Mr. SHAPIRO. Mr. Chairman, I would say that this issue, with respect to our U.S./EC bilateral relations, this issue is one of the most serious that we are engaged on.

The question of when we reach that point is something that I think we at USTR, you on the Hill, and the affected industries would have to think long and hard about.

A scheme like the French levy scheme is very troubling to us and the way you have described the generic problem is an accurate description.

At the same time, we continue to do business there. Our copyrighted works are in Europe. There is a strong market for them there. And as a consequence, we would have to think very carefully about taking trade action.

Mr. HUGHES. That's not something that you could decide precipitously. There's no question about it because it flies in the face of much of what we believe.

We believe in cultural diversity and we think it is healthy that we increase cultural exchange.

And I really believe we would feel that way even if we didn't have a lion's share in the international market place because that's inherent in the fabric of our society.

It seems to me that we are getting to a point that what is occurring to American industries is just totally unacceptable and we need to find ways to deal with that.

I'm not suggesting that that would be an easy decision on our part because it would not be.

Mr. SHAPIRO. I agree with what you are saying, Mr. Chairman. Let me add that one of the things that is disconcerting about a scheme like the French levy scheme and the ones that are proliferating in Europe is that to some extent whatever arguments they make on the cultural side, and we don't accept those arguments, but whatever arguments they make about cultural issues, these kind of schemes simply turn it into a financial issue where basically they are taking money that should be going to our rightsholders and using it to subsidize theirs. I think that is a very serious issue for us.

Mr. HUGHES. It has existed since 1985 with the French. It's not a new issue. I think the trend you've described is dangerous.

That trend is going to require us to review a whole host of reasons why we should continue a regime that enables people to take property that doesn't belong to them and use that against us.

I was a prosecutor for about 10 years and we had different names for things like that.

Anyway, thank you. I appreciate your candor today and your testimony. Thank you very much. The gentleman from California. Mr. MOORHEAD. Thank you. I also want to welcome you, Mr. Shapiro.

Mr. SHAPIRO. Thank you.

Mr. MOORHEAD. A few years ago, Senators DeConcini, Leahy and myself were involved in the reciprocity provision, section 914.

You seem to be, according to your statement on pages 9 and 10, you seem to have some disenchantment with that particular provision.

If you do waive them, what form of protection does the administration hold?

Mr. SHAPIRO. Mr. Moorhead, I didn't mean to be unduly critical of that act.

One of the things I was trying to express in the testimony is that when we depart from the national treatment principle, even in the circumstance where it appears to be justified, given the specific situation, it has consequences for us in terms of our trading partners being able to say that we are no longer adhering to that principle. And as a consequence, they ought to be able to resort to reciprocity. As a consequence, we haven't gone down that road again since that act.

Mr. MOORHEAD. Are trading partners having difficulties with 914? Have they been holding it up?

Ms. FIELD. That is one of the arguments that is often used in our discussions with other trading partners.

They talk about the history that we both have in the area of semiconductor protection, one of reciprocity and also indicate this is an example of why you need to examine the economics of the situation in each case.

Mr. MOORHEAD. Doesn't it come down to the fact though that in these negotiations that everyone grasps for every spark they can get a hold of to use for arguments? Do you really think they are going to go any place?

Ms. FIELD. I think negotiators are precisely that way. I think they use the available arguments whether or not they are strong. The question is, faced with the situation that we are with a copyright-based regime, whether denial of national treatment in that context is acceptable. I think that's where we have to keep the focus.

Mr. MOORHEAD. Generally, what countries are pressing the hardest for a revision of the Berne Treaty? Can a revision be done in such a way as to be beneficial to the United States?

Ms. FIELD. It's difficult to say who is pressing the hardest for the Berne Protocol. I think it is more of an exercise of clarifying the convention.

The European Community, for example, would like to see some kind of international imprimatur on its recent work in the copyright area. So they are very much interested in this exercise.

Mr. MOORHEAD. One of the things they would like to do is to make changes in U.S. policy.

Ms. FIELD. You mean that might be one of their objectives?
Mr. MOORHEAD. Yes.

Ms. FIELD. Yes. That is. But, as I said, this is in negotiation and that's something that we're not intending to do.

Mr. MOORHEAD. How strong is the influence of the developing Third World countries among the Berne members? Do you feel they are a threat to change the Berne Treaty in such a way as to have an adverse effect?

Ms. FIELD. I don't know if I am in a position to assess that right now. We're at the very early stages of the process.

The discussions at least that I have participated in have been primarily among the developed countries. I think it remains to be

seen what role the developing countries will play farther down the road in negotiations.

Mr. SHAPIRO. One of the things that strikes me, Mr. Moorhead, is that in the Uruguay Round of negotiations, we have obviously had a good deal of concern in working for a strong TRIPS text.

We have had to overcome and still have to overcome some of the opposition of some of the developing nations. One of the most difficult problems though is the fact that we are at logger heads with the EC on a number of key issues has made it difficult for us to come together and then unite and go forward and get the kind of text the developed world needs.

Mr. MOORHEAD. The EC seems to have some problems among themselves from time to time. When you have a developing organization of that kind you are bound to have points of pressure.

Mr. SHAPIRO. Yes. Although in this area-and there obviously are differences between the member states-but in this area, I'm not sure that given the way that some of the blank levy schemes have sort of proliferated, I think we have a concern with a large number of the states.

Mr. MOORHEAD. The last thing I wanted to ask about is the right of remuneration with respect to rental rights of records that is being recommended by the international bureau.

Are they also recommending that computer programs and other things of that sort also belong under the Berne Convention?

Ms. FIELD. The international bureau is or has in the past put forward the position that computer programs are covered by the Berne Convention.

That computer programs should be recognized as works. These were in the earlier discussions in the committee of experts.

Mr. MOORHEAD. Mr. Chairman, I ask unanimous consent that my opening statement be made a part of the record.

Mr. HUGHES. Without objection, so ordered. The gentleman is free when we excuse Mr. Shapiro to make a statement. Whatever the gentleman prefers. I know the gentleman was tied up. Without objection. So received.

[The prepared statement of Mr. Moorhead follows:]

PREPARED STATEMENT OF HON. CARLOS J. MOORHEAD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Thank you, Mr. Chairman and I would like to commend you for scheduling this, the second day of oversight hearings on a possible protocol to the Berne Convention. Today we will receive testimony on the all-important issue of national treatment, which is without question the foundation of the Berne Convention, and for that matter, all subsequent copyright conventions. The principle of national treatment recognizes that the citizens of one country shall enjoy all of the rights and privileges afforded by the laws of another country.

Under the principle of national treatment the United States has developed into the world's largest exporter of copyrighted works. America's creativity is the most sought after around the world. Unfortunately, national treatment is under serious attack, as other countries have actively implemented ways to short circuit it and in some cases, such as in the 1992 proposed EC directive dealing with hometaping, are disavowing it altogether.

We will hear testimony this morning from Robert Hadl,-the Vice President and General Counsel of MCA, Inc. about the French Video Levy Legislation which is just one glaring example of efforts to subvert national treatment. The bottom line is under this scheme, U.S. films which accounted for over 50% of all French box office collections and an even higher percentage of all French video collections and were

a significant presence on French television received only 7.5% of the collected levies which totalled $100 million in 1992.

Clearly such efforts to undermine national treatment, which WIPO has referred to as cancer must be stopped. I am concerned that as we deal with new technologies and ways of exploiting them, the efforts on behalf of some countries to create new beneficiaries will begin to spill over into other important copyright areas such as books.

I am encouraged that the Administration has taken a strong position in support of national treatment, and hopefully they, working closely with the Congress and the various copyright interests in this country can work together to reverse the current, troubling trend and thereby preserve the principle of national treatment. Thank you Mr. Chairman.

Mr. HUGHES. The gentleman from California, Mr. Berman.

Mr. HOWARD BERMAN. Thank you, Mr. Chairman. I wonder if I could just take my time now to have you try to educate me. This seems to be an area that I find myself very easy to keep forgetting what is going on and I need constant reminders.

Mr. SHAPIRO. That's why I have my friend at the table, Mr. Ber

man.

Mr. HOWARD BERMAN. Well, between the two of you. You described this French law that requires payment of royalties on blank-and is it audio and video tapes?

Mr. SHAPIRO. Yes.

Mr. HOWARD BERMAN. You described it in your testimony. Describe it one more time very quickly. What kind of levy is it and where does the money go?

Mr. SHAPIRO. Basically it is a levy charged on each blank tape manufactured in or imported into France. The levy is divided in two ways.

Mr. HOWARD BERMAN. Each blank tape manufactured or imported into France. OK.

Mr. SHAPIRO. It's divided essentially in two ways. Twenty-five percent of it is allocated to a cultural fund which is used for essentially collective purposes by the French.

Mr. HOWARD BERMAN. And that's called a tax. Well, basically. OK.

Mr. SHAPIRO. And the other 75 percent is allocated equally among authors, producers and performers.

Mr. HOWARD BERMAN. Of the three-quarters, one-third, onethird, one-third?

Mr. SHAPIRO. Right. The difficulty is that there are so many specifications and strictures on who qualifies for that pool that essentially the result at the end of the day is that while a large percentage of the tapes we are talking about here are used to copy U.S. copyrighted works, a small percentage of the money actually allocated goes to U.S. authors, producers or performers.

Mr. HOWARD BERMAN. Is it distributed by some European version of a performing rights of an ASCAP society?

Ms. FIELD. Yes. It is distributed by collecting societies. Through them.

Mr. HOWARD BERMAN. Now, the European Community you indicated has or is about to pass a law that will cover each of those countries in this area?

Mr. SHAPIRO. They are considering a law.

Mr. HOWARD BERMAN. Or a levy on blank tape.

Mr. SHAPIRO. Yes.

Mr. HOWARD BERMAN. That would preempt individual member states laws or is it a supplement?

Ms. FIELD. The member states would have to conform their levies to the directive.

It depends on how much detail is in the EC directive and whether it leaves options available to the member states as to how to implement it.

Mr. HOWARD BERMAN. And you as representatives of the Trade Representative's Office in the context of negotiations, what is your goal?

Is it to convince them to eliminate these different restrictions which in effect violate concepts of national treatment?

Mr. SHAPIRO. Mr. Berman, our goal basically is to establish the acceptance of a broader principle of national treatment so that national treatment would apply in this kind of a situation so that these kind of schemes would not be permissible.

Mr. HOWARD BERMAN. Meaning the levy or the distribution scheme? Which of their schemes?

Mr. SHAPIRO. That's a good question. And I'm not sure that they would be foreclosing a levy. But the question of how one allocates a levy.

Whether a levy is actually allocated on the basis of national treatment as opposed to a formula of this sort which is riddled by specifications that clearly discriminate. That's a different question.

Mr. HOWARD BERMAN. You're trying to get them in the context of different international-or to simply change their law to meet broad concepts of national treatment.

Mr. SHAPIRO. Yes.

Mr. HOWARD BERMAN. What forum are you using? Are you trying to use GATT for this.

Mr. SHAPIRO. Yes, we are. We're actually using whatever fora are available and whatever leverage we have. It is a part of the Uruguay Round discussions and a proposed revision of the TRIPS text. We are also working on it under WIPO.

Mr. HOWARD BERMAN. And when you raise these issues they say who are you guys to talk. You don't even have a levy on blank tapes. What do they say?

Mr. SHAPIRO. That's among the things they say.

Mr. HOWARD BERMAN. Well, we have a levy also on audio.

Mr. SHAPIRO. Right.

Mr. HOWARD BERMAN. Their levy I assume goes to all forms of audio and video tapes and therefore, at least in today's market place, about 6,000 times bigger than ours.

Mr. SHAPIRO. Right. They would say that they have essentially taken a step to protect the rights of those who create works that we haven't taken.

And obviously Congress has from time to time thought about the blank tape question even beyond that. But the fact is, if countries are willing to take steps that expand rights we are all in favor of that.

But if they adhere to the principle of national treatment, then people, the creators of copyrighted works will benefit. And that's fine. But that's not what's happening here.