Feb 23, 1989

BRAZIL U.S. DISPUTE REFERRED TO GATT PANEL FOR ADJUDICATION.

GENEVA, FEBRUARY 21 (IFDA/CHAKRAVARTHI RAGHAVAN) The legality of the controversial section 301 of the U.S. trade and tariff act, in terms of U.S. obligations under the general agreement, will now be adjudicated upon in GATT, as a result of the decision of the GATT Council Tuesday.

While the U.S. law's GATT legality has been challenged by most other trading nations, and came in for strong condemnation in the GATT council on February 8 in a general debate raised by the European Community, this will be the first time that GATT mechanisms will be able to determine the validity of the U.S. actions.

The process, GATT participants note, will no doubt be long and face many roadblocks at every stage - agreement on panelists and terms of reference, report of the panel, and its adoption by the GATT Council.

Nevertheless, many GATT members, even those who agree with the U.S. on intellectual property protection, feel satisfied that the GATT has at long last got an opportunity to squarely face up to the U.S. law and U.S. actions.

The GATT Council agreed Tuesday to set up a panel to look into Brazil's complaint over the U.S. unilateral action of imposing discriminatory 100 percent tariffs on about 40 million dollars worth of products imported annually from Brazil.

The U.S. had acted under section 301 of the trade and tariff act, which empowers the administration to take such action on the basis of its own determination that one of the U.S. trading partners is resorting to "unfair trade" practices to the detriment of U.S. enterprises.

The composition of the panel and its terms of reference have to be settled by the chairman of the GATT council in consultation with the two parties.

Several other countries have announced their interest in the dispute and intention to intervene before the panel. These included: the EEC, Japan, Switzerland, Canada, South Korea, Egypt, Thailand, Pakistan, India, Colombia, Yugoslavia, Cuba, Nicaragua and Chile.

The U.S., which had been blocking reference of the dispute to a panel, announced Tuesday that while it would not join the consensus it would not block a consensus either.

Before the meeting, third world sources had said that it was their impression that if the U.S. continued to block a consensus, Brazil would push matters to a decision, by vote if necessary.

The issue has been before the GATT in one form or another for nearly a year, ever since the U.S. issued public notice of its intention to act and listing several billion dollars worth of Brazilian products for possible targets of attack.

This is the third time that the request for a panel had come up before the Council. On the last two occasions, in December and February, the U.S. had blocked a consensus.

But it has been increasingly isolated, with Brazil receiving the support at the February 8 meeting of the council of over 50 GATT Contracting Parties.

The U.S. has also found itself in a difficult situation, since on several occasions when it had been the complainant, the U.S. had insisted on the right of any CP to get a panel appointed as a matter of right. In the Uruguay round negotiating group, the U.S. has also been pushing for this, including for time limits for the entire processes of consultation and reference to a panel etc.

Before the Council acted Tuesday, Samuels reiterated the U.S. position of right of unilateral "retaliation" and said: "we cannot terminate retaliation without provision by Brazil of product patent protection for pharmaceuticals and fine chemicals. There should be no illusion that a panel can help resolve this matter simply by examining one side of the issue".

Samuels used some pretty rough language over Brazil's patents policies, calling it variously as "misappropriation", "piracy" and, "robbery".

This brought the riposte from ricupero that "the only type of familiarity Brazil has ever had with this type of alleged behaviour was in the condition of victim" - a reference to Brazil's experience as a colony and after independence when its shipping and trade were attacked by European and North American pirates.

Ever since the issue came up nearly a year ago, Brazil has consistently insisted that its patent laws are fully in accord with the Paris Convention on patents and trade markets, the only applicable international legal regime administered by the World Intellectual Property Organisation (WIPO).

On the U.S. claim of right of unilateral actions, ricupero quoted GATT Director-General's remarks at the GATT Council in February (in the general debate over section 301 raised by EEC) to the effect that any such right was contrary to the general agreement.

Dunkel had then said: "discriminatory import tariffs are contrary to article one of the general agreement. There is no exception in the general agreement which could justify discriminatory import tariffs imposed for the particular purpose of inducing another Contracting Party to bring its trade policies into conformity with the general agreement."

Instead of demonstrating in a convincing way how the U.S. measures could be justified in GATT, the U.S. delegate had attempted to paint Brazil's intellectual property policy in an "over simplistic and distorted way", Ricupero declared.

There was never any allegation that Brazilian laws were not in conformity with the present international law.

Brazil had always been ready to discuss any matter about intellectual property protection, provided the discussion was in the right forum, namely the WIPO, which had the thematic and technical competence on these matters.

But short of arguments to justify its conduct, the U.S. had repeated "inappropriate and unacceptable words and expressions" to describe Brazilian behaviour.

The U.S. statements in the Council, Ricupero underscored, were "a very candid and unmistakable admission" of the U.S. violation of the Punta del Este standstill commitments under which the U.S. undertook not to take any measures inconsistent with the GATT or take any trade measures in such a manner as to improve its negotiating position.

Earlier, Samuels had said that if there had been adequate international rules requiring protection of inventions and a forum to address them, the U.S. would have challenged Brazil there.

But there were no such rules or forum and hence the U.S. efforts to seek Uruguay round negotiations on intellectual property.

In the face of Brazil's "recalcitrance" in this case (in refusing U.S. demands), the U.S. had no effective international forum nor adequate international rules to apply and had hence imposed the tariffs on Brazilian products.

In the U.S. view, there was an imbalance in the rights and obligations in GATT that enabled Brazil to address a trade dispute affecting Brazilian exports while the U.S. was denied the right to address the Brazilian practices that affected U.S. trade interests.

While there were no rules to protect inventors in their "commercial transactions", and while awaiting such rules and dispute settlement procedures, "we cannot ... abandon these vital areas of commerce to robbery by ruling out trade-restrictive measures that may be necessary to respond to such robbery".

The U.S. measures, Samuels claimed, were not for its own benefit. By its success "in prying open previously closed markets", the U.S. would be benefiting exporters of these products around the world and authors and inventors of all countries.

The U.S. had raised the tariffs on Brazilian products because of all the CPS "Brazil alone has shown no intention of providing any form of patent protection for these products".

Samuels defiantly added: "we cannot terminate retaliation without provision by Brazil of product patent protection for pharmaceuticals and fine chemicals. There should be no illusion that a panel can help resolve this matter simply by examining one side of the issue".