risk.
Counterfeiters and pirates require little up-front capital investment, and even if caught and
charged with a crime, the penalties imposed on convictions in many countries are so low that
they offer little or no deterrence.

Stronger and more effective criminal and border enforcement is required to stop the manufacture,
import, export, transit, and distribution of pirated and counterfeit goods. Through bilateral
consultations, FTAs, and international organizations, USTR is working to maximize the deterrent
effects of remedies, including stronger penalties and requirements for the seizure and destruction
of pirated and counterfeit goods, and the equipment used in their production.

       Counterfeit Pharmaceuticals

The manufacture and distribution of counterfeit pharmaceuticals is a growing problem that poses
special concerns for consumer health and safety. The United States notes its concern with the
proliferation of the manufacture of counterfeit pharmaceuticals in Brazil, China, India, Mexico,
and Russia, and the sale and distribution of counterfeit pharmaceuticals in many countries. A
significant contributing factor in this problem is the unauthorized use of bulk active
pharmaceutical ingredients (APIs) to manufacture counterfeit pharmaceuticals. Countries must
do more to provide their relevant agencies with the authority to regulate and enforce against the
unauthorized use of APIs domestically and to ensure that they are not exported for unauthorized
use abroad. Also, countries must do more to enforce vigilantly against the manufacture and
distribution of counterfeit pharmaceuticals.
       Consumer Safety

While counterfeit pharmaceuticals and medical devices pose the most obvious health and safety
hazards to consumers, many industries are affected by counterfeit goods that can put consumers
at risk. Substandard products in the automotive, chemical, wine and spirits, tobacco, food, and
consumer goods/personal care product sectors could have considerable adverse effects on
consumer health and safety. This issue is of particular concern in China and Russia, but also
affects consumers in the United States. Weaknesses in the distribution and supply chains must
be addressed in order to prevent injury to consumers who believe that they are purchasing or
using a legitimate product.

Notorious Markets

Global piracy and counterfeiting continue to thrive, due in part to large marketplaces that deal in
infringing goods. This year's Special 301 Report notes the following virtual and physical
markets as examples of marketplaces that have been the subject of enforcement action, or may
merit further investigation for possible IPR infringements, or both. The list represents a selective
summary of information reviewed during the Special 301 process; it is not a finding of violations
of law. The United States encourages the responsible authorities to step up efforts to combat
piracy and counterfeiting in these and similar markets.

       Virtual Markets

Allofmp3 (Russia). Industry reports that allofmp3 was formerly the world's largest server-
based pirate music website. Although the site's commercial operations appear to have been
disabled in 2007 and a criminal prosecution is pending, other Russian-based websites are
reportedly continuing operations with similar infringing content.

Baidu (China). Industry has identified Baidu as the largest China-based "MP3 search engine"
offering deep links to copyright-protected music files for unauthorized downloads or streaming.
Baidu is the target of ongoing infringement actions.

Business-to-business (B2B) and business-to-consumer (B2C) websites (China). A large
number of these Chinese websites, such as Alibaba and Taobao, have been cited by industry as
offering infringing products to consumers and businesses. The Internet traders who use these
online markets to offer counterfeit goods are difficult to investigate, and contribute to the growth
of global counterfeiting.

PirateBay (Sweden). Industry reports that PirateBay is one of the world's largest BitTorrent
tracker sites and a major global conduit for the unauthorized exchange of copyright-protected
film and music files. PirateBay was raided by Swedish police in 2006, and the government
initiated the prosecution of four Swedes associated with the site in January 2008, but the site has
continued to operate, reportedly relying on servers located outside of Sweden.
       Physical Markets

Silk Street Market (Beijing, China). Industry has cited Beijing's Silk Street Market as
"perhaps the single biggest symbol of China's IP enforcement problems." In 2005, authorities
began to pressure the landlords of Silk Street Market and other major retail and wholesale
markets in Beijing to improve compliance with IPR laws. In 2006, right holders prevailed in
several court actions related to the market, and executed a Memorandum of Understanding with
the landlords in June 2006. A January 2007 industry survey of the market reportedly showed
that counterfeiting has worsened, with apparent violations in 65 percent of all outlets. More
recent industry reports indicate that counterfeiting at Silk Street Market remains at critical levels.

China Small Commodities Market (Yiwu, China). The China Small Commodities Market in
Yiwu reportedly sells approximately 410,000 different items, mostly small consumer goods.
Industry has cited the market as a center for wholesaling of infringing goods. Officials in Yiwu
have met repeatedly with U.S. Government officials and stressed their work to improve IPR
enforcement. Industry confirms that enforcement in Yiwu has improved. Continued
improvement is needed, particularly in the area of criminal enforcement.

Gorbushka, Rubin Trade Center, and Tsaritsino Markets (Moscow, Russia). Industry
representatives report that piracy problems persist in these markets, though the situation has
improved at the Gorbushka and Rubin Trade Center.

Tri-Border Region (Paraguay, Argentina, and Brazil). The Tri-Border Region of Paraguay,
Argentina, and Brazil has a longstanding reputation as a hotbed of piracy and counterfeiting of
many products. The U.S. Government is funding a training project through which U.S.
Department of Justice and U.S. Department of Homeland Security officials will train
prosecutors, police, and customs officials from the Tri-Border Region to combat intellectual
property crime. Although Ciudad del Este remains the hub for pirate activities in Paraguay,
industry reports that trade there has declined and that commercial concentrations are shifting to
other cities. Through a revised Memorandum of Understanding between the United States and
Paraguay on IPR enforcement, the United States will be encouraging Paraguay to increase
enforcement action with respect to a number of specifically-identified markets in that country.

Tepito, Plaza Meave, Eje Central, Lomas Verdes, and Pericoapa Bazaar (Mexico City);
Simitrio-La Cuchilla (Puebla, Mexico); San Juan de Dios (Guadalajara, Mexico); and
Pulgas Mitras and La Ranita (Monterrey). An estimated 50,000 vendors sell IPR products in
Mexico's ubiquitous, unregulated street markets. Past police raids on such markets have
sometimes been met with violent resistance, requiring large contingents of security personnel.

Czech Border Markets (Czech Republic). Hundreds of open air market stalls are notorious for
selling pirated and counterfeit products near the Czech border, including at the notorious Asia
Dragon Bazaar in Cheb City. Many of these markets are highly organized, and even advertise on
the Internet.

La Salada (Buenos Aires, Argentina). This is the largest of more than 40 large, well-
established markets in Buenos Aires that have been cited as being heavily involved in the sale of
counterfeit goods. An estimated 6,000 vendors sell to 20,000 customers daily. The market is
reputed to be a haven for organized criminal gangs that operate from within it, resulting in little
to no IPR enforcement.

Neighborhood of Quiapo (Manila, Philippines). Street stalls in this neighborhood are
notorious for selling counterfeit and pirated merchandise. Other notorious markets in Manila
include Binondo, Greenhills, Makati Cinema Square, and Metrowalk.

Harco Glodok (Jakarta, Indonesia). This is reported to be one of the largest markets for
counterfeit and pirated goods in Indonesia, particularly well-known for pirated optical discs.
Enforcement officials are reportedly reluctant to conduct regular enforcement actions because of
the presence of organized criminal gangs.

Panthip Plaza, Mah Boon Krong (MBK) Center, Klong Thom, Patpong, and Sukhumvit
Road (Bangkok, Thailand). These locations are notorious for openly selling pirated and
counterfeit goods. They are all designated as "red zones" by Thai authorities, which indicates
that they are places where infringing products are most readily available.

Destruction of Seized Counterfeit Goods and Manufacturing Equipment

The destruction of seized counterfeit goods, materials, and related manufacturing equipment is a
reliable way to ensure that these goods do not wind up in the hands of consumers. Many
countries resort to less effective, alternative measures, such as auctioning off the goods and
manufacturing equipment without the right holder's consent, or removing the trademarks on the
goods and then reselling them. These methods do not effectively keep these goods out of the
hands of consumers, and frequently put them back into the hands of counterfeiters. Industry
reports highlight China, Egypt, the Philippines, Russia, Ukraine, and Uruguay as countries that
do not sufficiently enable the destruction of goods or equipment.

In-Transit Goods

In-transit goods pose continuing IPR problems. "In-transit goods" means goods under "Customs
transit" and "transshipped" goods as defined in the International Convention on Simplification
and Harmonization of Customs Procedures (Kyoto Convention). These are goods that enter one
customs territory but are intended for another destination. They pose a high risk for
counterfeiting and piracy because customs procedures may be used to disguise the true country
of origin of the goods or to enter goods into customs territories where border enforcement is
known to be weak. In-transit goods are significant problems in Hong Kong, Paraguay, the
Philippines, Ukraine, and Thailand, among others. In addition, U.S. industries report significant
problems in free trade zones in Belize, Chile, Egypt, Paraguay, the Philippines, United Arab
Emirates, and Vietnam, among others. The United States urges these countries to improve their
IPR border enforcement systems.
Internet Piracy and the WIPO Internet Treaties

The increased availability of broadband Internet connections around the world has made the
Internet an extremely efficient vehicle for disseminating pirated products. Internet piracy is a
significant concern in a number of countries, including Canada, China, Sweden, Spain, and
Russia, among others. In addition, unauthorized retransmission of live sports telecasts over the
Internet is reportedly becoming an increasing problem internationally, particularly in China.

The United States is continuing to work with other governments, in consultation with U.S.
copyright industries and other affected sectors, to develop strategies to address these global
problems. An important first step was achieved in 1996 when WIPO concluded two copyright
treaties, the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms
Treaty (WPPT) (collectively, the "WIPO Internet Treaties"). Following their entry into force in
2002, these treaties have raised minimum standards of intellectual property protection around the
world, particularly with regard to Internet-based delivery of copyrighted works. The WIPO
Internet Treaties have clarified exclusive rights and prohibit the circumvention of certain
technological measures that protect copyrighted works in on-line environments.

A growing number of countries are implementing the WIPO Internet Treaties to create a legal
environment conducive to investment and growth in Internet-related businesses and
technologies. As of April 2008, there are 64 members of the WCT and 62 members of the
WPPT. China and Australia acceded to these treaties in 2007. Membership will rise
significantly when the various EU Member States join. Other countries have implemented key
provisions of the treaties in their national laws without formally ratifying them. As a new part of
the international IPR legal regime, the WIPO Internet Treaties represent a majority world
community view that the vital framework of protection under existing agreements, including the
TRIPS Agreement, should be supplemented to eliminate any remaining gaps in copyright
protection on the Internet that could impede the development of electronic commerce. The
United States urges other governments to ratify and implement the WIPO Internet Treaties.

       Other Initiatives Regarding Internet Piracy

The United States is committed to a policy of promoting higher standards of intellectual property
protection by incorporating standards from the WIPO Internet Treaties as substantive obligations
in our bilateral and regional trade agreements, and by seeking accession to those treaties as a
substantive obligation under these agreements.

       Piracy Using New Technologies

Piracy using new technologies is an emerging problem internationally. For example, the U.S.
copyright industries report growing problems with piracy not only on the Internet, but also using
cellular telephones, palm devices, flash drives, and other mobile technologies. In some countries
these devices are being pre-loaded with illegal content before they are sold. In addition to piracy
of music and films using these new technologies, piracy of ring tones, games, telecasts, and
scanned books also occurs. Countries with significant problems of piracy using new
technologies include China, India, Indonesia, and Malaysia, among others. The United States
will work with these governments to combat these increasing problems.

       IPR and Interoperability

During recent years, a number of countries, mostly in Western Europe, have devoted increasing
attention to the relationship between intellectual property rights, digital rights management
technologies, and interoperability of consumer products and other devices. This emerging set of
issues represents potential new challenges in the area of effective protection of IPR. In France,
for example, copyright legislation enacted in August 2006 contains provisions enabling a
government entity to mandate the disclosure of IP-protected digital rights management
information in the interest of promoting interoperability. The United States has expressed
concern that this legislation may, depending on its implementation, impinge upon IPR of both
the creators of the digital rights management technologies and of creative works protected by
those technologies. Similar approaches reportedly are being considered in other European
countries, including Belgium, Germany, Norway, and Sweden. In addition, these issues are
receiving attention within the European Commission. In some cases, consumer protection laws
and regulatory authorities have been engaged to pursue interoperability at the potential expense
of IP right holders. This complex intersection of issues will continue to receive U.S. policy
attention in the coming year.

Controlling Optical Media Production

In recent years, some countries, such as Brazil, Indonesia, Malaysia, Nigeria, Pakistan, the
Philippines, and Ukraine, have made progress toward implementing controls on optical media
production. Other countries still need to adopt and implement legislation or improve existing
measures to combat pirate optical disc production, including Bangladesh, China, India, Russia,
and Thailand, which have not made sufficient progress in this area. The United States continues
to urge its trading partners who face pirate optical media production within their borders to pass
effective legislation and aggressively enforce existing laws and regulations.

Government Use of Software

Under an Executive Order issued in October 1998, United States Government agencies maintain
appropriate and effective procedures to ensure the authorized and legitimate use of business
software. Pursuant to the same directive, USTR has undertaken an initiative to work with other
governments, particularly in countries that are modernizing their software management systems
or where concerns have been raised, to stop governmental use of unauthorized or illegal
software.

Considerable progress has been made under this initiative. In 2006, APEC economies agreed
that central government agencies should use only legal software and other copyrighted materials
and should implement effective policies intended to prevent copyright infringement on their
computer systems and via the Internet. Numerous countries and territories have mandated that
only authorized, legitimate software may be used by government ministries. Some countries that
have enacted such decrees or are in the process of implementing them include Bolivia, Chile,
China, Colombia, Costa Rica, the Czech Republic, France, Greece, Hong Kong, Hungary,
Ireland, Israel, Jordan, Korea, Lebanon, Macau, Paraguay, Peru, the Philippines, Spain, Taiwan,
Thailand, Turkey, the United Kingdom, and Vietnam, among others. The United States
commends these governments for setting a positive example and expects these measures to be
fully implemented. The United States looks forward to the adoption by other governments of
effective and transparent procedures to ensure legitimate use of software.

Implementation of the WTO TRIPS Agreement

The TRIPS Agreement requires all WTO members to provide certain minimum standards of IPR
protection and enforcement, and was one of the most significant achievements of the Uruguay
Round General Agreement on Tariffs and Trade (GATT). The TRIPS Agreement is the first
broadly-subscribed multilateral intellectual property agreement that is subject to mandatory
dispute settlement provisions.

Developed country members were required to implement the TRIPS Agreement fully as of
January 1, 1996. Developing countries were given a transition period for many obligations until
January 1, 2000. Recognizing the particular challenges faced by least-developed countries, in
2005 the United States worked closely with them and other WTO members to extend the
implementation date for these countries from January 2006 to July 2013. The least developed
country members in turn pledged to preserve the progress that some have already made toward
TRIPS compliance. In addition, the least developed country members have until 2016 to
implement their TRIPS obligations for patent and data protection for pharmaceutical products, as
proposed by the United States at the Doha Ministerial conference of the WTO. The United
States looks forward to the successful completion of this transition. The United States
participates actively in the WTO TRIPS Council's scheduled reviews of WTO Members'
implementation of the TRIPS Agreement, and also uses the WTO's Trade Policy Review
mechanism to pose questions and seek constructive engagement on issues related to TRIPS
implementation.

Developing country members continue to make progress toward full implementation of their
TRIPS obligations. Nevertheless, certain members are still in the process of finalizing
implementing legislation and many are still engaged in establishing adequate IPR enforcement
mechanisms. Every year, the U.S. Government provides extensive technical assistance and
training on the implementation of the TRIPS Agreement to a large number of U.S. trading
partners. Such assistance is provided by a number of U.S. Government agencies, including the
U.S. Patent and Trademark Office, the U.S. Copyright Office, the Department of State, the U.S.
Agency for International Development, U.S. Customs and Border Protection, the Department of
Justice, and the Department of Commerce. In addition, U.S. industry is actively involved in
providing specific enforcement-oriented training in key markets around the world. The United
States will continue to work with WTO members and expects further progress in the near term to
complete the TRIPS implementation process. However, in those instances in which additional
progress is not achieved, the United States will consider other means of encouraging
implementation, including the possibility of recourse to dispute settlement consultations.
The United States continues to work with other WTO Members, including the European
Communities, Japan, and Switzerland, to encourage a discussion within the WTO TRIPS
Council on implementation of the enforcement-related provisions of the TRIPS Agreement. The
United States hopes that the TRIPS Council can generate a useful sharing of experiences related
to IPR enforcement, in the interest of ensuring effective implementation of enforcement
obligations.

Intellectual Property and Health Policy

The Administration is dedicated to addressing the serious health problems, such as HIV/AIDS,
afflicting developing and least-developed countries in Africa and elsewhere. The United States
believes firmly that intellectual property protection, including for pharmaceutical patents, is
critical to the long term viability of a health care system capable of developing new and
innovative lifesaving medicines. Intellectual property rights are necessary to encourage rapid
innovation, development, and commercialization of effective and safe drug therapies. Financial
incentives are needed to develop new medications; no one benefits if research on such products
is discouraged.

At the same time, the United States is also firmly of the view that international obligations such
as those in the TRIPS Agreement have sufficient flexibility to allow countries, particularly
developing and least-developed countries, to address the serious public health problems that they
face. In this context, the United States strongly supports the 2001 Doha Declaration on the
TRIPS Agreement and Public Health. The Declaration acknowledged the serious public health
problems afflicting African and other developing and least-developed country members,
especially those relating to HIV/AIDS, malaria, tuberculosis, and other epidemics. Ministers
agreed that WTO intellectual property rules contain flexibilities to meet the dual objectives of,
on the one hand, meeting the needs of poor countries without the resources to pay for cutting
edge pharmaceuticals and, on the other hand, ensuring that the patent system continues to
promote the development and creation of new lifesaving drugs.

In addition, Ministers recognized that WTO Members with "insufficient or no manufacturing
capacities in the pharmaceutical sector" could have difficulty using the compulsory licensing
provisions of the TRIPS Agreement and directed the TRIPS Council to find an expeditious
solution to this problem. Under the TRIPS/health solution concluded in August 2003, Members
are permitted, in accordance with specified procedures, to issue compulsory licenses to export
pharmaceutical products to countries that cannot produce drugs for themselves. The General
Council adopted a Decision in December 2005 that incorporated this solution into an amendment
to the TRIPS Agreement, and later that month the United States became the first WTO Member
to formally accept this amendment. Other WTO Members now have until December 31, 2009 to
accept the amendment. It will go into effect, for those Members that accept it, once two-thirds of
the membership has accepted it. The August 2003 waiver will remain in place and available
until the amendment takes effect.

In recent free trade agreements with the parties to the U.S. ­ Central America ­ Dominican
Republic FTA (CAFTA-DR), and with Korea, Morocco, Bahrain, Oman, Peru, Colombia, and
Panama, the United States has clarified that the intellectual property provisions in the FTAs do
not impede the taking of measures necessary to protect public health. Specifically, the United
States has confirmed that the intellectual property chapters of the FTAs do not affect the ability
of the United States or our FTA partners to take necessary measures to protect public health by
promoting access to medicines for all, in particularly concerning cases such as HIV/AIDS,
tuberculosis, malaria, and other epidemics as well as circumstances of extreme urgency or
national emergency. The United States has also made clear that the intellectual property chapter
of the FTAs will not prevent effective utilization of the TRIPS/health solution.

Supporting Pharmaceutical Innovation

USTR has sought to eliminate market access barriers faced by U.S. pharmaceutical companies in
many countries and to both provide for affordable health care today and support the innovation
that assures improved health care tomorrow. In addition to direct and indirect government
funding, a strong and effective intellectual property system is crucial to achieving these goals as
are other policies that encourage innovation in the health technology sector.

In the United States, government action has focused on creating an environment that encourages
innovation and yields a constant flow of new and innovative medicines to the market. The goal
has been to ensure that consumers benefit from both technological breakthroughs as well as the
competition that further innovation generates. The United States also relies on a strong generic
pharmaceutical industry to increase competitive pressure to lower drug prices.

Historically, the Special 301 process has focused on the strength of intellectual property
protection and enforcement by our trading partners. However, even where a country's IPR
regime is adequate, price controls and regulatory and other market access barriers can discourage
the development of new drugs. These barriers may include unreasonable regulatory approval
delays, linkages between dispensing and prescribing, and reference pricing and other potentially
unfair reimbursement policies. The criteria, rationale, and operation of such measures are often
nontransparent, not fully disclosed to patients or the pharmaceutical companies seeking to
market their drugs. A 2004 U.S. Government study, led by the Department of Commerce, found
that price controls and regulatory and other barriers diminish returns on pharmaceutical products,
and reduce the amount of global pharmaceutical research and development below what it would
otherwise be under market conditions, inhibiting the development of the next generation of life-
saving drugs.

To address these issues, USTR and the Departments of Health and Human Services, Commerce,
and State, formed a task force that is working to engage our OECD trading partners on the most
effective way to promote continued innovation in the pharmaceutical sector and enhanced access
to innovative pharmaceuticals now and in the future. This task force is working to achieve these
goals through FTA negotiations and the establishment of bilateral dialogues with key countries.

The United States addressed transparency and accountability of the Australian pharmaceutical
reimbursement system in the United States-Australia FTA, which went into effect in 2005. The
FTA also created a United States-Australia Medicines Working Group for continued discussion
of emerging bilateral concerns and health policy issues. The United States and Australia will
hold the second meeting of this Working Group in the first half of 2008 to review
implementation of the pharmaceutical provisions of the FTA and to discuss ongoing issues of
mutual concern

On April 1, 2007, the United States concluded negotiations on the United States-Korea Free
Trade Agreement (KORUS FTA). The KORUS FTA includes provisions on market access for
pharmaceutical and medical devices that go beyond those in any other U.S. FTA. Specifically,
the FTA includes commitments to improve access to innovative products and to ensure the
transparent, predictable, and non-discriminatory pricing and reimbursement of innovative and
generic pharmaceutical products, medical devices, and biologics. In addition, the Agreement
contains provisions to promote ethical business practices, establish a Medicines and Medical
Devices Committee to monitor implementation of commitments in this area, and create an
independent mechanism to review pricing and reimbursement decisions.

The United States also is seeking to establish or continue dialogues with OECD and other
countries to address concerns and encourage a common understanding between developed
countries on questions related to innovation in the pharmaceutical sector. The United States
already has had such dialogues with Japan and Germany, and is seeking to establish ones with
other countries. It also has established a dialogue on pharmaceutical issues with China. With
respect to Japan, pharmaceutical and medical device issues are an integral part of the
Administration's regulatory reform work. The United States has made steady progress in
helping to improve transparency in this sector, ensuring that foreign pharmaceutical and medical
device manufacturers have meaningful opportunities to provide input into important regulatory,
reimbursement, and pricing matters, facilitating the introduction of innovative new
pharmaceuticals and medical devices into Japan's market.

The United States also has held constructive discussions with Germany on policy goals and
concerns related to health care. During these discussions, the two sides have exchanged views
on how best to deal with challenges of balancing health care spending with other priorities and of
providing affordable health care today while supporting the innovation that assures improved
health care is available in the future. The United States also raised specific concerns related to
Germany's reference pricing system for determining product reimbursement and the
transparency of the German Government's decision-making process regarding pharmaceutical
pricing. The two governments plan to continue this dialogue.

The United States remains concerned about Poland's enactment in 2006 of a regulation
establishing wholesale and retail processes for drugs, which appears to reduce the official
maximum wholesale and retail prices for imported drugs by 13 percent while generally leaving
unchanged the prices for drugs of Polish origin. The U.S. pharmaceutical industry reports that
this regulation has had a significant impact by causing reduced prices for numerous products
manufactured outside Poland. The European Commission is currently conducting an
investigation which may lead to an infringement action against Poland based on this 13 percent
price cut. The United States shares the European Commission's concerns over this regulation,
and will continue to monitor closely the situation in Poland throughout the coming year.

The United States continues to urge China to price drugs in a manner that appropriately values
innovations and to add new drugs to its national formulary, which controls access to medicines
for China. The United States also urges China to adopt regulatory and reimbursement policies
for medical devices that support innovation and increase the transparency and predictability in
that market.

The United States shares policy goals and concerns related to health care with other
industrialized countries, including challenges surrounding aging populations and rising health
care costs. The United States also shares the objective of continued improvement in the health
and quality of life of its citizens and delivering care in the most efficient and responsive way
possible. The United States hopes these dialogues will help to address specific concerns related
to price controls and regulatory and transparency issues, as well as to develop a constructive
dialogue with these countries on health policy issues of mutual concern.

During the coming year, the U.S. Government will continue to engage in dialogue with
industrialized country trading partners, including Italy, Germany, Canada, and France, on issues
related to innovation in the pharmaceutical sector and other aspects of health care goods and
services. In addition to continuing to advocate for pricing and reimbursement policies that
appropriately value innovation and which are administered in a transparent and open manner, the
United States will devote additional attention to trends in the area of health technology
assessment (HTA) and the relationship of such assessments to pricing policies. The United
States believes it important that HTA policies be implemented in a transparent manner and in
keeping with international standards of science-based evaluation. In addition, issues surrounding
the ability of health care consumers to obtain information about pharmaceutical and other
medical products merits additional attention and dialogue.

WTO Dispute Settlement

The United States will continue pursuing the resolution of WTO-related disputes announced in
previous Special 301 reviews and determinations. The most efficient and therefore preferred
manner of dispute resolution is through informal consultation and settlement, but where this is
unsuccessful, the United States will consider fully utilizing the dispute settlement process.

In April 2007, the United States requested WTO dispute settlement consultations with China
over deficiencies in China's legal regime for protecting and enforcing copyrights and trademarks
on a wide range of products. After those consultations failed to resolve the matter, on August 13,
2007, the United States requested the establishment of a WTO panel. The panel request
expresses United States concerns that certain Chinese measures are inconsistent with China's
obligations under the TRIPS Agreement. The panel request focuses on three main issues:
quantitative thresholds in Chinese law that must be met in order to start criminal prosecutions of
copyright piracy and trademark counterfeiting and that appear to create a substantial safe harbor
for those who manufacture, distribute, or sell pirated and counterfeit products in China; rules for
disposal of IPR infringing goods seized by Chinese customs authorities; and the apparent denial
of copyright protection to works poised to enter the Chinese market but awaiting Chinese
censorship approval. A WTO panel was established to examine this matter on September 25,
2007, and panelists were appointed on December 13, 2007.
In addition, the United States requested WTO dispute settlement consultations with China
concerning certain other Chinese measures that appear to be inconsistent with various WTO
obligations of China. This consultation request focuses on a Chinese legal structure that denies
foreign companies the right to import publications, movies, music, and videos, that severely
impedes the efficient and effective distribution of publications, music and videos within China,
and that disadvantages imported publications, movies and music vis-à-vis their domestic
counterparts in their distribution. As the United States and China were unable to resolve this
dispute in these consultations, the United States filed on October 10, 2007, a request for the
establishment of a WTO panel. A WTO panel was established to examine this matter on
November 27, 2007, and was composed on March 27, 2008.

Following the 1999 Special 301 review, the United States initiated dispute settlement
consultations concerning the European Union's (EU) regulation on food-related geographical
indications (GIs), based on concerns that the regulation was inconsistent with the EU's TRIPS
Agreement obligations. These consultations resulted from the United States' long-standing
complaint that the EU GI system discriminates against foreign products and persons ­ notably by
requiring that EU trading partners adopt an "EU-style" system of GI protection ­ and provides
insufficient protections to trademark owners. After those consultations failed to resolve the
matter, on August 18, 2003, the United States requested the establishment of a panel, and
panelists were appointed on February 23, 2004.

On April 20, 2005, the WTO Dispute Settlement Body ("DSB") adopted a panel report ruling in
favor of the United States that the EU GI regulation is inconsistent with the EU's obligations
under the TRIPS Agreement and the General Agreement on Tariffs and Trade 1994. In the panel
report adopted by the DSB, the panel agreed that the EU's GI regulation impermissibly
discriminates against non-EU products and persons. The panel also agreed with the United
States that Europe could not, consistent with WTO rules, deny U.S. trademark owners their
rights; it found that, under the regulation, any exceptions to trademark rights for the use of
registered GIs were narrow, and limited to the actual GI name as registered. The DSB
recommended that the EU amend its GI regulation to come into compliance with its WTO
obligations, and the EC was given until April 3, 2006 to do so. On March 31, 2006, the EC
published a revised GI Regulation that is intended to comply with the DSB recommendations
and rulings. There remain some concerns, however, with respect to this revised GI Regulation,
which the United States has asked the EC to address, and the United States intends to continue
monitoring this situation.
                               BACKGROUND ON SPECIAL 301

Pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and
Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994)
("Special 301"), under Special 301 provisions, USTR must identify those countries that deny
adequate and effective protection for IPR or deny fair and equitable market access for persons
that rely on intellectual property protection. Countries that have the most onerous or egregious
acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact
(actual or potential) on the relevant U.S. products must be designated as "Priority Foreign
Countries."

Priority Foreign Countries are potentially subject to an investigation under the Section 301
provisions of the Trade Act of 1974. USTR may not designate a country as a Priority Foreign
Country if it is entering into good faith negotiations or making significant progress in bilateral or
multilateral negotiations to provide adequate and effective protection of IPR.

USTR must decide whether to identify countries within 30 days after issuance of the annual
National Trade Estimate Report. In addition, USTR may identify a trading partner as a Priority
Foreign Country or remove such identification whenever warranted.

USTR has created a "Priority Watch List" and "Watch List" under Special 301 provisions.
Placement of a trading partner on the Priority Watch List or Watch List indicates that particular
problems exist in that country with respect to IPR protection, enforcement, or market access for
persons relying on intellectual property. Countries placed on the Priority Watch List are the
focus of increased bilateral attention concerning the problem areas.

Additionally, under Section 306, USTR monitors a country's compliance with bilateral
intellectual property agreements that are the basis for resolving an investigation under Section
301. USTR may apply sanctions if a country fails to satisfactorily implement an agreement.

The interagency Trade Policy Staff Committee, in advising USTR on the implementation of
Special 301, obtains information from and holds consultations with the private sector, U.S.
embassies, foreign governments, and the U.S. Congress, among other sources.