Canada, Special 301 and NAFTA


This is the time of year when the US Trade Representative’s Office (USTR) goes through its annual “Special 301” exercise to prepare a report for the US Congress evaluating the state of intellectual property (IP) protection in countries around the world with a view to identifying those states with shortcomings that negatively affect US industries that rely on IP rights. As I noted in my blog at about the same time last year, the Special 301 law was enacted by the US Congress in 1988 with a view to providing for;

“the development of an overall strategy to ensure adequate and effective protection of intellectual property rights and fair and equitable market access for United States persons that rely on protection of intellectual property rights.”

The result of the process will conclude in a few weeks with the publication of USTR’s annual report discussing the state of IP protection globally. As part of this report, a number of countries will be given what amounts to a “report card”, with various degrees of failing grades. The most severe transgressors will be designated as “Priority Foreign Countries” (the worst of the bad). This designation is used sparingly as under US law it could potentially lead to severe trade sanctions. Other negative designations for countries are “Priority Watch List” (very bad) or “Watch List” (just plain bad).

It is not all negative however. There is also a section of the Report that notes progress achieved in various countries over the past year and there is a program of supporting countries to improve protection of IP through training, information and education. This process of “raising of all boats” in the end benefits not only US rights holders, but all IP stakeholders, including artists, creators, innovators, and brand owners in other countries.

In developing these “report cards” USTR seeks input from IP related businesses and associations in the US, such as the copyright industries, and well as from US embassies abroad. It also holds hearings during which stakeholders can offer testimony. Embassies of foreign countries in Washington can appear to explain their national IP policies, rebut criticisms, and generally try to fend off being put on the Watch List. For many countries to get the dubious distinction of being put on the Watch List is an unwelcome “honour”, implying that their state of IP protection–either because of shortcomings in legal framework, enforcement procedures or resources, or industrial policies–is inadequate. This could deter investors, make overall relations with the US more difficult or just generally be a distraction.

The countries on the current Priority Watch (very bad) List are, in alphabetical order, Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Thailand, Ukraine and Venezuela. Probably no great surprises there as none of these countries has a reputation for being a paragon of IP protection. On the “just plain bad” list are 23 countries, including the two NAFTA partners of the US, Canada and Mexico. This could signal trouble. Not only has NAFTA now become a pejorative term in the US among many as a result of last year’s Presidential election, but the other two “amigos” are on the USTR Special 301 Watch List for intellectual property transgressions! Canada has been on the Watch List for a number of years–in fact for as long as I can remember—and for the three years between 2010 and 2012 it was even on the “very bad” Priority Watch List.

Mexico is also a perennial feature on USTR’s watch list for a variety of reasons, one of them being notorious markets for pirated and counterfeit goods in Tepito (Mexico City), San Juan de Dios (Guadalajara), and “dozens of other markets across Mexico”. Canada is in a different situation. You are unlikely to find many open knock-off markets when you cross the Canadian border (at least no more than in parts of the US—Canal Street anyone?). The marketplaces for copyright products are now almost all online. And that is where part of the problem resides. The 2016 Special 301 report contains this observation;

“the United States continues to urge Canada to fully implement its commitments pursuant to the WIPO Internet Treaties and to continue to address the challenges of copyright piracy in the digital age.”

Other contentious IP issues relate to pharmaceuticals, where US drug companies don’t like the way the Canadian government regulates pharmaceutical patents, and a lack of ex-officio authority for customs officers to seize suspected counterfeit and pirate goods transiting through Canada to the US.

Given that Canada has been on the Special 301 target list of for so many years there is a tendency in some Canadian circles to say “so what?”. Press lines prepared last year by the Department of Global Affairs to respond to the continued listing of Canada on the USTR Watch List (and obtained through the Access to Information Law by prominent IP blogger Michael Geist) state that,

“Canada considers the Special 301 process and the Report to be invalid and analytically flawed because the process relies primarily on US industry allegations rather than empirical evidence and objective analysis”.

The official position of the Canadian government, therefore, is to ignore the 301 process and to decline to participate in 301 hearings in Washington. That may satisfy national pride, but will it be sustainable once the negotiations to re-open NAFTA get underway?

US Commerce Secretary Wilbur Ross has been quoted as saying that the US will expect both Canada and Mexico to make concessions in the forthcoming NAFTA talks. He credits President Trump for “softening up” the other parties and has indicated that changes will be more than minor. He has stated he intends to notify Congress soon of the Administration’s intent to renegotiate the Agreement, giving legislators the required minimum 90 day period to consult on the terms before talks begin. The decision to notify Congress indicates that changes to the Agreement will likely be far more substantial than just the “tweak” that President Trump mentioned during his recent meeting with Prime Minister Justin Trudeau.

What will be the areas of focus for US negotiators? For sure automobile trade and the rules of origin surrounding trade in autos will be on the table, along with possible changes to NAFTA’s dispute settlement mechanisms. In addition Ross has said that NAFTA needs to be updated, with new chapters added to reflect the modern digital economy. While NAFTA has an IP chapter that includes copyright, it was negotiated before the digital era. One area for revision could be the extension of the term of copyright protection in Canada, a measure agreed to in the TPP negotiations, now on hold because of US withdrawal from the Agreement. Although the US has announced withdrawal from the TPP, NAFTA negotiations will provide another channel to raise these issues. There will likely be a new chapter on e-commerce in NAFTA which would inevitably involve issues of protecting digital content, as well as touchy issues like data retention. Canada’s digital protection regime was strengthened through anti-circumvention provisions added to the Copyright Act in 2012, recently affirmed in a landmark court decision where Nintendo won $12 million (CAD) in damages from modchip provider Go Cyber Shopping. Despite this kind of progress, there are areas where Canada will inevitably come under pressure to raise its game in the area of copyright protection.

One of the major copyright industry stakeholders in the US, the International Intellectual Property Alliance (IIPA), has just provided its annual input into this year’s Special 301 deliberations. The section on Canada covers ten pages and documents a range of issues from overly broad fair dealing exceptions that have undercut the viability of the educational publishing market, to other copyright issues such as the user-generated content exception introduced in 2012 that has been widely criticized for opening the door to infringing uses, to the need to make further progress against online piracy by strengthening legal incentives for cooperation among Internet Service Providers (ISPs) and hosting providers with copyright owners

This could, for example, involve a review of regulations in Canada that require ISPs to forward notices received from content owners to subscribers regarding the hosting or sharing of infringing content on their networks. This is known as “Notice and Notice”—the ISP receives a notice from the content owner and passes that notice to the subscriber, while not revealing subscriber information to the complainant. While focussed on educating and hopefully dissuading consumers from hosting, sharing or using infringing material, the system does not actually result in the removal (or “takedown”) of any infringing material. This is the basis for the IIPA’s criticism.

Will tightening the provisions against use of infringing material on the web be one of the issues under discussion in the NAFTA talks? We don’t know. “Notice and notice” was incorporated into the TPP text as Canada’s way of addressing the issue of ISP liability, but the dynamics of a bilateral or trilateral trade negotiation among NAFTA partners will clearly have different parameters from that of a plurilateral 12 party agreement such as the TPP, and the outcomes affecting both copyright and digital content could potentially be different.

None of this is necessarily a bad thing for content creators and the content industries in Canada. Sometimes governments use trade “obligations” as a means to force domestic changes that they know are ultimately good for the economy, but which are resisted by special interests. Canada’s copyright reform legislation that went into effect in 2012 must be reviewed this year, leading to potential revisions in light of experience gained and to take account of continued technological change. Factor into this the need to sit down and discuss a range of trade issues with the US as part of the “updating” NAFTA, and it may be instructive to look at the Special 301 process, and the inputs to it from US industry, instead of simply dismissing it as “invalid”.

Like it or not, Canada will soon be at the table with the US (and Mexico) to reconsider the terms of NAFTA. The Canadian government has said that it is happy to renegotiate NAFTA in order to “improve” it. What form that “improvement” will take is unknown at this point, but given the long history of US unhappiness with Canada’s policies in the area of intellectual property, it is not too big a stretch to imagine that the process may also include further changes to Canada’s policies on copyright in the digital age. The Special 301 process could well be the road map for the US’ NAFTA negotiating team.

© Hugh Stephens, 2017. All Rights Reserved.



Author: hughstephensblog

I am a former Canadian foreign service officer and a retired executive with Time Warner. In both capacities I worked for many years in Asia. I have been writing this copyright blog since 2016, and recently published a book "In Defence of Copyright" to raise awareness of the importance of good copyright protection in Canada and globally. It is written from and for the layman's perspective (not a legal text or scholarly work), illustrated with some of the unusual copyright stories drawn from the blog. Available on Amazon and local book stores.

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