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entering this country from abroad, certainly not on any commodities affected by the manufacturing clause.) These three categories are the only ones set forth in, and encompassed exclusively within, Article I itself.

The fourth category is actually set forth in two paragraphs of Article III relating to "National Treatment on Internal Taxation and Regulation," and is only incorporated in Article I by reference. This category breaks down into two subcategories: (a) internal taxes or other internal charges (Article III, para. 2); and (b) laws, regulations and requirements affecting internal sale, offering for sale, purchase, transportation, distribution, or use (Article III, para. 4). Paragraph 2 of Article III clearly does not apply.

On its face, paragraph 4 of Article III might appear to apply to the present proposal but for two significant facts. In the first place, the fact that national copyright laws are signed out and made the subject of a general exception in Article XX makes it clear that the Copyright Law is not the type of "law, regulation, or requirement" referred to in Article III, paragraph 4.

But, more importantly, the Protocol of Provisional Application again comes into play to prevent anything in Article III from interfering with the evolution and revision of the long-standing United States Copyright Law. Although the Protocol does not purport to apply to Article I of the GATT, it does apply to all matters referred to in Article III. Thus, when Article I incorporates paragraphs 2 and 4 of Article III by reference, making the matters enumerated therein subject to the Most-Favored-Nation principle, it does so only subject to the Protocol of Provisional Application.

Therefore, we see nothing in Article I or in any other provision of the GATT that would bar the type of action that we are proposing.

Accordingly, we ask that a provision be added to s. 597, exempting books and other printed material manufactured in Canada from the scope of Section 601. If, for any reason, direct exemption for Canada in the present bill is impossible, we respectfully urge that, at the very least, the U. S. Department of State be requested to seek the most immediate means by which Canada may be exempted from the manufacturing clause without sacrificing the general maintenance of that clause.

OPPOSITION TO DEMANDS FOR FREE USE OF COPYRIGHTED PRINTED MATERIAL

Now, having just endorsed a special exception favoring Canadian printers, I am going to turn about and urge denial of the demands which have been, or may be, made by various groups of users of copyrighted printed matter for a blanket authorization to make free use of such matter. I have no difficulty making such a transition since I believe that the exemption sought for Canadian printers is just and warranted, whereas the requests for permission to make free use of copyrighted material are not.

DEPARTMENT OF STATE,

Washington, September 19, 1967. Hon. John L. MCCLELLAN, Chairman, Subcommittee on Patents, Trademarks, and copyrights, Commit

tee on the Judiciary, U.S. Senate, DEAR MR. CHAIRMAN: Thank you for your letter of April 10 affording the Department an opportunity to express its views on a proposed amendment to section 601 of S. 597 which would except Canada from the provisions of the book manufacturing clause. The clause, as carried over from present law, would restrict imports into this country of books and other works by American authors not manufactured, i.e. printed and bound, in the United States by denying full copyright protection to such works.

The Department is aware of the great imbalance in the flow of books between Canada and the United States, and it is our view that the manufacturing clause's limitation on the importation of printed words should ultimately be eliminated. This Department testified before Subcommittee No. 3 of the House Judiciary Committee on August 26, 1965 that it believes the perpetuation of the manufacturing clause is contrary to our liberal trade policy and our interest in improving the free flow of educational, scientific, and cultural materials internationally. However, the Department also stated that it would be necessary first to ascertain more definitely what the effect would be of completely eliminating this long-standing protection. In the meantime, granting of the proposed exception to Canada alone would result in a discrimination against books printed in other foreign countries in violation of the General Agreement on Tariffs and Trade (GATT) as well as many of our bilateral commercial treaties.

In this regard we have studied with care the issues raised in Mr. French's submission accompanying the proposal to except Canada. As Mr. French notes, our present restriction on the importation of books avoids conflict with Article XI of the GATT only by virtue of the Protocol of Provisional Application, which provides that the laws existing on October 30, 1947 are not in violation of Part II of the GATT. While the proposed exception would be a liberalization in the sense that it would allow increased imports of books from Canada, it is clearly discriminatory in granting a concession to the Canadians not offered to our other trading partners. The Protocol has been interpreted to allow re-enactment of laws existing in October of 1947, and to allow the liberalization of such laws. However, the proposed modification of the law creating a discriminatory exception would create a conflict with the spirit of the mostfavored-nation requirement in Article I, and in all likelihood with the words of Article I calling for most-favored-nation treatment "with respect to all rules and formalities in connection with importation and exportation” (the Protocol does not except legislation inconsistent with Article I); and would also create a new conflict with the non-discrimination requirement in Article XIII, paragraph 1, providing that:

"No prohibition or restriction shall be applied by any contracting party on the importation of any product of the territory of any other contracting party ... unless the importation of the like product of all third countries is similarly prohibited or restricted."

Mr. French suggests Article XIII applies only to prohibitions or restrictions authorized under Article XI. However Article XIV, paragraph 1, specificaily excepts from Article XIII, under certain circumstances, restrictions authorized by Articles XII and XVIII, section B, thus indicating that Article XIII was ineant to apply to prohibitions and restrictions generally. Consequently, this Department believes it applies also to ban new provisions that would introduce discriminatory prohibitions on imports even when these new provisions are modifications of restrictions which are themselves exempted from the GATT Article XI requirements by virtue of the aforementioned Protocol.

Moreover, a discriminatory provision such as is proposed would be contrary to the requirements for most-favored-nation treatment contained in bilateral commercial treaties with many of our major trading partners (see e.g., our Friendship, Commerce and Navigation Treaties with Germany (TIAS 3593), paragraphs 1 and 3 of Article XIV, and Japan (TIAS 2863), paragraphs 1, 2, and 3 of Article XIV, both of which contain most-favored-nation provisions similar to Articles I and XIII of the GATT).

Mr. French further contends that the book manufacturing clause is excepted from GATT requirements by Article XX, paragraph (d). This provision permits measures to secure compliance with laws and regulations for the protection of copyrights providing such laws and regulations "are not inconsistent with the provisions of this Agreement." The over-all heading of Article XX also requires that such measures do not "constitute a means of arbitrary or unjustifiable dis. crimination between countries where the same conditions prevail.” While Article XX(d) may permit new measures, for example, prohibiting importation of books or work that would infringe a copyright, it would not permit a new provision in a copyright law laying on a fresh discrimination among countries as to the importation of books into the United States.

A further suggestion is that Article XXIV of the GATT, which provides for exceptions for customs unions, free trade areas, and frontier traffic, applies to a provision such as the proposed exception to the manufacturing clause. However, it does not appear that such an exception would fit into any of the above categories. Customs unions and free trade areas involve comprehensive tariff and trade arrangements providing for the removal of duties and other trade restrictions from most if not all of commodities in trade between two or more countries. An agreement covering only books could not properly be considered as establishing a free trade area. The exception for frontier traffic is also inapplicable since it was intended to apply to local traffic between neighboring areas close to the frontier.

57–786—76pt. 3-20

Although it is in theory possible for the United States to seek a waiver of its obligations under the GATT and the bilateral treaties, the Department does not view this as a feasible course of action. In addition to legal problems which would have to be surmounted, such an approach would conflict with major policy goals of this Government, i.e. to maximize international trade through the mostfavored-nation principle and to maintain the strength of the GATT organization.

In summary, the Department feels that as long as the manufacturing clause remains a part of the copyright law, it would not be proper to except any nation from its provisions. We therefore would advise against the amendment proposed by Mr. French.

We shall be glad to be of service should you desire further information or views from the Department.

The Bureau of the Budget has informed the Department that from the standpoint of the Administration's program there is no objection to the submission of this report. Sincerely yours,

WILLIAM B. MACOMBER, Jr., Assistant Secretary for Congressional Relations.

SELLERS, CONNER, & CUNEO,

Washington, D.C., October 11, 1967. Hon. John L. MCCLELLAN, Chairman, Subcommittee on Patents, Trademarks, and Copyrights, Committee

on the Judiciary, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: On September 19, 1967, some five months after its views were requested, the Department of State wrote you a letter opposing the enactment of an exception for Canada from the provisions of Section 601 of S. 597, the Manufacturing Clause of the Copyright bill. Exclusion of Canada from the provisions of the Manufacturing Clause had been recommended in the hearings by all representatives of the United States book manufacturing industry and the international trade unions representing the graphic arts workers in the United States and Canada.

With all due respect to the expertise of the Department of State in the interpretation of international agreements, we believe that in this case the Department has made an incorrect interpretation of the provisions of the General Agreement on Tariffs and Trade (GATT) and of bilateral commercial treaties to which the United States is a party. We have prepared, and enclose herewith, a memorandum which, we believe, effectively disposes of the technical objections raised by the Department.

In this letter, we wish to concentrate upon certain deficiencies in the Department's basic approach and perspective concerning this legislation. These deficiencies cast considerable doubt upon the soundness of the Department's opposition, which is perforce dictated by the "spirit," and not the letter, of this country's most-favored-nation obligations under its international commercial treaties.

The basic flaw that permeates the entire negative attitude of the Department is that this controversy is cast in the light of a free trade question. The Department's letter gives the impression that the manufacturing clause would apply to all works imported into the United States and that the partial denial of copyright protection is merely the means of enforcing a trade restriction. Putting the issue in this light is very misleading and sows confusion where clarification is needed if the Congress is to legislate effectively in this complex area.

The manufacturing clause is a copyright provision and should not be dealt with as a simple trade restriction. Copyright does more than simply recognize the right of an author to the creations of his mind. It creates an economic property exploitable only by the holder thereof. Through assignment, the holders of these economic monopolies normally are large publishing houses, not the authors themselves. These publishing houses employ the book manufacturing concerns and graphic artisans to manufacture the multiple copies of such works. Once a book manufacturer is designated, he, too, becomes the recipient of the benefits and protection conferred by the copyright monopoly.

If a publishing house designates a foreign book manufacturing concern in order to obtain the copies at a lower cost, or for whatever reason, that foreign book manufacturer becomes the beneficiary and the equitable owner of the copyright monopoly at the book manufacturing level of the process. The copyright is enforceable by the publisher to protect the copies manufactured by the selected

producer against the independent manufacture of copies by any other book manufacturer including all American book manufacturers. Normally, only a single manufacturer is chosen to manufacture all of the copies for the national market,

Accordingly, to discuss the manufacturing clause of our copyright law as a restriction upon international free trade is anomalous. Trade in books that are subject to a copyright monopoly cannot be free trade in any real sense, either domestic or international. All stages of the production and sale of such books are covered by the copyright umbrella. The manufacturing clause is, in reality, a limitation on copyright that simply requires that the benefits of this monopoly not be utilized in such a way as to give foreign concerns and foreign workers a monopoly to the exclusion of American book manufacturing firms and graphic, artisans. This limitation derives major economic significance from the fact that most foreign concerns, enjoying production costs far below the costs experienced by their American counterparts, have a very distinct competitive advantage. However, it is not the competitive advantage in and of itself which gives rise to the need for the manufacturing clause, it is the copyright monopoly.

The Congress long ago decided that a limitation, i.e. the manufacturing clause, prohibiting, under certain circumstances, the extension of the copyright monopoly to foreign book manufacturers is a reasonable limitation upon copyright. This limitation has been steadily narrowed through the amendment process, and the bill that is before the Senate today would apply the manufacturing requirement only to copies above 2,000 of copyright works that are non-dramatic literary works in the English language. The new clause would not apply to works written by foreign or expatriate American authors; nor would it apply to musical works, dramatic works, works in a language or languages other than English, or works that were not copyrighted or are no longer protected by copyright. Neither would it apply to works printed in small (i.e., under 2,000 copies) quantities. In short, all types of works with respect to which American printers cannot legitimately claim the right, and need, to be brought under the copyright umbrella, are excluded from the clause. It is submitted that this limitation is eminently reasonable and is essential to prevent great harm to American book manufacturing by producers in a large number of low wage foreign countries.

It is precisely because no such injury would result from extension of the copyright monopoly to Canadian book manufacturers that all segments of the American industry have been willing to support the exclusion of Canada from the provisions of the manufacturing clause. The wages of Canadian graphic artisans and the overall costs experienced by the Canadian book manufacturers are on a par with those of American book manufacturing concerns. It must be recognized that there is an enormous imbalance in the trade in printed matter between the United States and Canada and that the United States and Canada in reality constitute a single market for literary materials. Accordingly, the objective seems to us to be crystal clear and unquestionably desirable. The only remaining question is whether the United States can accomplish this purpose without violating its other international obligations. In our view, the Department's letter itself impliedly admits that this goal can be accomplished.

The State Department's opposition, as indicated in its September 19 letter, is based upon an adherence to the most-favored-nation ideal that is so rigid and slavish that it poses a challenge to the leadership of the Senate in the field of foreign policy. The Department asserts that the exclusion of Canada from the manufacturing clause would violate the "spirit” of the most-favored-nation requirement found in Article I of the GATT. We read this assertion as a clear admission by the Department that exclusion of Canada from the requirements of the manufacturing clause would not constitute a violation of the actual requirements of the most-favored-nation article. One is moved to inquire why the Department would oppose a move that has the backing of all affected interests on both sides of the border and that does not violate the letter of this country's GATT obligations.

It is perhaps understandable that the Department of State has focused its attention on one narrow segment of one issue involved in this problem, i.e., its possible bearing on our international trade policies. The Committee's consideration must obviously be far broader as we have attempted to point out. Vital interests of American book manufacturers, graphic arts workers, our own commerce and trade, economic relations between the United States and Canada and common fairness to all involved interests must be weighed in the balance. In our view, the strength of these factors far outweighs the limited and dubious technical views expressed by the Department in its letter.

In conclusion, all parties on both sides of the Canada-United States border are in favor of excluding Canada from the provisions of the manufacturing clause. To do so would be of substantial benefit to Canada and would in no way impose any new or additional restrictions on U.S. trade with any other country. Moreover, since the clause is a unique copyright provision, the United States' existing international obligations respecting free trade are inapplicable. It has specifically been demonstrated, and not refuted by the Department of State, that the proposed action would not constitute a violation of Article I, the most-favored-nation provision, of GATT, Accordingly, it is quite plain that there is no real impediment to excluding Canada from the manufacturing clause, and we urge that this be done.

In the preparation of these views, I have consulted with all immediately affected American interests and they concur in all views expressed. Very truly yours,

JAMES H. FRENCH.

TECHNICAL MEMORANDUM ON EFFECT OF EXISTING U.S. INTERNATIONAL AGREE

MENTS ON PROPOSED EXCEPTION OF CANADA FROM THE MANUFACTURING CLAUSE OF THE COPYRIGHT LAW

(In response to a letter from the Department of State to the Senate Subcom

mittee on Patents, Trademarks, and Copyrights, dated September 19, 1967)

1. Paragraphs 2 and 5 of the State Department's letter state that an exception for Canada would violate many of our bilateral commercial treaties, e.g., our Friendship, Commerce and Navigation Treaties with Germany and Japan. The State Department citations to various paragraphs in the two treaties omit reference to Article XXIV, paragraph 4, in the German Treaty and Article XXI, paragraph 4, in the Japanese treaty which provide as follows: "The provisions of the present Treaty relating to the treatment of goods shall not preclude action by either Party which is required or permitted by the General Agreement on Tariffs and Trade during such time as such Party is a contracting party to the General Agreement. Similarly, the most favored-nations provisions of the present Treaty shall not apply to special advantages accorded by virtue of the aforesaid Agreement.” Thus, the commercial treaties are not a separate reason for opposing a Canadian exception. Rather, the question turns on whether or not sucn an exception would be precluded by the GATT.

2. We are pleased to note that paragraph 3 of the Department's letter concedes that, as claimed by Mr. French in his testimony, Article XI of the GATT would not apply because of the Protocol of Provisional Application.

3. It is stated in paragraph 3 that a special exception for Canada "would create a conflict with the spirit of the most-favored-nation requirement in Article I.” This vague language seems to be a confession that after more than five months the Department of State cannot find any specific provision in the GATT which clearly bars an exception for Canada. The GATT is a highly technical document. We do not advocate action by the Congress contrary to the specific provisions of the GATT. But we do not believe that the will of Congress—if it be such-to take account of the special relationship between Canada and the United States in the exchange of printed matter by making a special exception for Canada should be frustrated by vague reference to the "spirit of the mostfavored-nations requirement."

Richard C. Snyder's book "The Most-Favored-Nations Clause" (Columbia University, 1948) is authority for a strict interpretation of complex most-favorednations clauses such as Article I of the GATT. Snyder says at page 58:

“By 'complex' is meant, therefore, clauses which define most-favored-nations treatment in clear detail. This does not necessarily mean, however, that complex clauses are wider in scope than simple clauses; ordinarily the reverse is true."

(Incidentally, at page 71 Snyder gives as an example of his detailed, complex most-favored-nations clause Article XI of the old U.S.-Finland treaty which refers, as does the GATT, to "all rules and formalities in connection with importation or exportation.")

4. Paragraph 3 also states that an exception for Canada would "In all likelihood" conflict with the words of Article I calling for most-favored-nation treatment "With respect to all rules and formalities in connection with importation and exportation". It is hard to take this argument seriously. The State Department apparently was unable to fit an exception for Canada into any of the four

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