And some countries, some developing countries might argue that, well, they are poor, they are disadvantaged, they need some special treatment.

Isn't that argument not a good argument in the face of the intellectual property provisions that the United States is negotiating with Mexico under NAFTA?

For example, the average wage in Mexico, a developing country, is between one-tenth and one-fifth of that of the United States. And Mexico, too, has a per capita income of one-tenth of the United States.

Its living standards are much lower than that of the United States. It truly is a developing country.

Mr. SHAPIRO. Right.

Senator BAUCUS. Yet, the intellectual property provisions that the United States negotiated with Mexico under NAFTA are much higher than the standards under the Dunkel text, for example, in the Uruguay Round.

So the United States could negotiate a strong intellectual property protection provision with Mexico, a developing. Why shouldn't the United States properly ask for the same standards with respect to other countries, whether they be Thailand, Taiwan, or India, or any other country?

Mr. SHAPIRO. Šenator, I basically agree with your point. Let me go back to the question of sort of standards. I think there is no one factor that is the governing standard. A lot of things enter into

one's assessment.

But I certainly accept and agree with your point that developing nations ought not be exempt from our expectations of strong intellectual property simply because they are developing.

If you look around the world, there are some developing nations that have been quite forthcoming in terms of intellectual property protection.

Sometimes, as in the example of Mexico, this is in part because their leadership recognizes the advantages to them as a country.

They will advance more rapidly if they create a climate where intellectual property is protected. This is a point you made earlier with respect to Thailand.

We are obviously pursuing our intellectual property interests because they matter a great deal to our companies and our jobs here and to our industrial and technological strength, but frankly, it is in the interest of these other countries to upgrade their intellectual property as well. It will strengthen their economy.

So we will certainly look at the overall economic development of a country, but we will not be inclined to say simply because it is a developing country, it ought not to upgrade its standards and ought not to be held to high standards.

Senator BAUCUS. On the other side of that same coin, I would like your response to the concerns of many in the intellectual property community, particularly, in the pharmaceutical community, that the Dunkel text would weaken U.S. intellectual property protection insofar as under the Dunkel text, I think that the pharmaceutical protection or some protection is not available for 20 years. Mr. SHAPIRO. Well, Senator, I think that basically the Dunkel (TRIP's) text, which we support with some changes, would estab

lish strong standards of intellectual property for hopefully the 108 nations that would subscribe to it if we reached agreement on the Uruguay Round.

We agree with the industry concerns that you have expressed, that some of these transition periods are too long.

Senator BAUCUS. Twenty years is a long time.

Mr. SHAPIRO. Well, frankly, there is an argument about whether 20 years is actually the transition period in there. And I think that the transition period is actually 10 years.

Senator BAUCUS. What about the pipe line problem?

Mr. SHAPIRO. Well, we are concerned about both the transition and the pipeline problem, but the U.S. Government over the years has, as Capital Hill has, worked closely with the concerns of the pharmaceutical industry.

And, to some extent, the progress that has been made by Special 301 over time has raced along side and even ahead of the TRIP's' text.

When we started this exercise years ago, TRIP's and the Uruguay Round were regarded as the best way to upgrade intellectual property.

Special 301 has opened another front and enabled us to do things bilaterally as well.

I think the industries, including pharmaceuticals, would benefit from a set of rules that governed all nations and that the Dunkel text has become a standard that we have worked off for in our intellectual property efforts.

Senator BAUCUS. Why the concern about the Dunkel text?

I mean, there are countries like Brazil, for example, that have worked very hard against even the provisions in the present Dunkel text, still a major offender of intellectual property and which I think should be named under Special 301.

But I just think that the administration should not only take a new look at Special 301, but take a new look at the Uruguay Round negotiations, including specific provisions of the Dunkel text.

Mr. SHAPIRO. Well, I can assure you, we are doing that.

Senator BAUCUS. Thank you.

Senator Rockefeller.

Senator ROCKEFELLER. Thank you, Mr. Chairman.

Mr. Shapiro, I will persist here. Again, your conclusion is that the Clinton administration believes that the Special 301 review process is an effective tool in gaining protection in foreign markets for intellectual property.

Now, in the appendix which you attached, you give examples. Under your watch, so to speak, there a number. Of course, the day is coming up. And that is obviously a discipline.

But there is one here, the "Chinese Government enacts amendments to the Trademark Law and supplementary provisions to the criminal law adding to penalties for trademark infringement."

Well, "adding to penalties," as this says, the Chinese are not well known for enforcement. In other words, this is a skeptical Senator looking at a list.

In the year before your watch, in 1992, the last four, I think, on the bottom of page 12, "Taiwan passed a Fair Trade law that provides some protection for trade secrets.”

Well, you have been lambasting Taiwan all over the place this morning. And here, you cite that they have passed something called a Fair Trade Law. Again, China style, what does that mean? "India committed to the liberalizing of market access for motion pictures." I mean, they have been committed to liberalizing for years and years and years. And now, they are doing it again. And you are accepting it, potentially.

"India announced that it will accord national treatment for the use of trademarks owned by a foreign proprietor." Maybe yes; maybe no.

Finally, "Thailand's National Legislative Assembly enacted amendments to the patent law that will extend product patent protection to 20 years from filing. However, the law does not provide protection for existing patented products that have not yet been marketed in Thailand, and contains extremely broad compulsory licensing provisions."

I mean, it is just hard for me to really be impressed by that. I give you the benefit of the doubt because I believe that President Clinton, Ambassador Kantor, and yourself and I think a lot of trade policy, in fact, is going to come right out of the mind of Ira Shapiro for the next 4, and hopefully 8, years.

So I am inclined to give you the benefit of he doubt on this, but you will understand my nervousness about these accomplishments, so to speak, in the past.

Now, you get to that Special 301 matter again, dealing with the fact of intellectual property theft.

My bill proposes-and I again ask you to think about it-to focus upstream. Go upstream and focus there.

This is particularly important in the Japanese case where discriminating patent practices allow intellectual property theft to occur legally, I mean, that is what the current situation is.

In other words, if a U.S. company cannot get a patent in Japan where it is almost impossible to get one-it takes years in spite of their brand new building, even though that company may have a patent everywhere else then its intellectual property can be, quote, stolen, unquote and done so legally.

It seems to me that we should be focusing on not just the current problem, but also on upstream situations.

And I hope that you would look at my bill.

Mr. SHAPIRO. Senator, I will do that obviously. I will.

I appreciate the earlier compliment. I have to say that I think the trade policy of this administration will come from many minds, not the least of which is the President's, because I know the President, for example, in preparing for and dealing with Prime Minister Miazawa's visit, was very strongly involved and made his views obviously clear.

Senator ROCKEFELLER. And I want to agree with that, too, because I thought, as Senator Grassley and Senator Baucus pointed out, that was a very powerful demonstration of a switch in approach, one, if I might say, if repeated several times will be one

that the Japanese will not fail to understand is the American trade policy. And their behavior, I think, will then change.

Mr. SHAPIRO. I do not mean to digress on this, but I also want to say that it was very important in the way Secretary Christopher and Secretary Bentsen were also strongly involved in this. There has always been a tendency when Japan looks at the U.S. Government to see if there are differences between the agencies.

And having the Secretary of State suggesting that the Japanese Government ought to be more worried about the procurement of U.S. computers sent a powerful message as well.

But returning to your major point, I do not really think there is any inconsistency between our positions, except that I am saying, in some of these situations, we have seen progress and it is not enough.

That is to say, from the list that you were reviewing, the 1992 Memorandum of Understanding on intellectual property that was entered into with China, represented an enormous amount of progress with respect to the intellectual property regime of China. Now it will not be self executing. What I tried to do in my testimony is to say that once other countries have adopted laws, we have to make sure that these laws are real.

Now, in China, they have met some of the requirements of the Memorandum of Understanding. They have enacted amendments to their patent law. They have issued new copyright regulations.

And they have joined the Berne Convention for the protection of literary and artistic works. They have also improved their trademark law.

Now, all of those things are good, but at the same time, we worry a great deal about their enforcement of the law.

Senator BAUCUS. I think you have to summarize, Mr. Shapiro. Mr. SHAPIRO. I am sorry.

But in any event, Mr. Chairman and Senator Rockefeller, I do think that in these situations, it is heavy lifting and slow moving to get countries to do the things we want them to do.

And I am trying to indicate where there has been progress. And there is still things that need to be done.

Senator BAUCUS. Thank you, Senator.

Senator Hatch.

Senator HATCH. No further questions. Thank you.

Senator BAUCUS. Senator Daschle.

Senator DASCHLE. Thank you very much, Mr. Shapiro, for your testimony. And I understand you have to leave promptly because you are going to be conducting negotiations with Brazil.

Mr. SHAPIRO. Thank you, Senator.

Senator DASCHLE. Good luck.

Mr. SHAPIRO. I appreciate it.

Senator DASCHLE. And I hope you are effective.

Senator BAUCUS. Our next witnesses include a panel of several people very much involved in the intellectual property community. First, Harvey Bale who is with the International Division of the Pharmaceutical Manufacturers Association.

Mr. Jason Berman, president, Recording Industry Association of America. Mr. John J. Cummins, president of the U.S. Trademark Association.

Mr. Eric Smith, executive director and general counsel of the International Intellectual Property Alliance.

Dr. Bale, why don't you begin?

STATEMENT OF HARVEY E. BALE, JR., Ph.D., SENIOR VICE PRESIDENT, INTERNATIONAL DIVISION, PHARMACEUTICAL MANUFACTURERS ASSOCIATION, WASHINGTON, DC

Dr. BALE. Thank you, Mr. Chairman.

Mr. Chairman and members of the subcommittee, you have done a valuable service in holding this hearing today on the 1988 Special 301 law, prior to the administration's decisions due by the end of this month.

Thank you very much for inviting me to represent the U.S. research-based pharmaceutical manufacturing industry.

The administration has a real opportunity to accomplish change and contribute substantially to enhancing America's high-technology manufacturing industries' ability to compete better globally through enhanced intellectual property protection abroad.

This subcommittee will, I hope, continue to carry forward the concerns and messages that I expect will emerge from this panel and hearing through follow-up communication with the administration and our sometime so-called trade partners.

In our case, we believe that we especially need priority attention toward such alleged trade partners as Argentina, Brazil, Turkey, Hungary, Korea, Colombia, India, Thailand, and Venezuela, just a few.

In this brief summary statement, I want to discuss only three points. First, some countries are long overdue in reform of their intellectual property policies toward pharmaceuticals and other subject matter.

Argentina promised to change 4 years ago. And every time senior economic officials visit the United States, they repeat their government's commitment to change. Then, of course, they return to Buenos Aires and do absolutely nothing about patent reform.

In 1990, the previous administration withdrew tariff sanctions against Brazil, based upon a promise to enact adequate patent protection, which, of course, it has not fulfilled.

And two other pirating countries, Hungary and Turkey, right now continue to drag on discussions with our government.

And finally, Indian drug manufacturers continue to have the blessing of their government to copy and counterfeit medicines.

The message is clear. President Clinton's new trade team, headed ably by Ambassador Kantor, can achieve real breakthrough success in the trade field this spring, but only if it gives appropriate weight to intellectual property as part of a high-technology manufacturing and job strategy, and by taking whatever trade actions are necessary to rectify foreign piracy practices and policies that condone them.

Second, we are concerned that when action is warranted, the interagency policy process that decides to recommend the appropriate level of trade response, in fact, gives too much weight to foreign policy concerns and belittles industry's measurement of economic damage from unfair foreign trade practices.