To ensure that the U.S. Government will take greater action, on January 21st I introduced S. 149, the International Protection of Patent Rights Act of 1993 that will require the U.S. Trade Representative to identify in his annual Special 301 report countries that deny adequate patent protection.

Senators Mikulski, Hatch, Wofford, and Conrad joined me in this proposal.

I do not know what the General Counsel of the USTR will have to say about this.

With the Special 301 specific mandates and strict timetables, this legislation can help eliminate the type of problem we will hear described today in strong terms.

In previous years, USTR told the Congress not to, "Tie their hands by requiring actions against countries that deny adequate standards for the protection of U.S. intellectual property rights." I believe the long history of USTR not using its discretionary authority is, in fact, the best argument there is for required instead of discretionary action.

Even if our friends in office now are planning to exercise their discretionary authority this year, who knows about the future and who knows about the future administrations, whether they will do so at all.

Mr. Chairman, I will ask the witnesses, including the Representative from USTR, whether they think this legislation is needed and whether it should be expanded, in fact, to include copyright and trademark protection, as well as patent protection.

And I believe some of our witnesses will say that my legislation does not go far enough. And that is easy enough to adjust by including copyright and trademark protection.

It is my hope that with these hearings today, the provisions of S. 149 will be included in the trade bill our committee will work on, I hope, later this year.

I thank the chair.

Senator BAUCUS. Thank you very much, Senator.

I would like now to begin with our first witness, Mr. Ira Shapiro, who is the General Counsel for the USTR.

Welcome back to this hearing room, albeit in a somewhat different capacity. And I know Senator Rockefeller, in particular, and the rest of the committee in general very much looks forward to your testimony.

STATEMENT OF IRA S. SHAPIRO, GENERAL COUNSEL, OFFICE OF THE U.S. TRADE REPRESENTATIVE, WASHINGTON, DC Mr. SHAPIRO. Thank you, Mr. Chairman.

It is a pleasure to appear before this subcommittee today to discuss the Clinton administration's plans for the implementation of Special 301 provisions of the trade law.

At the risk of sinking too early into puns, I want to say this is special for me to be here. I spent most of my adult life either working in the Senate or preparing to work in the Senate.

And the opportunity to testify here for the first time, particularly as a Representative of USTR and the administration, is a great honor for me.

I am also delighted to appear before you, Mr. Chairman. We have worked together in the past. And I have been very happy that this job has given me the opportunity to continue working with you.

Very few people have shown the constancy of concern you have on intellectual property, strengthening trade policy generally, and fighting for U.S. competitiveness. And obviously, Senator Rockefeller, who I not only worked with but for: it is a great privilege to be here with you as well.

Mr. Chairman, with your permission, I would like to submit my written statement for the record and essentially summarize the comments.

Senator BAUCUS. Without objection.

[The prepared statement of Mr. Shapiro appears in the appendix.]

Mr. SHAPIRO. Special 301 and the intellectual property interests that it advances are critical to this administration.

President Clinton's economic policy seeks to build our economy so that is capable of fostering the creation of high-wage and highskilled jobs.

At the same time, the administration's guiding principle in trade policy is to open foreign markets to the exports of U.S. companies and workers. Special 301 and intellectual property stand at the intersection of those two ideas.

The ideas and products protected through intellectual property rights often represent the highest level of technology and creativity available in the world.

These products, as Senator Baucus has noted, represent a major portion of total U.S. exports. U.S. computer software, motion pictures, sound recordings, books, and television programs are exported worldwide and benefit from strong copyright protection.

Other industries that are an important source of U.S. exports, including the aircraft, pharmaceutical, and medical equipment sectors, rely fundamentally on trademark, patent, and trade secret protections. In 1991, exports in those three industries alone totaled approximately $40 billion.

The ability of U.S. companies to export products protected by intellectual property rights, and to compete in foreign markets, depends to a large degree on whether other governments provide adequate and effective protection of our intellectual property and fair and equitable access to their markets.

The stakes are high. It costs millions of dollars to develop and market a new computer program or a pharmaceutical or to create a motion picture. It costs very little in the short term for the pirates to copy those products.

Such piracy costs all of us in the United States. As Senator Baucus has said, the thing that connects these products which rely on intellectual property protection is that they are hard to invent and easy to copy.

As the President said in his speech at American University, this administration will not let trade issues play a secondary role to non-trade concerns.

Ambassador Kantor is prepared to look at every possible means of advancing the objectives of Special 301.

If we are not succeeding in advancing those objectives, Ambassador Kantor will recommend significant, not merely symbolic, actions in response to the unreasonable practices of our trading part

ners.

This administration is fully prepared to take a strong position with other governments to obtain world-class laws and enforcement efforts that will put the pirates out of business.

At the present time, ÜSTR and its colleagues in the interagency process are intensely involved in the Special 301 review that will result on April 30th in the identification of priority foreign countries which maintain the most onerous and egregious acts, policies, and practices to the detriment of U.S. intellectual property.

As Senator Baucus has indicated, negotiations with many nations are ongoing at the present time.

When Congress enacted Special 301 as part of the 1988 Trade Act, U.S. owners of intellectual property faced extensive piracy in other countries.

Many countries with important markets either failed to provide protection or did not enforce the laws that were in place.

Since 1989, Special 301 has played an important role in obtaining the enactment by many of our trading partners of stronger laws for the protection of intellectual property rights.

It has also helped ensure stricter enforcement of those laws and in certain markets, improved access for our products.

We have not attained all of our goals, far from it. As Senator Grassley pointed out, the foreign trade barriers estimate, which was released last month, has a great volume of material on the barriers to intellectual property that still exists, but Special 301 has racked up an impressive series of accomplishments.

The statute has worked particularly well in helping U.S. negotiators persuade countries to adopt changes in their laws to bring them up to international standards.

The list of successes under the statute is long. And in the appendix to my written testimony, I have tried to itemize a full list of the changes of law and enforcement that have occurred in the past 4 years.

In fact, progress continues to be made. Just this month, Ambassador Kantor signed an agreement with the Philippines Government in which that government agreed to legislative and administrative measures that when implemented will greatly improve the protection and enforcement of copyrights, trademarks, and patents in that country.

Adequate laws, however, are just the first step to ensure that owners of intellectual property rights have an environment that permits them to market their products in a fair manner and encourages investment in that country.

It is likely that Special 301 will be focused in the future more on the issue of obtaining effective enforcement of existing laws.

It is easy enough to ascertain when another nation adopts a copyright, trademark, or patent law, and to assess whether the protections promised in the law are adequate.

But effective enforcement of those laws is a much more complex task to measure and to obtain. It requires changed behavior by the

police, prosecutors, the judiciary, and other authorities. It requires major changes in business as usual.

We will have to work tenaciously to accomplish those results. And we are prepared to do so.

Despite Special 301's track record and successes to date, the administration believes that the statute can be used even more effectively.

We are committed to giving a fresh direction to the Special 301 review process to ensure that our objectives are clear and that other countries know what we are seeking.

First, many of our trading partners have entered into agreements with the United States that include commitments to improve protection, strengthen enforcement, and remove barriers to market

access.

Those countries must live up to those agreements and fully implement measures necessary to eliminate identified problems.

Any partner that fails to meet those commitments can expect a strong and speedy response from the administration.

Second, as noted above, effective enforcement of laws already on the books is critically important. Countries that do not enforce their laws can expect to receive special attention under Special 301. Third, while the sales of counterfeit and pirated goods in a particular domestic market can cause damage to U.S. interests, that damage is multiplied when a country exports pirated goods to third markets.

Countries that are exporters of pirate and counterfeit goods can expect the United States to consider this to be an onerous or egregious act and consider it to be an important factor in the Special 301 process.

Fourth, on Special 301 market access issues, the administration will be concerned about barriers that prevent U.S. products from being sold in overseas markets.

The EC Broadcast Directive, which places a stringent quota on U.S. television programs throughout the community, remains an issue of particular concern.

Finally, USTR is particularly concerned and focused on countries, including Brazil, India, Taiwan, Thailand, Korea, and Argentina, which have had a long-term place on the Special 301 list.

Obviously, the designations under the statute do not occur until April 30th, and negotiations are ongoing. But Special 301 cannot be seen as effectively functioning if countries can take up permanent residence on a list without making sustained progress in addressing the problem issues.

It is our hope and intent to formulate specific action plans, including deadlines and benchmarks for evaluating a country's performance.

We will enforce those deadlines and take action if necessary through out-of-cycle reviews of countries' status under Special 301.

Let me say, Mr. Chairman, at the end of the day, the statute's credibility and usefulness, as you have indicated, depends on the administration's commitment to take strong and decisive action in the event that problems remain unresolved.

We must be firm in naming names and telling our trading partners that we will act if they harbor pirates, counterfeiters, or permit infringements to go unpunished.

The Clinton administration is determined to put real teeth into retaliation measures where needed. Ambassador Kantor is prepared to use Special 301 more aggressively than it has been in the past.

In that context, he is looking at every means to drive our message home. One means used by past administrations was the revocation of benefits currently granted under the generalized system of preferences, GSP.

But Ambassador Kantor is also interested in exploring means that have not been used in past administrations.

For example, the administration is exploring the possibility of a linkage between intellectual property issues and bilateral aid programs, as well as encouraging multilateral development banks to include intellectual property protection as a key component of their programs for improving the investment climate and infrastructure of developing countries.

In sum, Mr. Chairman and members of this subcommittee, because the administration is committed to open markets and to the creative energy and technological edge needed to foster a high-wage economy in the 21st century, the forceful implementation of Special 301 is a very high priority for us.

Thank you, Mr. Chairman.

Senator BAUCUS. Thank you very much, Mr. Shapiro.

Could you, for the subcommittee again, just very briefly indicate the areas where you believe this administration will utilize Special 301 in the same way as the past administration and also of equal brevity and as succinctly, where you believe it will differ in its utilization of Special 301 compared with the last administration?

Mr. SHAPIRO. Mr. Chairman, our view basically is that Special 301 has attained significant accomplishments.

We plan to continue using the structure, which is not required by the statute, of having a priority watch list and a watch list, as well as the designation of priority foreign countries.

We think that having that hierarchy is important both in terms of identifying our negotiating objectives and to let our trading partners know of the concerns we have.

Where we will differ, I hope, from the previous administration is in dealing with countries that are violating our intellectual property rights, and have perhaps grown somewhat inured to being designated because they have been designated any number of times.

We are interested in results and not in promises, and if those results are not forthcoming, Ambassador Kantor and the administration will have no hesitation to take action, including retaliatory

measures.

As I also tried to indicate, we are currently exploring whether there are other tools that would impress upon our trading partners the priority we give these areas.

Senator BAUCUS. I will expect that this administration to be actually more aggressive for a couple of reasons. Number one, as you have mentioned, the President's speech at American University, where he made it very clear that domestic economic policy is very