Audi Alteram Partem

Thursday, October 7, 2010

Intellectual Property Rights and Non-Violation Nullification or Impairment of Benefit

Allen Z. Hertz was senior advisor in Canada's Privy Council Office serving the Prime Minister and the federal cabinet. Earlier he was in the Foreign Affairs Department where he advised on intellectual property rights. He participated in treaty negotiations, including for the North American Free Trade Agreement (NAFTA), and represented Canada at the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). He wrote the 1987 federal Green Paper on "Semiconductor Chip Protection in Canada" and was founding editor of "Computer Law: A Report for Business and the Professions." He taught history and law at universities in New York, Montreal, Toronto and Hong Kong. As an undergraduate he was at McGill University, and then did graduate work at Columbia University where he received an M.A. and a Ph.D., in history. Dr. Hertz also has international law degrees from Cambridge University and the University of Toronto.

This posting contains Part III of "Shaping the Trident: Intellectual Property Rights under NAFTA, Investment Protection Agreements and at the WTO," which first appeared in 1997 in Volume 23 of the Canada-United States Law Journal, 261. The article was part of the Proceedings of the Canada-United States Law Institute Conference on NAFTA Revisited. The views expressed were those of the author in his personal capacity, not those of the Government of Canada. This article is current up to May 1996. Part VI: Conclusion is posted together with Part I. Parts II and IV-V appear in separate postings on this website.

Introduction

The possibility of a complaint alleging "non-violation nullification or impairment of benefit" first arose in connection with dispute settlement under the 1947 General Agreement on Tariffs and Trade (GATT)[118] The term describes a right of legal action arising out of circumstances in which there has been no inconsistency or breach of a legal obligation.[119] Rather, the non-violation complaint's rationale is to protect the overall balance of concessions that had been reasonably expected when the agreement was negotiated.[120] The non-violation complaint is designed to deal with the contingency that the standard legal commitments in a trade agreement may fail to preserve the balance of benefits that initially led a country to become Party to the agreement. Because inconsistency is not alleged, the aim is not to get the defendant to withdraw the new measure,[121] but rather to give the successful complainant a compensatory adjustment to restore the balance of interests.[122] To make good his claim, the complainant must furnish the panel with detailed proof that the defendant's new measure has nullified or impaired benefits which had been reasonably anticipated when the negotiations were concluded.[123]

A 1950 case between Chile and Australia provides a good example of the non-violation complaint.[124] In GATT 1947, Australia had given Chile a trade concession abolishing customs duties on sodium nitrate which Australian manufacturers commonly used in fertilizer production. In 1947, Australia was subsidizing fertilizers produced with either sodium nitrate or ammonium sulphate. After 1947, Australia terminated its domestic subsidy on fertilizers produced with sodium nitrate, but retained its subsidy for fertilizers produced with ammonium sulphate. This measure radically diminished Australian demand for sodium nitrate and upset the competitive relationship between sodium nitrate and ammonium sulphate. Therefore, Chile brought a successful non-violation complaint under GATT. Australia's unanticipated abolition of the subsidy for fertilizer made from sodium nitrate was held to be a non-violation impairment of the benefit which Chile had reasonably expected to receive from the GATT 1947 sodium nitrate tariff concession.[125]

Non-Violation Applied to NAFTA Intellectual Property

Intellectual property rights (IPRs) lawyers ought to be especially interested in the phenomenon of the non-violation complaint, because a NAFTA annex on Nullification and Impairment specifically applies this GATT concept to the treaty's Intellectual Property Chapter.[126] Subject to some exceptions,[127] a Party may have recourse to NAFTA's State-to-State dispute-settlement procedure, if it considers that any benefit that it could reasonably have expected to get under any provision of the Intellectual Property Chapter is being nullified or impaired as a result of another Party's application of an unanticipated new measure, not inconsistent with NAFTA.[128]

Non-Violation Complaint Available for TRIPS?

Despite its origins in GATT 1947, the complaint for non-violation nullification or impairment of benefit was not immediately available with respect to obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Such non-violation complaints will not be possible under TRIPS before January 1, 2000.[129] Prior to that date, the TRIPS Council must examine the possible scope and modalities of such non-violation complaints under TRIPS and is required to submit relevant recommendations to the WTO Ministerial Conference. The latter may, by consensus, approve recommendations to be effective for all WTO Members without further acceptance procedures. Alternatively, the Ministerial Conference consensus may reject the TRIPS Council's recommendations and extend the moratorium to study further whether non-violation complaints should apply to TRIPS disputes.[130] If no consensus is reached, non-violation complaints will become available with respect to the Dispute Settlement Body's handling of TRIPS disputes on January 1, 2000.[131]

During the negotiations leading to TRIPs, Canada was among those countries opposing the application to IPRs of the possibility of non-violation complaints. This was one of the last TRIPS questions discussed before the December 15, 1993 conclusion of the Uruguay Round. In August 1992, Canada had agreed to apply the possibility of non-violation complaints to NAFTA's Intellectual Property Chapter. However, that decision was made only after the cultural industries had been carved out from Canada's NAFTA obligations by the exception set out in NAFTA, Annex 2106 (discussed on this website in a separate posting on the NAFTA Cultural Industries Exception).

What is the "Benefit" of an Intellectual Property Right?

For trade in goods, there has not been too much difficulty in understanding the nature of a "benefit," e.g., a benefit conferred by a tariff concession. However, defining the meaning of benefit has always been the principal difficulty in thinking about the application of non-violation complaints to IPRs. NAFTA sidesteps the question by refraining from explicitly defining benefit. This is left to be handled as a matter of interpretation, within the context of the various obligations that are specifically subject to NAFTA, Annex 2004: Nullification and Impairment.

Consistently, the Canadian government view has been that the IPRs area cannot tolerate an understanding of "benefit" seen as all the economic consequences that might normally be expected to flow from the use of a given IPR. During the Uruguay Round and the NAFTA negotiations, Canadian negotiators explained that IPRs are normally articulated not as an affirmative "right to use" but rather as a negative "right to prevent unauthorized use." This point was emphasized as the launching pad for the argument that, in the normal course of events, many factors might legitimately intervene to limit or prevent the right holder's use of his protected subject matter or to influence the economic results of such use.

For example, an inventor may get a patent for his pharmaceutical, but may be refused marketing permission because of considerations of safety and efficacy. Similarly, a country's consumer protection and health-services policy might urgently require the introduction of price controls for pharmaceuticals.

Similarly, Canadian TRIPS negotiators were always uncomfortable with the idea that the patent owner's right to prevent unauthorized third parties from using his invention could be extended into a State-to-State guarantee of non-interference with the market share or profit which the patent holder might normally expect from the commercialization of his invention.

In NAFTA and the Uruguay Round, Canadian negotiators argued that an IPR's "benefit" is nothing more than the enjoyment of the specific right conferred on the IPR owner. For example, the benefit of NAFTA's exclusive rental right for sound recordings[132] would be properly described as the record producer's ability to enjoy the right to authorize or prohibit third parties with respect to commercial rental of his sound recording.

John Gero
Canada's Chief Negotiator for NAFTA's Intellectual Property Chapter

USA view of "Benefit" of an Intellectual Property Right

By contrast, the United States government's understanding of "benefit" tends to be much broader. The United States consistently contends that benefit covers the aspect of commercial exploitation. During the NAFTA negotiations, the United States delegation argued that -- on the one side -- there is the Intellectual Property Chapter to deal with the acquisition, maintenance, and enforcement of IPRs, and -- on the other side -- Annex 2004: Nullification and Impairment to deal with the question of the use of IPRs.

Distinguishing between trade agreements like NAFTA and pure IPRs treaties like the Paris Convention for the Protection of Industrial Property or the Berne Convention for the Protection of Literary and Artistic Works, the United States delegation contended that under trade agreements "palpably unfair trade distortions should find their remedy, notwithstanding the lack of an outright inconsistency." Following are two scenarios to explore the possible operation of such an expansive understanding of "benefit".

Plain-Packaging Requirement for Cigarettes

Consider the hypothesis of a NAFTA Party seeking to reduce smoking by an unprecedented new measure requiring the plain packaging of both domestic and imported tobacco products. Just such a plain-packaging proposal was suggested to the Canadian government by private-sector health groups trying to make cigarettes less attractive to adolescents.[133] In its most extreme form, the proposed plain-packaging requirement would mean that tobacco companies would be unable to use some or all of their existing trademarks. They would have to use, as an indication of source, rudimentary trademarks consisting of nothing more than their company or brand names. It has been alleged that such a plain-packaging requirement could also destroy the rationale for indirect tobacco advertising (e.g., via sports and arts sponsorship) by breaking the link between many established tobacco trademarks and cigarette packages.[134]

The suggested cigarette plain-packaging measure would respect NAFTA's national treatment requirement by applying equally to the trademark rights of both nationals and foreigners. Although the issue is debatable, a requirement of thoroughgoing plain-packaging might not violate the NAFTA Intellectual Property Chapter's substantive trademark provisions. Arguably, NAFTA's Intellectual Property Chapter does not require Parties to give owners an affirmative "right to use" their trademarks. Rather, NAFTA may be understood to require the owner to receive nothing more than the negative "right to prevent" unauthorized third parties from using his trademark.[135]

Furthermore, the NAFTA ban on "encumbering" a trademark's use in commerce arguably does not extend to discipline a Party enacting an outright prohibition of use.[136] Rather, the reference to "encumbering" probably points to an intention to prohibit domestic requirements for the linking or coupling of marks.[137] Coupling aims at gradually shifting goodwill from a trademark of foreign origin to a trademark of domestic origin by requiring the two to be used together. A non-national is presumed to be the owner of the trademark of foreign origin and his domestic licensee to be a national owning the linked trademark of domestic origin.[138]

To counter a new cigarette plain-packaging requirement, a NAFTA Party might, therefore, be unable to mount a successful challenge alleging outright violation of NAFTA's trademark provisions. But, there would always remain the legal possibility of using NAFTA, Annex 2004, to lodge a State-to-State non-violation complaint alleging nullification or impairment of the benefit which the complainant had (in 1992) reasonably expected to accrue to its nationals under the Intellectual Property Chapter's trademark provisions. In this regard, some would allege that "benefit" means the economic return which the owner would normally expect from his trademark's use in commerce. NAFTA's general exception for health-related measures might not excuse such a plain-packaging requirement because, for IPRs-related non-violation complaints, the general health exception seems to apply only to cases involving trade in goods originating in another NAFTA Party or technical barriers to trade in goods between NAFTA Parties.[139]

To be sure, there would be many good arguments to counter such a non-violation complaint against a domestic measure requiring cigarette plain packaging. A heavy onus would be on the complainant to provide "a detailed justification"[140] proving that its nationals suffered harm linked to denial of a benefit that in 1992 was reasonably expected to flow from ownership of the relevant IPR. "As every contract lawyer knows, judgments about the 'reasonableness' of one party's expectations are, at bottom, judgments about the reasonableness of the other party's behaviour."[141] During the NAFTA negotiations, cigarette smoking's health hazards were well-known and the possibility of a cigarette plain-packaging requirement was already being discussed in some anti-smoking and trademark circles.[142] In assessing whether such a plain-packaging measure could have been reasonably anticipated in 1992, some weight would also have to be given to NAFTA's provisions for health-related measures. Specifically, NAFTA permits the Parties the possibility of protecting human life and health via the adoption of sanitary measures under Article 712(1)[143] and standards-related measures under Article 904(1).[144] Because these provisions probably do not override the Intellectual Property Chapter, they might not serve as a defence in a violation case. Nonetheless, they remain directly relevant to the issue of reasonable expectations in a non-violation case.[145]

Were a NAFTA Party to enact such a plain-packaging requirement for cigarettes, for policy reasons the United States government would perhaps be unlikely to institute a State-to-State non-violation complaint to defend the foreign trademark rights of United States tobacco companies. For example, while he was United States Trade Representative (USTR), Commerce Secretary Mickey Kantor explained that the Clinton administration wants to avoid using trade law to stop countries that are trying to reduce smoking via bonafide health measures.[146]

Local-Content Quota for Domestic Broadcasting

As a second hypothesis to illustrate the potential operation of non-violation nullification or impairment of benefit, consider a current or future NAFTA Party, without the protection of the cultural industries exception. The NAFTA Party requires all the country's television broadcasters to be domestically incorporated with eighty percent ownership by nationals. In 1999, a new licensing requirement stipulates that all television stations must broadcast only audiovisual works first-fixed domestically. This scenario can be distinguished from a trade-in-goods situation because an audiovisual work first-fixed abroad may nonetheless be manufactured at home. Another NAFTA Party brings a non-violation complaint alleging that the new 100% local-content rule impairs the benefit which was expected to flow to its film producers from NAFTA rights in the copyright of cinematographic works.[147] This copyright line of argument would be all the more likely under NAFTA, because GATT precedents suggest that it is very difficult to make much headway characterizing television programming as a trade-in-goods issue.[148]

The defendant Party would be unable to rely on the Annex 2004 exception from non-violation complaints with respect to IPRs.[149] The exception does not apply because the hypothetical programming requirement does not qualify for an exception under NAFTA, Article 2101(1), which incorporates, for NAFTA disciplines with respect to international trade in goods and technical barriers to international trade, the general exceptions for public morals, health, etc., in GATT, Article XX. Nor would the hypothetical programming requirement be sheltered from the possibility of a non-violation complaint by the combination of NAFTA, Annex 2004(2)(b) and Article 2101(2).[150]

Non-Violation as Remedy for "Market Access" Failure?

The foregoing scenario clearly demonstrates that a non-violation complaint can be applied to IPRs to address what is essentially a market-access problem. The conjunction is significant because the United States government consistently raises market access in connection with IPRs.[151] This link is already familiar from "Section 301" of the U.S. Trade Act of 1974, as amended by the 1994 Uruguay Round Agreements Act. The "Section 301" procedures not only target foreign countries failing to protect IPRs, but also deal with:

the denial of fair and equitable nondiscriminatory market access opportunities [including] restrictions on market access related to the use, exploitation, or enjoyment of commercial benefits derived from exercising intellectual property rights in protected works or fixations or products embodying protected works.[152]

Road Ahead under NAFTA and TRIPS

The application to IPRs of complaints alleging non-violation nullification or impairment of benefit will eventually be clarified by NAFTA panels. Exactly what kind of IPRs complaints may be brought to NAFTA panels under Annex 2004 cannot be predicted with certainty. Similarly, we know neither how NAFTA panels will understand an IPR's "benefit" nor whether they will follow narrow or broad interpretations of the provisions dealing with non-violation nullification or impairment of benefit.

Nonetheless, enough has been said to identify the issue of non-violation complaints as one of the pressing new questions of the contemporary international IPRs regime. This is pertinent, because before January 1, 2000, there is still enough time for WTO Members to explore the implications thoroughly. In this regard, concerned countries should be diligent to ensure that the question of non-violation complaints figures prominently in the TRIPS Council's work plan. Because nothing short of consensus could block the non-violation complaint's application to IPRs, efforts should perhaps be concentrated on examining the "scope and modalities" as provided for by TRIPS, Article 64(3). For example, a useful approach might be to seek international agreement on an appropriate definition of "benefit" which urgently requires "further clarification especially in cases of non-violation complaints outside the area of tariff benefits and tariff negotiations."[153]

NOTES

118. See Petersmann, supra note 53, at 175-229.

119. GATT, Article XXIII(1)(b), specifically provides for the possibility of a complaint of nullification or impairment with respect to the application by another Contracting Party of any measure "whether or not it conflicts" with GATT provisions. See John H. Jackson, World Trade and the Law of GATT: A Legal Analysis of the General Agreement on Tariffs and Trade 179 (1969).

120. Idem, at 170, 177-78, 181-82; Jackson, supra note 9, at 94-95. For "reasonable expectation" at the time of negotiation, see 2 GATT Index, supra note 55, at 658.

121. GATT violation cases focus on getting the defendant to withdraw the inconsistent measure. But, the Contracting Parties have no authority to require withdrawal of a measure which is found to be not inconsistent with GATT. See Petersmann, supra note 53, at 215. WTO Understanding on Rules and Procedures Governing the Settlement of Disputes, Article 26(1)(b): "Where a measure has been found to nullify or impair benefits under, or to impede the attainment of objectives, of the relevant covered agreement [e.g., TRIPS] without violation thereof, there is no obligation to withdraw the measure. However, in such cases, the panel or the Appellate Body shall recommend that the Member concerned make a mutually satisfactory adjustment."

122. GATT, art. XXIII(2), deals with compensatory suspension of concessions or other obligations. See 2 GATT Index, supra note 55, at 680-84.

123. Idem, vol. 2, at 661, 667.

124. 1950 Report of the Working Party on The Australian Subsidy on Ammonium Sulphate, GATT/CP.4/39, adopted by the Contracting Parties on Apr. 3, 1950, GATT. Basic Instruments and Selected Documents II/188 (1952).

125. See 2 GATT Index, supra note 55, at 657-58.

126. NAFTA, Annex 2004(1)(d).

127. For any measure subject to an exception under NAFTA, Article 2101: General Exceptions, a Party may not bring a non-violation complaint alleging nullification or impairment of any provision of the IP Chapter. See NAFTA, Annex 2004(2)(b), which creates a disjunction between the availability of the traditional GATT, article 20, exceptions and the possibility of a NAFTA non-violation complaint alleging nullification or impairment of an IPR. A NAFTA non-violation complaint is therefore unavailable for a domestic measure with respect to international trade in goods or technical barriers to international trade, which qualifies for an exception under NAFTA, article 2101(1), incorporating GATT, article 20, and the interpretative notes thereto. In an appropriate case, a measure subject to an exception under NAFTA, article 2101(2), would also be removed from the scope of non-violation complaints alleging nullification or impairment of any provision of the IP Chapter. However, article 2101(2) is exceedingly opaque and therefore the interaction with Annex 2004(2)(b) is very much harder to assess.

128. NAFTA, art. 2004: Recourse to Dispute Settlement Procedures, and Annex 2004: Nullification and Impairment.

129. TRIPS, art. 64(2).

130. TRIPS, art. 64(3).

131. This conclusion flows from TRIPS, article 64(1), applying non-violation complaints to TRIPS disputes, and article 64(2) postponing, for five years following January 1, 1995, the application of non-violation complaints to TRIPS disputes.

132. NAFTA, art. 1706(1)(d).

133. Plain or generic packaging's efficacy is examined in an expert panel report prepared for Canada's Health Minister. See "When Packages Can't Speak: Possible Impacts of Plain and Generic Packaging of Tobacco Products" (1995). The possibility of packaging and labelling requirements is discussed in a consultative paper which the Health Minister released on December 11, 1995. See "Tobacco Control: A Blueprint to Protect the Health of Canadians," § 5.6, at 33-34.

134. Canada, House of Commons Standing Committee on Health, "Towards Zero Consumption: Generic Packaging of Tobacco Products," Standing Committee Report (June 21, 1994), at 4. However, this particular rationale for plain packaging is weakened because, at that time, the Tobacco Products Control Act, Section 8, subject to certain exceptions, already prohibited the use of tobacco trademarks in connection with non-tobacco goods, services, events and activities. On September 21, 1995, the Supreme Court of Canada in RJR MacDonald Inc. v. Attorney General of Canada found constitutional grounds to strike down Section 8 along with some other provisions of the Tobacco Products Control Act.

135. NAFTA, art. 1708(2). The Paris Convention also does not specifically require the owner to be given an affirmative right to use his trademark. See Gunnar W. G. Karnell, 8 Eur. Intell. Prop. Reps. 305 (1990), where inferring such a Paris Convention right of use is rejected by the author. But see Annette Kur, "Restrictions Under Trademark Law as Flanking Maneuvers to Support Advertising Bans: Convention Law Aspects," 23 Int'l Rev. Indus. Prop. & Copyright L. 43-44 (1992). See also Ulf Bernitz, "Logo Licensing of Tobacco Products: Can It Be Prohibited?" 4 Eur. Intell. Prop. Reps. 137-39 (1990).

136. In NAFTA's three authentic languages (English, French, and Spanish), the primary meaning of encumber/entraver/dificultar clearly connotes something less than an outright prohibition of use. This understanding is consistent with interpreting NAFTA, Article 1708(10), as addressing requirements with respect to the trademark's use. Nothing in Article 1708(10) raises the question of the trademark's non-use which is an aspect separately considered in Article 1708(8). Although a prohibition of use may reduce "the trademark's function as an indication of source", Article 1708(10) does not deal with this contingency. Instead, Article 1708(10) binds the NAFTA Parties with respect to another situation, i.e. a rule against the imposition of special requirements with respect to use, "such as a use that reduces the trademark's function as an indication of source".

137. NAFTA, art. 1708(10), addresses the mischief described by the U.S. International Trade Commission. Foreign Protection of Intellectual Property Rights and the Effect on U.S. Industry and Trade: Report to USTR (Jan. 1988), Investigation No. 332-245, under Section 332(g) of the Tariff Act of 1930: "Inadequate Intellectual Property Protection, p. 1-8; Trademarks: 6. Circumscribed usage or 'linking' -- The value of a trademark is diminished because the trademark must be used in a specified form or manner or used in conjunction with another trademark. Regime Inadequacies, p. 3-7; Trademarks: 5. Circumscribed usage or 'linking' -- Reported for 28 countries, led by Mexico (33 firms), Brazil (32), Korea (22), India (18), Venezuela (16), and Taiwan (15)."

138. See Justo Nava Negrete, Derecho de las Marcas (Mexico, 1985), at 537-52 (providing a detailed treatment of the linking of marks, vinculacion de marcas).

139. See NAFTA, Annex 2004(2)(b) and art. 2101(1). The suggested cigarette plain-packaging measure is also not of a kind subject to an exception under NAFTA, Article 2101(2), which focuses on telecommunications and international trade in services. Therefore, Article 2101(2) could not help to remove a possible plain-packaging measure from the scope of non-violation complaints under Annex 2004.

140. Relevant to such a non-violation complaint under NAFTA would be the GATT experience in this area. The WTO Understanding on Rules and Procedures Governing the Settlement of Disputes, art. 26(1)(a), requires the complaining party to present "a detailed justification in support of any complaint relating to a measure which does not conflict with the relevant covered agreement." For non-violation complaints, such a "detailed justification" was also required by the GATT Understanding on Notification, Consultation, Dispute Settlement and Surveillance of November 28, 1979 (26S/210), Annex: Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement (Article XXIII:2), §5. See 2 GATT Index, supra note 55, at 635, 661, 667.

141. Robert E. Hudec, The GATT Legal System and World Trade Diplomacy 167 (2d ed. 1990).

142. See supra note 135.

143. NAFTA, art. 724: Definitions, says sanitary measure includes a measure to protect human life or health "from risks arising from the presence of an additive, contaminant, toxin or diseasecausing organism in a food, beverage or feedstuff."

144. NAFTA, art. 915: Definitions, says a standard "may also include or deal exclusively with . . . symbols, packaging, marking or labelling requirements as they apply to a good . . . ."

145. Similarly, a WTO panel hearing a non-violation complaint against plain packaging would have to assess reasonable expectations as of December 15, 1993, in the light of TRIPS, Article 8(1), which specifically allows WTO Members to adopt or maintain TRIPS-consistent measures necessary to protect public health. However, a contrary precedent is the 1990 Oilseeds Panel Report. See 2 GATT Index, supra note 55, at 659-60.

146. Stan Stesser, "Opium War Redux," 69 New Yorker Sept. 13, 1993, at 89.

147. NAFTA, art. 1705(2)(c).

148. Clint N. Smith, "International Trade in Television Programming and GATT: An Analysis of Why the European Community's Local Program Requirement Violates the General Agreement on Tariffs and Trade," 10 Int'l Tax & Bus. Law. 97-137 (1993). See also World Trade Organization, 1 GATT, Analytical Index: Guide to GATT Law and Practice 210 (6th ed. 1995) [hereinafter 1 GATT Index]: "In discussions in the early 1960s, the United States stated that restrictions against showing foreign television programmes were technically a violation of Article III:4 [national treatment], but that some of the principles of Article IV might apply to them. A Working Party was unable to come up with any agreement on the subject . . . . In 1991, the United States requested consultations under Article XXII:1 concerning certain measures restricting the showing of non-European films on television. The EEC stated that the question of broadcasting, whether by television or by any other means, belonged essentially to the area of services."

149. With respect to any measure qualifying for an exception under NAFTA, Article 2101: General Exceptions, a Party may not bring a complaint alleging non-violation nullification or impairment of any provision of NAFTA's IP Chapter. See NAFTA, Annex 2004(2)(b).

150. Qualifying for an exception under Article 2101(2) is one of the ways of cancelling the possibility of a non-violation complaint under Annex 2004. The domestic local-content rule would need to benefit from an excuse from NAFTA disciplines with respect to the application to services of NAFTA: Part Two (Trade in Goods) or Part Three (Technical Barriers to Trade) or with respect to Chapter Twelve (Cross-Border Trade in Services) or Chapter Thirteen (Telecommunications). International trade in goods and technical barriers to international trade are clearly not pertinent. NAFTA's Chapter on Cross-Border Trade in Services is irrelevant to NAFTA obligations for television stations in a country requiring all broadcasters to be domestically incorporated and principally owned by nationals. Finally, NAFTA, Article 1301(2), says the Telecommunications Chapter does not apply to any measure relating to cable or broadcast distribution of radio or television programming.

151. For example, "market access" figures prominently in the China-U.S. IPRs Agreement [Feb. 26, 1995] 34 I. L. M. 881. USTR discussed "market access" in a 1995 paper, Economic Development in the Americas: The Role of Copyright, Patent, and Trademark Protection in the Free Trade Area of the Americas, 3 Inside NAFTA, no. 1, Jan. 10, 1996, at 18. On December 5, 1995, the United States proposed inter alia that the FTAA "Working Group on Intellectual Property will identify measures to eliminate possible restrictions on the market access of intellectual property-related products and services throughout the Hemisphere, including through their electronic transmission." See U.S. Proposal for FTAA IPR Work Group Terms of Reference, 3 Inside NAFTA, no. 1, Jan. 10, 1996, at 7.

152. See Actions by United States Trade Representative, 19 U.S.C. 2411(d)(3)(F)(ii).

153. See Petersmann, supra note 53, at 224-25.

Intellectual Property Rights and Investment Protection

Allen Z. Hertz was senior advisor in Canada's Privy Council Office serving the Prime Minister and the federal cabinet. Earlier he was in the Foreign Affairs Department where he advised on intellectual property rights. He participated in treaty negotiations, including for the North American Free Trade Agreement (NAFTA), and represented Canada at the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). He wrote the 1987 federal Green Paper on "Semiconductor Chip Protection in Canada" and was founding editor of "Computer Law: A Report for Business and the Professions." He taught history and law at universities in New York, Montreal, Toronto and Hong Kong. As an undergraduate he was at McGill University and then did graduate work at Columbia University where he received an M.A. and a Ph.D., in history. Dr. Hertz also has international law degrees from Cambridge University and the University of Toronto.

This posting contains Part IV of "Shaping the Trident: Intellectual Property Rights under NAFTA, Investment Protection Agreements and at the WTO," which first appeared in 1997 in Volume 23 of the Canada-United States Law Journal, 261. The article was part of the Proceedings of the Canada-United States Law Institute Conference on NAFTA Revisited. The views expressed were those of the author in his personal capacity, not those of the Government of Canada. This article is current up to May 1996. Parts II-III and V appear in separate postings on this website. Part VI:Conclusion is posted together with Part I.

Introduction

Now that international IPRs obligations are subject to effective dispute-settlement procedures, increasing attention is directed to the crucial intersection between IPRs and investment obligations. This arises by design because investment-protection treaties commonly include IPRs within the definition of "investment."[154] This feature is certainly true of the Bilateral Investment Treaties (BITs) of the United States.[155] And, Canadian treaty practice also includes bilateral Foreign Investment Protection Agreements (FIPAs) which specify IPRs within the definition of "investment."[156]

Why does NAFTA Treat Intellectual Property as an Investment?

None of NAFTA's multiple personalities is more important than its character as a powerful investment-protection instrument.[157] Therefore, it is natural that NAFTA's Investment Chapter treats IPRs as "intangible property" explicitly within the definition of "investment."[158] During the NAFTA negotiations, this definition raised significant questions with regard to the potential interaction between the draft Intellectual Property Chapter and the draft Investment Chapter.

According to the United States delegation, the Investment Chapter's purpose would be inter alia to protect the commercial benefits flowing from IPRs ownership. The United States negotiators were also seeking additional international disciplines for "trade-distorting practices" in the form of domestic restrictions on the commercial exploitation of IPRs, e.g., performance requirements.[159] According to the United States, the Intellectual Property Chapter would also need the Investment Chapter for the principle of the free transferability of royalty payments.[160] By way of further example, the United States added that the NAFTA Intellectual Property Chapter would establish the disciplines for the availability of compulsory licensing, but the Investment Chapter would allow the patent holder arbitration with respect to the level of compensation arising from any "taking" under the Intellectual Property Chapter.

Inconsistency Test is Strict

During the NAFTA negotiations, serious consideration was given to the potential interaction between the draft Investment Chapter and the other draft chapters. Accordingly, in the event of any inconsistency between another NAFTA chapter and the Investment Chapter, the other NAFTA chapter is to prevail to the extent of the inconsistency.[161] Despite first appearances, this provision does not go very far to establish an override favouring NAFTA's other chapters. This assessment rests on the consideration that in public international law an inconsistency test is normally applied very narrowly, i.e. inconsistency exists only where two texts are genuinely contradictory.[162]

Customary international law has treaty interpretation rules which include a general presumption against finding conflict between two provisions intended to apply between the same Parties with respect to the same subject matter. Therefore, the preferred interpretation is the one compatible with the requirements of both provisions.[163] This means that there would be no legal inconsistency between the first chapter's "shall not" (i.e. a clear "no") and the second chapter's "may" (i.e. embracing the possibility of either a "yes" or a "no"). By conforming with the first chapter's "shall not," a Party's conduct would be entirely consistent with both chapters. Accordingly, mandatory terms in one treaty chapter can operate to override permissive provisions in another treaty chapter.[164] This is illustrated by the following discussion of how the negotiations for the NAFTA Intellectual Property and Investment Chapters interacted with respect to requirements of national treatment and most-favoured-nation treatment (MFN).

MFN and National Treatment Requirements

During the NAFTA negotiations, concerns subsisted that the draft Investment Chapter might interfere with the legitimate scope of IPRs in the draft Intellectual Property Chapter. For example, the draft Investment Chapter demanded MFN and national treatment for investments including "intangible property" and hence for IPRs. However, the draft Intellectual Property Chapter gave each Party the possibility of derogating from the national treatment requirement. For example, the draft Intellectual Property Chapter offered the option of relying on exceptions for performers in respect of secondary uses of sound recordings[165] and for judicial and administrative procedures in respect of the protection and enforcement of IPRs.[166] In addition, Parties were specifically accorded the opportunity of requiring foreign right holders to designate a local address for service of process and to appoint an agent within the jurisdiction.[167] There was also the possibility of deviating from the Intellectual Property Chapter's national treatment obligation for certain domestic procedures (provided for in various WIPO treaties) relating to the acquisition or maintenance of IPRs.[168]

Accordingly, the mandatory MFN and national treatment obligations applying with respect to IPRs as "intangible property" under the draft Investment Chapter had to be specifically limited to preserve the freedom of action provided by the exceptions in the draft Intellectual Property Chapter. For this reason, the Investment Chapter was equipped with an exception which stipulates that the Investment Chapter's MFN and national treatment requirements do not apply to any measure that qualifies for an exception to national treatment under the Intellectual Property Chapter.[169]

NAFTA Expropriation and Intellectual Property Rights

Even more serious was the potential IPRs problem perceived in relation to the draft Investment Chapter's requirement of compensation for expropriation.[170] Like many investment-protection agreements, NAFTA casts the net widely to include not only expropriation but also a measure tantamount to expropriation.[171] Where there is expropriation, NAFTA appears to require compensation, even though the domestic measure satisfies all the other NAFTA requirements of being: (i) for a public purpose; (ii) non-discriminatory; (iii) in accordance with due process of law; and (iv) in accordance with international law, including fair and equitable treatment and full protection and security.[172]

This demanding formulation suggests that what constitutes a compensable expropriation may, in some circumstances, be broader under NAFTA than under customary international law, where there may be no duty to compensate an alien for losses arising from a "reasonable exercise of the state's power to regulate matters related to public order, safety or health, its currency, foreign exchange resources, balance of payments, or emergency situations."[173]

The precise scope of the promise to compensate under NAFTA's Investment Chapter is crucial because expropriation contrary to treaty is per se unlawful under public international law and gives rise to State responsibility, including the obligation to make restitution.[174]

Domestic Requirement to Compensate May Be Narrower

Consistent with TRIPS and WIPO obligations, domestic IPRs legislation in most countries has features (e.g., compulsory licensing, revocations, limitations) which arguably would have been inconsistent with an unqualified NAFTA obligation to compensate a foreign investor for expropriation. For example, a patent holder has no domestic right to compensation when a patent is revoked for abuse of rights under Canada's Patent Act[175] or Competition Act.[176] Compensation is required by Canada's Expropriation Act, but the statute applies only to the taking of land.[177]

The potentially narrow scope of the domestic meaning of expropriation can be further explored via the example of the U.K. system of land-use regulation which Sir William Wade has described as a "comprehensive and drastic licensing system."[178]

The planning legislation as a whole is in effect an extensive system of expropriation without compensation, since no compensation is payable in the great majority of cases where permission to develop land is refused, even though the land is then greatly reduced in value.[179]

Such losses have been judged by U.K. courts to result from the exercise of regulatory power and not from the taking of property.[180] As in the U.K., Canada's domestic understanding of expropriation is bound to be relatively narrow, because the Constitution Acts fail to provide fundamental guarantees to protect rights with respect to private property:

The rule requiring compensation for a taking of property is in Canada (as in the United Kingdom) only a rule of statutory interpretation. If a statute expressly provides that no compensation is payable, then there is no room for interpretation and the express words of the statute must be applied . . . . Neither the federal government nor a provincial government is under any constitutional (as opposed to statutory) obligation to pay fair compensation, or any compensation, for property expropriated.[181]

By contrast, the United States domestic understanding of expropriation is broader. United States courts interpret the fifth amendment to the United States Constitution to require payment of just compensation for expropriation, including "regulatory takings."[182] For example, the United States Supreme Court in 1992 held that the owner of two unimproved beachfront lots was entitled to compensation because he was prevented from building by the enactment of new construction setback lines to prevent coastal erosion.[183] Compensation was required because an unanticipated regulation deprived the property owner of "all economically viable use."[184]

During the NAFTA negotiations, Canadian negotiators were mindful of the possibility of a discrepancy between the understanding of "expropriation" under NAFTA and domestic law. To Canada's Intellectual Property negotiators, the draft Investment Chapter appeared to interact with IPRs in a way that might require an unrealistically high level of obligation with respect to expropriation. This broad requirement to compensate provoked examination of some hypothetical scenarios.

For example, it was imagined that under the draft Investment Chapter expropriation could be alleged with respect to: (i) the revocation of a patent for abuse of rights; (ii) limiting the copyright owner's exclusive reproduction and translation rights via the enactment of a new exception allowing unauthorized decompilation of a computer program for research to develop interoperability with another program; and (iii) software rental outlets being effectively put out of business by the exercise of a new exclusive rental right by owners of copyright in computer programs.

Thinking of these and similar situations, Canadian negotiators believed that it was necessary to preserve a Party's discretion to control IPRs consistent with the disciplines established in the Intellectual Property Chapter. Accordingly, included in the Investment Chapter was the following exception: "This article [on expropriation and compensation] does not apply to the issuance of compulsory licenses granted in relation to IPRs, or to the revocation, limitation or creation of IPRs, to the extent that such issuance, revocation, limitation or creation is consistent with Chapter Seventeen (Intellectual Property)."[185]

Cigarette Plain Packaging and Expropriation

The intersection between IPRs and investment obligations can be explored via the hypothetical cigarette plain-packaging proposal that is also discussed in this website's companion posting on State-to-State complaints alleging non-violation nullification or impairment of benefit.

A thoroughgoing plain-packaging requirement would effectively prevent tobacco companies from using most of their very valuable trademarks on cigarette packages. Canada's Trade-marks Act protects not only ordinary trademarks, e.g., symbols, but also distinctive packaging as a trade dress or "distinguishing guise."[186]

The NAFTA Investment Chapter could pose problems for a hypothetical cigarette plain-packaging measure because domestic trademark rights would fall within the scope of "intangible property" referenced in the definition of investment.[187] Furthermore, the Investment Chapter has no link with the NAFTA general exception for health-related measures with respect to international trade in goods.[188] Instead, the Investment Chapter has its own provision in the form of NAFTA, Article 1101(4), which permits a Party to adopt and maintain health measures not inconsistent with the Investment Chapter. But, it is very important to consider that NAFTA, Article 1101(4), may be read as conceivably not excluding liability to compensate the investor for a bonafide health measure that is tantamount to expropriation.[189]

On May 10, 1994, representatives of some United States tobacco companies came to Ottawa to tell the House of Commons Standing Committee on Health that they would respond with an investor/State complaint should Parliament enact a plain-packaging requirement preventing them from using their existing Canadian trademarks on their cigarette packs in Canada. In other words, the United States companies were warning that, under NAFTA's Investment Chapter, any cigarette plain-packaging requirement would be a measure tantamount to a compensable expropriation of their Canadian trademark rights.[190]

However, a number of significant counter-arguments would be available[191] if adoption of a cigarette plain-packaging measure sparked compensation claims leading to investor/State arbitration under the Investment Chapter and/or a State-to-State panel procedure under Chapter 20.[192] A plain-packaging requirement for cigarettes has not been adopted by any government. Nonetheless, the lively public discussion of the relevant policy and legal considerations has taught many useful lessons about how carefully investment obligations must be structured so as to leave sufficient space for domestic policy with regard to health, IPRs, and other areas.

Intellectual Property Rights in Foreign Investment Protection Agreements (FIPAs)

Possible conflict between the legitimate operation of IPRs regimes and investment obligations is a general problem which must be considered in other fora as well, e.g., the recently concluded negotiations for the Energy Charter Treaty[193] and the current OECD work towards a Multilateral Agreement on Investment (MAI).[194] The need for skilful handling of IPRs in investment-protection agreements is reinforced by two relevant considerations. First, IPRs are private rights[195] frequently held by corporations accustomed to aggressive litigation. Second, NAFTA, the Energy Charter Treaty, and other investment-protection agreements commonly provide for the possibility of the international arbitration of investor/State disputes in addition to the usual possibility of dispute settlement between States. This means that, under appropriate circumstances, a foreign owner of domestic IPRs may use investment obligations to press a claim against a host State. The proliferation of arbitral awards arising from such investor/State dispute settlement could generate significant new precedents, partly because of procedures which typically allow the investor to appoint one of the arbitrators.[196]

Because IPRs are almost invariably included within the definition of "investment," countries which are net exporters of technology and copyright product welcome the chance to use FIPAs to expand international protection for their foreign IPRs. However, countries which are net importers of technology and copyright product[197] must be vigilant lest over-protection occur via a bilateral FIPA. Experience in NAFTA showed the way to a more finely articulated treatment of IPRs as an investment.

Intellectual Property Rights in Canada's Model Foreign Investment Protection Agreement

Relying on NAFTA experience, Canada prepared a Model FIPA which, with respect to IPRs, tries to strike an appropriate balance between the private investor's needs and the host country's legitimate interests. Without impairing FIPA protection for IPRs, the IPRs-related exceptions in Canada's Model FIPA seek to prevent over-protection and to ensure that FIPA obligations with respect to IPRs are coordinate with TRIPS obligations. Accordingly, Canada's Model FIPA includes IPRs-related exceptions from obligations touching MFN, national treatment, and expropriation. The Model FIPA also has an exception carving out the cultural industries from the agreement's investment disciplines. (This website also has a separate posting on the NAFTA cultural industries exception.)

Ensuring that a FIPA does not inadvertently expand IPRs protection is important, because a bilateral FIPA may indirectly have a wider impact by triggering MFN obligations under other agreements. For example, with respect to the NAFTA Investment Chapter's MFN obligation,[198] Canada took a specific exception for treatment under all bilateral and multilateral treaties antedating January 1, 1994.[199] Understandably, there is no corresponding general carve out for treatment under subsequent treaties. Subject to certain exceptions, Canada could therefore end up owing to United States and Mexican investors and investments (including IPRs) treatment no less favourable than that which Canada accords, in like circumstances, under any subsequent FIPA with a third country.

With respect to MFN and national treatment, TRIPS offers WTO Members the possibility of using the various exceptions which were carefully negotiated during the years of the Uruguay Round. For IPRs, Canada's Model FIPA incorporates those exceptions to MFN and national treatment that are consistent with TRIPS.[200] In other words, to avoid expanding the scope of IPRs protection, IPRs must be subject to the same MFN and national treatment exceptions in both FIPAs and IPRs treaties. Otherwise, a FIPA might interfere with a Party's ability to use the MFN and national treatment exceptions multilaterally agreed in IPRs treaties, e.g., TRIPS, the Paris Convention for the Protection of Industrial Property and the Berne Convention for the Protection of Literary and Artistic Works.[201]

The FIPA reference to TRIPS ensures that there is no investment violation to the extent that domestic measures derogating from MFN and national treatment conform with the exceptions in TRIPS. However, without the FIPA reference to TRIPS, the balance could be upset by unqualified MFN and national treatment requirements in a subsequent FIPA. Customary international law and the Vienna Convention on the Law of Treaties[202] both rely on the lex posterior principle. In practical terms, this means that, as between countries Party to both the later FIPA and the earlier TRIPS, the provisions of TRIPS might only apply to the extent of their compatibility with the subsequent FIPA.[203] This could be seen as a question of the application of successive treaties relating to the same subject matter[204] because the FIPA specifically includes IPRs within the definition of "investment." For this reason, any inconsistency between TRIPS and a later FIPA might not be solvable via the principle of interpretation which stipulates that the general does not derogate from the specific (generalia specialibus non derogant).[205]

Significantly excluded from the Canadian Model FIPA's understanding of a compensable expropriation is a claim arising from the issuance of compulsory licences for IPRs or from the revocation, limitation, or creation of IPRs consistent with TRIPS.[206] This qualification is meant to allow some room for features that constitute normal operations within most domestic IPRs systems. Without such an exception, a FIPA obligation to compensate on expropriation might arise when a new Copyright Act exception is enacted, a domestic court orders compulsory licensing to remedy an anti-competitive practice or a patent is revoked. The FIPA's specific reference to the standard of TRIPS consistency is the foreign investor's guarantee that the exception from the duty to compensate for "expropriation" would be measured with an agreed yardstick.

Conclusion

Caution on the part of the host State is fully justified in the contemporary context where FIPAs commonly offer foreign IPRs owners the possibility of investor/State dispute settlement. Because investment treaties can conceivably lead to the overprotection of IPRs, panelists and arbitrators should, wherever possible, get clear FIPA rules to distinguish bonafide regulatory measures from compensable expropriations. In other words, the FIPA needs to include specific exceptions favouring particular regulatory measures with respect to IPRs. And, here the rationale is the circumstance that an unqualified FIPA requirement to compensate the IPRs owner as an investor would be logically consistent with a TRIPS exception allowing the possibility of a derogation from an IPRs discipline.

Technically speaking, there is a conflict between treaties when two (or more) treaty instruments contain obligations which cannot be complied with simultaneously.[207]

The danger is that the TRIPS exception could suffice to excuse the non-conforming domestic IPRs measure, but would not remove any separate FIPA obligation to compensate the foreign holder of domestic IPRs as an investor.

NOTES

154. F.A. Mann, British Treaties for the Promotion and Protection of Investments, in Further Studies in International Law 236, 243, 247 (1990). See, e.g., Article 1(b)(iv), Agreement between Australia and China on the Reciprocal Encouragement and Protection of Investments [Beijing, July 11, 1989] Australia Treaty Series 1988; Article 1(a)(iv), USSR-UK: Treaty on Promotion and Protection of Investments [London, Apr. 6, 1989] 29 I. L. M. 366 (1990); Article 1(1), Germany-USSR: Treaty on Promotion and Protection of Investments [Bonn, June 13, 1989] 29 I. L. M. 351 (1990); Article 1(a)(iv), Australia-Vietnam: Agreement on the Reciprocal Promotion and Protection of Investments [Canberra, Mar. 5, 1991] 30 I.L.M. 1064 (1991).

155. See, e.g., Article 1(1)(a)(i), Argentina-USA [Washington, Nov. 14, 1991] 31 I. L. M. 124 (1992); Article 1(1)(c), Russia-USA [Washington, June 17, 1992] 31 I. L. M. 794 (1992).

156. See Article 1 of the following FIPAs: Canada-Poland [Warsaw, Apr. 6, 1990] Canada Treaty Series 1990 43; Canada-USSR [Moscow, Nov. 20, 1989] Canada Treaty Series 1991 31; Canada-Czech and Slovak Republic [Prague, Nov. 15, 1990] Canada Treaty Series 1992 10; Canada-Argentina [Toronto, Nov. 5, 1991] Canada Treaty Series 1993 11; Canada-Hungary [Ottawa, Oct. 3, 1991] Canada Treaty Series 1993 14.

157. Jon R. Johnson, The North American Free Trade Agreement: A Comprehensive Guide 278 (1994): "The U.S. negotiators used the Model BIT as the basis for negotiating the FTA and achieved partial success in having its provisions incorporated. In negotiating NAFTA, with the addition of a developing country to the Canada-U.S. free trade area, the process of incorporating the provisions of the Model BIT was completed." NAFTA's Investment Chapter is the culmination of approximately seventy years' insistence by capital-exporting States on effective international protection for investments. To locate NAFTA on the capital-exporting side of this century's vigorous debate about investment protection, see Antonio Cassese, International Law in a Divided World 319-23, 345-49 (1986). For a snapshot of customary international law at the high point for capital-importing States, see D. W. Greig, supra note 34, at 575-79.

158. NAFTA, art. 1139: Definitions.

159. NAFTA, art. 1106: Performance Requirements.

160. NAFTA, art. 1109(1)(a).

161. NAFTA, art. 1112(1).

162. 743rd meeting (June 11, 1964) 1 Y.B. Int'l L. Comm., § 8, at 127 (1964): Paul Reuter said the rules of interpretation governing inconsistent provisions in successive treaties are "of the same nature as those for the settlement of alleged conflicts between different provisions of the same treaty." Accordingly, the meaning of inconsistency within one treaty can be illuminated with reference to authoritative views relating to inconsistency between two or more treaties. Re applying "conflicting" or "incompatible" provisions of successive treaties relating to the same subject matter, Sir Humphrey Waldock, Special Rapporteur, talked of a "comparison between two treaties which revealed that their clauses, or some of them, could not be reconciled with one another". See 742nd meeting (June 10, 1964) 1 Y.B. Int'l L. Comm. § 68, at 125 (1964). Subsequent discussion referred to situations "when the provisions of two treaties could not be applied in their entirety at the same time." See 857th meeting (May 24, 1966) 1 Y.B. Int'l L. Comm., pt. 2, § 54-55, at 99 (1966).

163. J. G. Starke, Introduction to International Law 470 (10th ed. 1989): "Where the point turns on the construction of ambiguous treaty provisions, there is a presumption of nonconflict. Much may depend on whether there is or is not real incompatibility . . . ." See also C. Wilfred Jenks, "The Conflict of Law-Making Treaties," 30 Brit. Y. B. Int'l L. 427-29 (1953).

164. Customary international law rules are generally the same for interpreting provisions of the same treaty and of two different treaties. The distinction between conflict and divergence of treaties is therefore directly relevant to understanding conflict and divergence between different NAFTA chapters. Id., at 425-26. According to Jenks: "A conflict in the strict sense of direct incompatibility arises only where a Party to the two treaties cannot simultaneously comply with its obligations under both treaties." However, Jenks recognizes the possibility that "a divergence which does not constitute a conflict may nevertheless defeat the object of one or both of the divergent instruments. Such a divergence may, for instance, prevent a Party to both of the divergent instruments from taking advantage of certain provisions of one of them recourse to which would involve a violation of . . . certain requirements of the other. A divergence of this kind may in some cases . . . render inapplicable provisions designed to give one of the divergent instruments a measure of flexibility . . . necessary to its practicability. Thus, while a conflict in the strict sense of direct incompatibility is not necessarily involved when one instrument eliminates exceptions provided for in another instrument . . , the practical effect of the coexistence of the two instruments may be that one of them loses much or most of its practical importance."

165. NAFTA, art. 1703(1).

166. NAFTA, art. 1703(3).

167. Id.

168. NAFTA, art. 1703(4).

169. NAFTA, art. 1108(5).

170. NAFTA, art. 1110: Expropriation and Compensation. "Expropriation" is neither defined by NAFTA nor does the word have a precise agreed meaning under international law. See Brownlie, supra note 42, at 531-32: "The terminology of the subject is by no means settled, and in any case form should not take precedence over substance. The essence of the matter is the deprivation by state organs of a right of property either as such, or by permanent transfer of the power of management and control. The deprivation may be followed by transfer to the territorial state or to third parties, as in systems of land distribution as a means of agrarian reform. The process is commonly described as expropriation. If compensation is not provided, or the taking is regarded as unlawful, then the taking is sometimes described as confiscation."

171. NAFTA, art. 1110(1).

172. NAFTA, art. 1105(1) and 1110(1).

173. Louis Henkin, et al., International Law: Cases and Materials 734-35 (3d ed. 1993). Subject to certain qualifications, the 1961 Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens, Article 10(5), allows for the possibility of "an uncompensated taking of property" resulting from "the execution of the tax laws; from a general change in the value of currency; from the action of the competent authorities of the State in the maintenance of public order, health, or morality; or from the valid exercise of belligerent rights; or is otherwise incidental to the normal operation of the laws of the State . . . ." See Louis B. Sohn & R. R. Baxter, "Responsibility of States for Injuries to the Economic Interests of Aliens," 55 Am. J. Int'l L. 554, 561 (1961). For regulatory measures as a defence to liability, see Allahyar Mouri, The International Law of Expropriation as Reflected in the Work of the Iran-U.S. Claims Tribunal 248-57 (1994); American Law Institute, Restatement of the Law (Second): Foreign Relations Law of the United States, ch. 4: Justification, § 197, at 592-93 (1965). A correspondingly broad statement on "justification" is absent from 2 Restatement of the Law (Third): Foreign Relations Law of the United States, §§ 71112, at 184-216 (1987). See id., § 712, at 201: "A state is not responsible for loss of property or other economic disadvantage resulting from bona fide general taxation, regulation, forfeiture for crime, or other action of the kind that is commonly accepted as within the police power of states, if it is not discriminatory . . . and is not designed to cause the alien to abandon the property to the state or sell it at a distress price. As under United States constitutional law, the line between 'taking' and regulation is sometimes uncertain."

174. F.A. Mann, supra note 154, at 176, 241; Brownlie, supra note 42, at 543. The stringent NAFTA requirement to provide compensation for expropriation must be weighed against the uncertainties of customary international law. See, e.g., Gray, supra note 41, at 40 (discussing arbitral precedents); J.G. Starke, supra note 163, at 300: "It is believed also that an expropriation of foreign property is contrary to international law if it does not provide for the prompt payment by the expropriating State of just, adequate and effective compensation. On the other hand, some writers maintain and some courts have held that the absence of any such proper provision for compensation does not render the expropriation illegal under international law, but that at most there is a duty to pay such compensation, the expropriation remaining lawful for all purposes, including transfer of title. There is even a difference of opinion concerning the measure of the compensation payable; some writers are of the opinion that it need only be reasonable in the circumstances, having regard to the state of the economy of the expropriating State. It is said, however, that compensation which is of a nominal value only, or which is indefinitely postponed, or which is the subject of a vague or non-committal promise, or which is below the rate of compensation awarded to nationals of the expropriating State, is contrary to international law."

175. To remedy abuse of rights, Patent Act, Section 66(1)(d), gives the Commissioner of Patents the power to revoke a patent in circumstances where the grant of a compulsory licence would not suffice. However, the revocation order cannot be "at variance" with any treaty to which Canada is Party.

176. Competition Act, Section 32(g), permits the Federal Court of Canada to order revocation if compulsory licensing and other remedies are deemed to be insufficient to remedy restraint of trade caused by the use of the exclusive rights and privileges under the patent. However, the revocation order must not be "at variance" with any treaty to which Canada is Party.

177. Expropriation Act, Section 4(1): "Any interest in land, including any of the interests mentioned in section 7, that, in the opinion of the Minister, is required by the Crown for a public work or other public purpose may be expropriated by the Crown in accordance with the provisions of this Part." Under Ontario's Expropriations Act, Section 1(1)(c), "expropriate means the taking of land without the consent of the owner by an expropriating authority in the exercise of statutory powers . . . ."

178. Sir William Wade, Administrative Law 178 (6th ed. 1988): "The legislative scheme contains a large measure of expropriation without compensation, a sacrifice which is imposed upon landowners for the general good, but which naturally provokes litigation."

179. Id., at 797.

180. Id., at 797, n. 99: "But this is regulation rather than the 'taking' of property: Belfast Corporation v. O.D. Cars Ltd. [1960] AC 490 (a decision that planning restrictions did not conflict with section 5 of the Government of Ireland Act, 1920, prohibiting legislation for the taking of property without compensation)."

181. Peter W. Hogg, Constitutional Law of Canada 577 (2d ed. 1985).

182. Dennis J. Coyle, Property Rights and the Constitution: Shaping Society Through Land Use Regulation 249-51 (1993); James W. Sanderson & Anne Mesmer, "A Review of Regulatory Takings After Lucas," 70 Denv. U. L. Rev., 498 (1993).

183. Lucas v. South Carolina Coastal Council 112 S. Ct. 2886 (1992).

184. Lucas v. South Carolina Coastal Council, at 2895, 2899-2900. The U.S. House of Representatives has passed a "takings bill" that would require the U.S. government to compensate landowners whose holdings lose value due to environmental regulation. The bill has also cleared the Senate Judiciary Committee. See Timothy Noah, "GOP's Rollback of the Green Agenda Is Stalled By a Public Seeing Red Over Proposed Changes," Wall St. J., Dec. 26, 1995, at A8.

185. NAFTA, art. 1110(7).

186. Trade-marks Act, Section 2, defines "trade-mark" as including a "distinguishing guise" which in turn is defined as including "a mode of wrapping or packaging wares the appearance of which is used by a person for the purpose of distinguishing or so as to distinguish wares . . . manufactured, sold, . . by him from those manufactured, sold . . . by others."

187. NAFTA, art. 1139(g), stipulates that "investment means real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes."

188. NAFTA, art. 2101: General Exceptions.

189. NAFTA, art. 1101(4): "Nothing in this Chapter shall be construed to prevent a Party from providing a service or performing a function such as . . . health . . . in a manner that is not inconsistent with this Chapter." Similarly, the mandatory requirement to compensate investors of another NAFTA Party on expropriation may be understood as fully consistent with a Party's discretion to take under Article 712(1) any sanitary measure necessary for, or under Article 904(1) any standards-related measure relating to, the protection of human life or health. According to this interpretation, there would be no question of having to withdraw any bonafide health measure under Article 712(1) or Article 904(1), but investors of another NAFTA Party would nonetheless have to be given prompt, adequate and effective compensation for expropriation or a measure tantamount thereto.

190. The expropriation argument is fully set out in a 24-page (May 3, 1994) legal opinion which former USTR Carla A. Hills prepared for the R.J. Reynolds Tobacco Company. The opinion was delivered to the House of Commons Standing Committee on Health by Hills and Jules Katz, formerly Chief United States negotiator for NAFTA. See Minutes of Proceedings and Evidence of the Standing Committee on Health, Iss. No. 9, May 10, 1994, at 48.

191. First, it might be argued that there is no affirmative "right to use" under Canada's Trademarks Act and consequently no investment with respect to a right to use under the Investment Chapter. Second, the plain-packaging measure might be characterized as a bonafide regulatory measure and therefore not falling within the ambit of "expropriation" under the Investment Chapter. Third is the possibility of invoking the specific IPRs exception from the Investment Chapter's provisions on compensable expropriation. See NAFTA, Article 1110(7), discussed above. To rely on the Article 1110(7) exception, the State would have to show that the plain-packaging measure is a limitation consistent with the IP Chapter. In this regard, the argument might include the following: (i) there is no affirmative right to use under the IP Chapter; (ii) the IP Chapter's ban on "encumbering" the trademark's use in commerce does not prevent a Party from "prohibiting" the trademark's use; (iii) in the alternative, the plain-packaging measure is justified under Article 1708(12) as a "limited exception to the rights conferred by a trademark."

192. NAFTA, art. 1115, stipulates that the NAFTA Investment Chapter's procedures for investor/State dispute settlement are without prejudice to the rights and obligations of Mexico, Canada, and the United States under Chapter 20: Institutional Arrangements and Dispute Settlement Procedures.

193. Energy Charter Treaty [Lisbon, Dec. 17, 1994] 34 I. L. M. 360 (1995). The treaty aims to liberalize sectoral trade and investment. It establishes a legal framework for long-term cooperation in the energy field. As an investment-protection instrument, the Energy Charter Treaty offers the possibility of both State-to-State and investor/State dispute settlement. Article 1(6), specifically includes both "intangible property" and "intellectual property" within the definition of "investment". For IPRs, Article 10(10) says MFN and national-treatment obligations shall be "as specified in the corresponding provisions of the applicable international agreements for the protection of IPRs to which the respective Contracting Parties are parties". However, Article 13: Expropriation, lacks a carve out from the scope of expropriation for TRIPS-consistent issuance of compulsory licences granted in relation to IPRs and the revocation, limitation or creation of IPRs. During the negotiations, unsuccessful was the attempt to include in the Energy Charter Treaty such an exception to the expropriation obligation. The failed proposal was modelled on NAFTA, Article 1110(7), which is discussed supra.

194. Eduardo Lachica, "OECD At Work on Treaty to Protect Foreign Investment: Developing Countries Asked to Join in Crafting Global Accord," Globe & Mail, (Toronto), Nov. 9, 1995, at B12.

195. The TRIPS Preamble explicitly recognizes that "intellectual property rights are private rights."

196. For example, NAFTA, Article 1123, provides for three-member tribunals. The investor and the State each appoint one arbitrator. A presiding arbitrator is then appointed by agreement of the investor and the State. If they cannot agree, the Secretary-General of the International Centre for the Settlement of Investment Disputes (ICSID) appoints the presiding arbitrator from a NAFTA roster of 45 presiding arbitrators. See NAFTA, art. 1124.

197. Canada is clearly a net importer of technology and copyright product. For example, Canadians made only 7% of the patent registrations in Canada in 1988-1989, when nationals of the United States took out 51% and of Japan 12%. See Consumer and Corporate Affairs Canada, Intellectual Property and Canada's Commercial Interests: A Summary Report for the Intellectual Property Advisory Committee 5-6 (1990). In 1993, patent applications in Canada were 11.7% by Canadian residents, and the remainder by nationals of Japan (10.8%), the European Union (24.9%), the United States (45.9%), and others (6.7%). See Canadian Intellectual Property Office, Perspectives on Canadian Intellectual Property Activity 5 (1995). Id., at 4: "Historically, patent applications filed annually by residents accounted for less than 10% of filings in Canada. The relative number of resident filings is gradually increasing from 8.3% in the 1980s to 10.8% in the 1990s." For copyright, see the striking statistics on cultural-product imports at the beginning of this website's separate posting on the NAFTA Cultural Industries Exception.

198. NAFTA, art. 1103: Most-Favoured-Nation Treatment.

199. NAFTA, Annex IV: Schedule of Canada.

200. Modelled on NAFTA, art. 1108(5), discussed supra.

201. Mandatory provisions in one treaty can eliminate a Party's discretion to use exceptions in another treaty. See C. Wilfred Jenks, supra note 163, at 426-27.

202. Vienna Convention on the Law of Treaties, art. 30(3)-(4).

203. For application of successive treaties relating to the same subject matter, see Sinclair, supra note 68, at 93-98.

204. Id., at 98: "Finally, it would seem that the expression 'relating to the same subject matter' must be construed strictly. It will not cover cases where a general treaty impinges indirectly on the content of a particular provision of an earlier treaty."

205. How the ICJ applies this interpretative principle is described by Sir Gerald Fitzmaurice, "The Law and Procedure of the International Court of Justice 1951-4: Treaty Interpretation and Other Points," 33 Brit. Y.B. Int'l L. 236-38 (1957). For a discussion of the lex specialis principle, see C. Wilfred Jenks, supra note 163, at 436, 446-47.

206. Modelled on NAFTA, art. 1110(7), discussed supra.

207. Wolfram Karl, "Treaties, Conflicts Between," in 7 Encyclopedia of Public International Law 468 (1984).

The NAFTA Cultural Industries Exception

The celebration of Canadian culture and the promotion of Canadian cultural and educational industries, so that they can continue to compete at home and abroad, are central tenets of Canadian policy . . . . The Government is convinced that we can and should manage our international economic relationships so that Canadian cultural industries are effectively supported. We will remain vigilant in protecting and promoting the capacity of our important cultural industries to flourish in the global environment.[226]

Protection or Discrimination?

What is seen by one country as legitimate protection for a domestic cultural industry may be viewed by another country as a measure discriminating against foreign intellectual property (IP) owners, exporters, or investors. Consider the example of neighbouring rights to compensate record producers and performers for the secondary use (i.e. broadcasting and performance in public) of their sound recordings. Although absent from the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), these neighbouring rights exist in the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, to which neither Canada nor the United States is Party.[227] NAFTA does not require neighbouring rights which, nonetheless, feature as "related rights" in the NAFTA definition of "intellectual property rights."[228] Absent the cultural industries exception, a Party opting to provide neighbouring rights owes record producers of another NAFTA Party at least national treatment and performers of another NAFTA Party what appears to be at least formal reciprocity.[229]

To support the domestic sound recording industry including local performing artists, Canada has for many years considered the possibility of introducing neighbouring rights. However, policy makers invariably concluded that it was not feasible to offer these neighbouring rights on a national treatment basis to United States record producers and performers. This assessment was partly based on the then absence of a corresponding right in United States law[230] and the calculation of the potential outflow of royalties to United States producers and performers who are responsible for first-fixation of approximately half the sound recordings broadcast in Canada.[231]

During the NAFTA talks, Canadian negotiators evaluated the United States demand for the application of a national treatment requirement to all the IPRs a Party might adopt or maintain inter alia in the light of the possibility that Canada might some day want to introduce neighbouring rights without offering national treatment to United States record producers and performers. Having a cultural industries exception to make room for such a derogation from national treatment was, therefore, one of the principal goals of Canada's IP negotiators. The United States negotiators clearly understood Canada's interest in possibly introducing neighbouring rights beyond the scope of NAFTA obligations. They conceded that the NAFTA cultural industries exception would excuse Canada from the obligation to provide United States record producers with national treatment inside NAFTA. However, with respect to neighbouring rights, they said the United States would always be free to press Canada for national treatment outside NAFTA.

In December 1994, there was an official announcement that Canada would soon introduce neighbouring rights as part of the upcoming copyright reform. This news prompted the United States Trade Representative (USTR) to signal strongly that "the U.S. Government and U.S. industry would be extremely concerned if U.S. performers and producers were denied national treatment under the proposed legislation."[232]

On April 25, 1996, the Minister of Canadian Heritage introduced Bill C-32. This Act to Amend the Copyright Act proposes giving Canadian record producers and performers a right to equitable remuneration for the broadcasting and performance in public of their sound recordings.[233] The same right would extend to producers and performers of countries Party to the Rome Convention to which Canada would adhere.[234] Canadian broadcasters, restauranteurs, etc., would not have to pay royalties for the secondary use of the sound recordings of non-Rome Convention countries whose producers and performers would remain outside the projected Canadian neighbouring-rights regime.[235] Significantly, the United States is not among the fifty Parties to the Rome Convention. However, Bill C-32 contains a provision that would permit giving reciprocal rights (full benefits) or material reciprocity (partial benefits) to record producers and performers of foreign countries not Party to the Rome Convention.[236]

In USTR's annual press release evaluating IP protection and enforcement by foreign countries round the world, notice was taken of Bill C-32 which USTR said "could discriminate against U.S. right holders." Canada was again placed on the USTR "watch list" in part because the "Administration wants to ensure that these amendments are not at the expense of U.S. copyright interests."[237]

Where Are Cultural Industries Exceptions Found?

Already a half-century old is the debate between the proponents of protecting domestic culture and the champions of national treatment for the world trading system. For example, the 1947 General Agreement on Tariffs and Trade (GATT) had special provisions permitting a derogation from national treatment for the cinema screening of motion pictures.[238] In 1950, the U.S. State Department said the screening of motion pictures is distinguishable from other trade-in-goods issues because the "value is not in the film itself, but in its earning power" at the box office.[239] GATT 1947, Article IV, permits a Contracting Party to require the exhibition of films of national origin during a specified minimum proportion of the total screen time utilized annually in the commercial exhibition of all films of whatever origin.[240]

More recently, Canadian trade policy has worked consistently to create the sophisticated device of the cultural industries exception as a general exception operating horizontally across a whole trade agreement. In this regard, NAFTA negotiators had the precedent of the cultural industries exemption which applied to almost every aspect of the 1989 Canada-United States Free Trade Agreement (FTA).[241] FTA, NAFTA, and Canada's Foreign Investment Protection Agreements (FIPAs) are so far probably unique in employing this feature as a general exception.

The phenomenon is most complex in NAFTA where, outside Annex 2106: Cultural Industries, Canada has no substantive rights or obligations with respect to the "cultural industries" defined in NAFTA, Article 2107. This means that, under NAFTA, the cultural industries exception is better understood as a special regime or "carve out" rather than as a discretionary exception which a Party may elect to invoke.[242]

Under Annex 2106, Canada is simply free to adopt or maintain measures with respect to the cultural industries without regard to any other NAFTA obligations, including the requirements of the IP Chapter. However, with respect to most of the subject matter of NAFTA's IP Chapter, Canada is independently bound by treaty obligations set out in TRIPS, the Paris Convention for the Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works -- all three of which lack a general cultural industries exception. Although the implications of the NAFTA cultural industries exception have yet to be elucidated by dispute settlement panels, the attempt will be made to explain how this author expects the exception to operate.

The NAFTA Cultural Industries Exception

The NAFTA cultural industries exception is an intricate and very compact text where every word must be read with great care. It is set out in NAFTA, Annex 2106:

Notwithstanding any other provision of this Agreement, as between Canada and the United States, any measure adopted or maintained with respect to the cultural industries, except as specifically provided in Article 302 (Tariff Elimination), and any measure of equivalent commercial effect taken in response, shall be governed under this Agreement exclusively in accordance with the provisions of the Canada-United States Free Trade Agreement. The rights and obligations between Canada and any other Party with respect to such measures shall be identical to those applying between Canada and the United States.

The practical effect of these words is that between Canada and the United States, measures with respect to the cultural industries, as defined by NAFTA, Article 2107, attract NAFTA rights and obligations which are identical to those prescribed for the cultural industries in the earlier FTA, which was suspended when NAFTA came into force on January 1, 1994.[243] From an IP perspective, crucial is FTA's failure to include either an IP Chapter[244] or an "investment" definition broad enough to capture a pure or isolated intellectual property right (IPR) as opposed to an IPR figuring as an asset of a business enterprise.[245] Apart from a requirement to protect the appellations "Bourbon Whiskey" and "Canadian Whiskey" as distinctive products of the United States and Canada respectively[246] and a "best efforts" clause referring to Canada-United States cooperation in the Uruguay Round and other international fora,[247] the only IP provision in FTA is the obligation to provide copyright holders with a right to equitable remuneration for the retransmission to the public of distant broadcast signals carrying their works.[248]

The NAFTA cultural industries exception applies between Canada and Mexico and would also apply between Canada and other countries acceding to NAFTA.[249] For measures with respect to cultural industries, NAFTA rights and obligations between Canada and Mexico are identical to those applying between Canada and the United States. However, the NAFTA cultural industries exception does not apply between Mexico and the United States. Nor would the cultural industries exception apply between the United States and a fourth country (e.g., Chile) acceding to NAFTA.

NAFTA says the cultural industries exception applies "under this agreement", i.e. under NAFTA. This means that the NAFTA cultural industries exception does not apply outside NAFTA. International rights and obligations existing outside NAFTA are, therefore, unaffected by the NAFTA cultural industries exception. For example, the NAFTA cultural industries exception does not apply at the WTO.

Consider a hypothetical Canadian cultural industries measure[250] denying national treatment to United States and Mexican nationals with respect to the copyright owner's reproduction right in a literary work, e.g., a book. Under NAFTA, the United States and Mexico would not be entitled to respond with a counter-measure of equivalent commercial effect because the Canadian cultural industries measure would not be inconsistent with the FTA which lacks any provision with respect to reproduction rights. However, as WTO Members, the United States and Mexico would be entitled to bring a complaint to the WTO Dispute Settlement Body, because national treatment for the copyright owner's reproduction right also features in TRIPS.[251]

Cultural Industries Measures

The focus of the NAFTA cultural industries exception is a "measure" under NAFTA. According to NAFTA, a "measure" includes any law, regulation, procedure, requirement or practice.[252] The NAFTA cultural industries exception addresses a measure "with respect to cultural industries" which are defined as "persons" engaged in certain specified activities.[253] Under NAFTA, a "person" means a natural person or an enterprise, and an "enterprise" is any entity constituted or organized under applicable law, whether or not for profit, and whether privately owned or governmentally owned, including any corporation, trust, partnership, sole proprietorship, joint venture, or other association.[254] Under NAFTA, falling within the scope of the "cultural industries" are:

(a) publication, distribution or sale in print or machine-readable form of music, books, magazines, periodicals, and newspapers; (b) production, distribution, sale, or exhibition of films and other video recordings and audio and audio-video music recordings; (c) satellite programming; broadcast network services; radio, television, and cable broadcasting undertakings (e.g., activities, enterprises); and radio-communications intended for direct reception by the general public.[255]

However, the NAFTA cultural industries exception does not apply to the printing and typesetting of books, magazines, periodicals, and newspapers.[256] Nor does the NAFTA cultural industries exception apply to tariff elimination. The NAFTA cultural industries exception, therefore, does not affect the tariff elimination obligations set out in NAFTA, Article 302.[257]

Notwithstanding any other NAFTA provision, a measure with respect to cultural industries is governed under NAFTA exclusively by FTA provisions.[258] This is a significant feature because, with specific exceptions, cultural industries are also exempt from FTA provisions.[259] The specific exceptions to the FTA cultural industries exemption are tariff elimination;[260] Canada's obligation to offer fair open-market value when requiring divestiture following a United States investor's indirect acquisition in a Canadian cultural industry;[261] each Party's obligation to provide copyright holders with a right to equitable remuneration for the retransmission to the public of distant broadcast signals carrying their works;[262] and the obligation to repeal the print-in-Canada requirement.[263]

Counter-measures

The other side of the coin is how NAFTA treats a counter-measure of equivalent commercial effect taken in response to a measure under the NAFTA cultural industries exception. Notwithstanding any other NAFTA provision, the counter-measure is governed under NAFTA exclusively by FTA provisions.[264] With respect to a counter-measure of equivalent commercial effect taken in response to a cultural industries measure, FTA says that notwithstanding any other FTA provision, a Party may take measures of equivalent commercial effect in response to actions that would have been inconsistent with FTA, but for the cultural industries exemption.[265]

Here "inconsistent" must be construed narrowly according to the customary international law rules for interpreting treaties.[266] To be inconsistent with each other the cultural industries measure and the FTA provision must be mutually repugnant or contradictory, so that the one cannot stand alongside the other.[267]

For a proper understanding of the cultural industries exception's operation it must be understood that inconsistency with an FTA provision is the trigger for a counter-measure suspending NAFTA benefits. The day the Canadian, Mexican, and United States negotiators finished their work, they issued an agreed Description of the NAFTA. This August 12, 1992 trilateral Statement says: "Each country reserves the right to take measures of equivalent commercial effect in response to any action regarding cultural industries that would have been a violation of the Canada-U.S. Free Trade Agreement but for the cultural industries provisions." This view has been reiterated by the United States. In the 1993 NAFTA Statement of Administrative Action submitted to Congress, the United States government said:

The United States agreed to include the exemption only in return for an explicit agreement that any action by Canada that would have been inconsistent with the Canada/U.S. Free Trade Agreement in the absence of the exemption would be subject to immediate suspension of trade benefits by the United States.

A counter-measure suspending NAFTA benefits cannot be justified by a claim that a NAFTA cultural industries measure has caused non-violation nullification or impairment of an FTA benefit carried forward under NAFTA Annex 2106.[268] In other words, a counter-measure under Annex 2106 cannot be characterized as a response to a cultural industries measure which is not inconsistent with FTA provisions. To be entitled to take a counter-measure under Annex 2106, the original cultural industries measure must be inconsistent with FTA provisions.

Under NAFTA, a cultural industries measure that is FTA inconsistent permits a counter-measure of "equivalent commercial effect."[269] This means that, in business terms, the value of the benefits suspended by the counter-measure must be proportional to the value of the benefits denied by reason of the original measure's inconsistency with FTA provisions. The policy aim is to re-establish between the Parties the balance of concessions under NAFTA, Annex 2106, which, with respect to cultural industries, carries forward FTA rights and obligations. If a NAFTA cultural industries measure is inconsistent with an FTA provision, there is no requirement to withdraw the inconsistent measure. However, the other Party is permitted to suspend NAFTA trade concessions or other NAFTA benefits because the cultural industries exception specifically says that, under NAFTA, a measure of equivalent commercial effect is justified notwithstanding any other NAFTA provision.

It would seem that, under Annex 2106, a counter-measure may be applied in the same sector or in other sectors because FTA, Article 2005(2), does not preclude the possibility of cross-retaliation which, within the NAFTA context, is consistent with both customary international law and Article 60 of the Vienna Convention on the Law of Treaties.[270] Under Annex 2106, a counter-measure may, therefore, respond in the same sector as the original cultural industries measure or against any other NAFTA benefits, e.g., equivalent benefits with respect to trade in goods and services.

Retorsion

If a NAFTA cultural industries measure is not inconsistent with an FTA provision, another Party is not entitled to suspend trade or other benefits under NAFTA. However, outside NAFTA, there are likely to be some purely discretionary trade or other benefits which might be suspended as the counter-measure of a NAFTA Party responding to a NAFTA cultural industries measure that is not inconsistent with an FTA provision. In this regard, the rationale is that customary international law does not require "a State . . . to allow trade with any country, let alone an unfriendly State."[271] Therefore, a State judging itself aggrieved by an unfriendly act is, after bilateral consultations and absent any contrary customary law or treaty requirement, generally free to deny equivalent trade or other benefits as a counter-measure characterized as retorsion. The aggrieved State may take this counter-measure even though the "offending" State has committed no wrongful act, i.e. no breach of treaty or other violation of international law.[272]

Effect on Rights and Obligations Under Other Treaties

A NAFTA cultural industries measure may be not inconsistent with an FTA provision, but nonetheless violate another treaty between two or more NAFTA Parties. Subject to any contrary provision in that other treaty, the Party in breach attracts international responsibility to restore things to their previous condition or to make reparation in an adequate form.[273] In this case, the Party which has been wronged by breach of the treaty other than NAFTA should, in the first instance, follow any dispute settlement procedure set out in that other treaty.[274] For example, the WTO Dispute Settlement Body should be used for breaches of the WTO agreements covered by the WTO Understanding on Rules and Procedures for the Settlement of Disputes.

If the other treaty lacks a dispute settlement procedure, the Party claiming to be wronged by the breach should first seek a remedy through consultations with the Party alleged to be in breach. If the matter is not settled through consultations, the Party claiming to be wronged by the breach may affirm its rights via a counter-measure having some degree of equivalence with the alleged breach.[275] The aim of the counter-measure is to restore equality between the Parties and to encourage the negotiation of an acceptable solution.[276]

Effect on WTO Rights and Obligations

Many trade concessions are covered by both NAFTA and a WTO agreement. Therefore, specific benefits, suspended as a counter-measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions, may have the effect of suspending WTO concessions. If so, the NAFTA Party suffering the suspension of trade concessions would be entitled, as a WTO Member, to bring a complaint to the WTO Dispute Settlement Body. The complaint could be brought to the WTO because the NAFTA cultural industries exception operates only under NAFTA where the suspension is unilateral, i.e., not authorized by a NAFTA panel or other international tribunal. Consequently, the NAFTA Party suspending trade concessions as a NAFTA counter-measure could not use res judicata,[277] or a GATT-style argument tantamount thereto, to convince a WTO panel not to proceed with the dispute. Furthermore, because the Uruguay Round Final Act was adopted[278] in 1994 and NAFTA in 1992, NAFTA ranks as lex prior and thus cannot be said to constitute a subsequent inter se waiver of WTO rights.[279]

Recourse to NAFTA Panels

With some exceptions,[280] dispute settlement under NAFTA Chapter 20 applies with respect to the avoidance or settlement of all inter-Party disputes regarding NAFTA's interpretation or application.[281] If NAFTA trade concessions or other benefits are wrongfully suspended in response to a NAFTA cultural industries measure which is not inconsistent with FTA provisions, the NAFTA Party suffering the suspension could probably have recourse to the NAFTA dispute settlement procedures.[282] The NAFTA panel would have to determine whether or not the alleged counter-measure is indeed a measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions. The initial burden of proof would be on the complainant.[283] In other words, the Party suffering the wrongful suspension of NAFTA benefits would be expected to provide some evidence to convince the panel that the alleged counter-measure is not a measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions. Thereafter, the burden of proof would probably shift to the NAFTA Party claiming to have taken the responding measure of equivalent commercial effect under NAFTA Annex 2106. The burden might shift to the defendant because a Party invoking an exception must show that it meets all of the conditions of the exception which is to be construed narrowly.[284] For example, there could be a requirement to establish that the counter-measure conforms with the proportionality (equivalent commercial effect) demanded both by NAFTA Annex 2106 and customary international law.[285]

The panel would have no jurisdiction to proceed with the complaint if the counter-measure is found to be a measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions. However, the panel could continue to deal with the complaint if the counter-measure is found not to be a measure of equivalent commercial effect taken in response to a NAFTA cultural industries measure inconsistent with FTA provisions.

No Cultural Industries Exception at the WTO

The October 1993 Francophonie summit in Mauritius adopted a resolution calling for the insertion into the Uruguay Round Final Act of a NAFTA-style cultural industries exception.[286] During the final months of the Uruguay Round, NAFTA Annex 2106, was being looked at very carefully as a possible model for the treatment of the audiovisual sector in the draft WTO General Agreement on Trade in Services (GATS).[287] With the support of Canada, Brazil and some European countries outside the European Communities, the European Commission proposed (December 10, 1993) that GATS be equipped with a provision that would allow a WTO Member to rely on cultural reasons as an excuse for maintaining restrictions.[288] However, when negotiations ended on December 15, 1993, a cultural industries exception featured neither generally in the Uruguay Round Final Act nor particularly in GATS or TRIPS.

Under GATS, a cultural industries exception was ultimately deemed to be unnecessary because Canada made no market-access or national-treatment commitments with respect to cultural services. Similarly, European negotiators understood that the Uruguay Round Final Act's "bottom up" architecture did not require a cultural industries exception to limit the impact of GATS on their audiovisual sector. Under GATS, the European Communities made no commitment on audiovisual services[289] and along with Canada and some other countries took MFN exemptions for certain cultural services, e.g., to accommodate bilateral film co-production agreements.[290]

TRIPS is expected to manage very well without a cultural industries exception because TRIPS does not include the "top down" NAFTA national treatment obligation which generally applies to all the IPRs a Party adopts or maintains.[291] Furthermore, with respect to substantive obligations, TRIPS carefully omits certain key rights. For example, absent from TRIPS are almost all performers' rights, and record producers' neighbouring rights with respect to broadcasting and performance in public. Moreover, TRIPS incorporates, from the Rome Convention and elsewhere, a series of specific exceptions which together are expected to do much of the IP work of the NAFTA cultural industries exception.[292]

For example, consider the record producer's reproduction right which features in both NAFTA and TRIPS.[293] The hypothesis is a levy on blank tapes as a royalty to compensate only domestic[294] record producers for the private copying of their sound recordings. A NAFTA Party which is also a WTO Member would need NAFTA Annex 2106 to deny national treatment to record producers of another NAFTA Party[295] and the problematic TRIPS "private use" exception drawn from the Rome Convention[296] to withhold national treatment from record producers of WTO Member countries.

[Part VI: Conclusion appears together in a posting with Part I.]

NOTES

208. Alanna Mitchell, "Population to Hit 30 Million in '96," Globe & Mail, (Toronto), Jan. 10, 1996, at A1, A6.

209. Ontario, Ministry of Culture, Tourism, and Recreation, The Business of Culture: Report of the Advisory Committee on a Cultural Industries Sectoral Strategy 90 (Aug. 1994). However, Statistics Canada informs the author that Canadians spent only 63.6% of their Fall 1994 television viewing time, watching foreign programs, whether broadcast by domestic or foreign stations.

210. Nordicity Group Ltd., Economic Impact of Home Taping on Audio-Visual Works, Report for Departments of Industry and Canadian Heritage 91 (Sept. 1994).

211. Ray Conlogue, "Quebec's Movies Are Stars," Globe & Mail, (Toronto), Jan. 11, 1996, at A14.

212. Nordicity Group Ltd., supra note 210, at 92.

213. Etude Economique Conseil, Evaluation des impacts economiques et non-economiques d'une legislation concernant l'introduction d'un droit de location dans le cadre de la revision de la Loi sur le droit d'auteur. Report for Department of Canadian Heritage (Aug. 1994), at iv, xiii, 34-35.

214. Written submission of Canadian Independent Record Production Association (CIRPA) to Department of Foreign Affairs and International Trade Cultural Advocacy Seminar, Ottawa, Feb. 19-20, 1996. According to Ontario's Ministry of Culture, 84% of sound recording sales in Canada are made by six multinational corporations, with only 16% by Canadian-owned independent record labels. See Ontario, Ministry of Culture, Tourism and Recreation, The Business of Culture: Report of the Advisory Committee on a Cultural Industries Sectoral Strategy 87-88 (Aug. 1994).

215. Arthur Donner & Fred Lazar, Neighbouring Rights: A Financial and Economic Analysis, Report for Department of Canadian Heritage (Oct. 1994), at Table 60.

216. Andrew McIntosh, "Minister Proposes Mexico-Quebec Cultural Alliance Against U.S," Gazette, (Montreal), Mar. 8, 1996, at D3.

217. Some say content rules have been essential in creating a "space" for Canadian music in domestic broadcast schedules and for the last 25 years' growth of a Canadian-controlled sector of the domestic sound recording industry. The Canadian-controlled production companies are said to be responsible for first fixation of approximately 70% of the sound recordings with Canadian content. However, with more than a hundred Canadian groups signed to multinational labels, foreign-controlled firms are said also to play an important role in developing an indigenous music industry. Claiming that Canadian radio stations are not playing enough Canadian music during key time periods, Canadian record producers are now calling for stricter "Cancon" requirements. See H.J. Kirchhoff, "Review Cancon Rules, Group Says," Globe & Mail, (Toronto), Mar. 6, 1996, at A12-13.

218. Donner & Lazar, supra note 215, at 45, 63, 66.

219. Id., at 20.

220. Ontario, Ministry of Culture, Tourism and Recreation, The Business of Culture: Report of the Advisory Committee on a Cultural Industries Sectoral Strategy (Aug. 1994), at 83.

221. Id., at 82.

222. Id., at 85. Canadian periodicals even up the score in subscription sales.

223. McIntosh, supra note 216, at D3.

224. Liberal Party of Canada, Creating Opportunity: The Liberal Plan for Canada 88-89 (1993).

225. Canada in the World: Government Statement, i-iii, 10-11, 22, 34-39 (1995).

226. Id., at 39.

227. Rome Convention, art. 12. With respect to secondary use, Rome, Article 16(1)(a), permits a Party the possibility of: (i) not providing the rights; (ii) only providing the rights with respect to certain uses [e.g., for broadcasting but not for performance in public]; (iii) not applying the rights to sound recordings made by a producer who is a national of a country not Party to Rome; (iv) using material reciprocity in applying the rights to sound recordings made by a producer who is a national of a country Party to Rome.

228. NAFTA, art. 1721: Definitions.

229. NAFTA, art. 1703(1).

230. On November 1, 1995, President Clinton signed the Digital Performance Rights in Sound Recordings Act which, with respect to all sound recordings distributed in the United States, gives record performers and producers rights covering the transmission of their sound recordings via digital audio specialty subscription services.

231. Donner & Lazar, supra note 215, at 45, 63, 66.

232. United States Trade Representative, 1995 National Trade Estimate Report on Foreign Trade Barriers (Washington, 1995), at 36. The same language is repeated in USTR's 1996 National Trade Estimate Report on Foreign Trade Barriers (Washington, 1996), at 35-36.

233. Sec. 19.

234. Secs. 20 and 91(b).

235. Sec. 68(2)(a)(i).

236. The possibility of reciprocal rights is set out in Section 22(1) and of material reciprocity in Section 22(2).

237. United States Trade Representative. USTR Announces Two Decisions: Title VII and Special 301, (Washington, D.C.) Apr. 30, 1996, at 12.

238. See 1 GATT Index, supra note 148, at 209-11.

239. See Jackson, supra note 119, at § 12.6, 293, n. 1.

240. The same provision has been carried forward into GATT 1994 which incorporates GATT 1947. See Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Annex 1A: Multilateral Agreements on Trade in Goods, General Agreement on Tariffs and Trade 1994, paragraph 1(a).

241. FTA, art. 2005: Cultural Industries, Ivan Bernier, "La dimension culturelle dans le commerce international: quelques reflexions en marge de l'accord de libre-echange Canada/EtatsUnis du 2 janvier 1988," 25 Can. Y. B. Int'l L. 243-62 (1987). See also Michael Hart, Decision at Midnight: Inside the Canada-U.S. Free Trade Negotiations 384 (1994). Hart is incorrect in saying that the FTA cultural industries exemption provides for "offsetting action under the dispute settlement provisions." FTA, Article 2011(2), clearly indicates that the dispute settlement procedures in FTA, Chapter 18: Institutional Provisions, do not apply to the cultural industries as covered in FTA, Article 2005.

242. The distinction between a "carve out" like NAFTA, Annex 2106, and a discretionary exception which a Party may elect to invoke can be illustrated by comparing Annex 2106 with, e.g., Rome Convention, Article 15(1)(a), which stipulates: "Any Contracting State may, in its domestic laws and regulations, provide for exceptions to the protection guaranteed by this Convention as regards private use." For the relevant Parties, NAFTA rights and obligations with respect to the cultural industries are limited to Annex 2106. However, under the Rome Convention, the exception permitted by Article 15(1)(a) appears not to apply until a Party chooses the option, in its domestic laws and regulations, of providing for exceptions to the protection otherwise required by the treaty. The distinction between a carve out and a discretionary exception could be relevant in assessing whether a requirement of Rome national treatment (Article 5) applies to a Rome Party volunteering to enact a right of equitable remuneration to compensate record producers for the private copying of their sound recordings. In this connection, some would argue that Rome, Article 15(1)(a), permits a Party to withhold protection as regards the private use of sound recordings, but would nonetheless require Rome national treatment if a Party volunteers protection with respect to private use, e.g., home taping (private copying) of sound recordings.

243. Canada and the United States exchanged two sets of letters (Jan. 19 and Dec. 30, 1993) explicitly constituting a bilateral understanding that FTA be suspended for such time as the two countries are NAFTA Parties. This means that FTA would resume if either country leaves NAFTA. See Johnson, supra note 157, at 16.

244. For FTA's omission of an IP Chapter, see Hart, supra note 241, at 382-83: "The United States had sought a major chapter that would significantly improve the protection of U.S. IP in Canada and establish a general body of rules that could act as a starting point in developing a multilateral code of conduct for the protection of IPRs. No such chapter was agreed upon. In the end, the United States was not prepared to compromise on its demand that Canada dismantle compulsory licensing of pharmaceuticals. Canada was similarly not prepared to give in to the United States on this issue and insisted that the price of any chapter was United States willingness to give up its section 337 proceedings for Canadian products. This the United States was not prepared to do. As a result, the whole chapter disappeared. Canada was not unhappy to see the end of the IP chapter. Stronger protection of IP was not a high priority, although the government would have been prepared to live with it in return for greater and more secure access to advanced technology, another concession the United States found difficult."

245. Compare the definition of "investment" in FTA, art. 1611: Definitions, with the corresponding definition in NAFTA, art. 1139: Definitions.

246. FTA, art. 806: Distinctive Products.

247. FTA, art. 2004: Intellectual Property.

248. FTA, art. 2006.

249. NAFTA, Annex 2106: Cultural Industries: "the rights and obligations between Canada and any other Party with respect to such measures shall be identical to those applying between Canada and the United States."

250. Here, a "cultural industries measure" or a "NAFTA cultural industries measure" should be understood to mean "any measure adopted or maintained with respect to cultural industries" under NAFTA, Annex 2106: Cultural Industries.

251. TRIPS protects the author's reproduction right by requiring WTO Members to comply with the substantive provisions of the 1971 Paris Act of the Berne Convention. See TRIPS, art. 9(1).

252. NAFTA, art. 201: Definitions of General Application.

253. NAFTA, art. 2107: Definitions.

254. NAFTA, art. 201: Definitions of General Application.

255. NAFTA, art. 2107: Definitions.

256. Id.

257. NAFTA, Annex 2106: Cultural Industries.

258. Id.

259. FTA, art. 2005: Cultural Industries.

260. FTA, art. 401: Tariff Elimination.

261. FTA, art. 1607(4): "In the event that Canada requires the divestiture of a business enterprise located in Canada in a cultural industry pursuant to its review of an indirect acquisition of such business enterprise by an investor of the USA, Canada shall offer to purchase the business enterprise from the investor of the USA at fair open market value, as determined by an independent, impartial assessment."

262. FTA, art. 2006: Retransmission Rights.

263. FTA, art. 2007: Print-in-Canada Requirement.

264. NAFTA, Annex 2106: Cultural Industries.

265. FTA, art. 2005(2).

266. See Jenks, supra note 163, at 428: "The presumption against an interpretation which involves a conflict between law-making treaties is simply a detailed application of such fundamental principles of treaty interpretation as the principle of reasonableness, the principle of good faith, and the presumption of consistency with international law."

267. In terms of interpretative technique, the problem of inconsistency between a domestic measure and a treaty is analogous to the problem of inconsistency between two treaties. See Karl, supra note 207: "incompatibility of contents is an essential condition of conflict . . . ." According to Black's Law Dictionary, 689 (5th ed. 1979): inconsistent means "mutually repugnant or contradictory; contrary the one to the other, so that both cannot stand, but the acceptance or establishment of the one implies the abrogation or abandonment of the other . . . ."

268. Certain is the exclusion of a complaint alleging non-violation nullification or impairment of benefits from the scope of a counter-measure justifiable under NAFTA, Annex 2106: Cultural Industries, because of the reference to "inconsistent" in FTA, Article 2005(2), and FTA, Article 2011: Nullification and Impairment, where paragraph 2 specifically says that FTA, Article 2011(1), shall not apply to FTA, Article 2005: Cultural Industries.

269. For the requirement of proportionality, including measures of equivalent commercial effect, see Laurence Boisson de Chazournes, Les contre-mesures dans les relations internationales economiques 39, 45, 52, 187-200 (1992).

270. Vienna Convention on the Law of Treaties, Article 60, deals with "termination or suspension of the operation of a treaty as a consequence of its breach". Article 60(1) and (2) refer to "suspending the operation of the treaty in whole or in part" without any specification as to which particular part of the treaty would be subject to suspension.

271. Oscar Schachter, International Law in Theory and Practice: General Course in Public International Law, 178 Recueil des Cours, pt. V, 185 (1985).

272. See also id. at 167-87. See Boisson de Chazournes, supra note 269, at 24, 54-55.; Henkin et al., supra note 173, at 579-83.

273. Manuel Diez de Velasco, 1 Instituciones de derecho international publico, 652-53 (9th ed. 1991).

274. For the legitimacy of counter-measures to bring the offending State to arbitration or to provide the complainant State necessary interim protection not otherwise available. See Boisson de Chazournes, supra note 269, at 46-47; Rosenne, supra note 46, at 168; Schachter, supra note 271, at 172-75.

275. See Rosenne, supra note 48, at 184: "In the modern law of treaties, a breach, even when fully established, . . does not possess the character of an implied reservation nor does it operate in itself to terminate the treaty. The new legal relationship between the parties to the treaty brought about by the breach entitles the injured party to invoke various remedies, including the right to terminate the treaty through appropriate procedures in order to redress the injury caused by the breach as an internationally wrongful act."

276. See Schachter, supra note 271, at 170.

277. See Fitzmaurice, supra note 205, at 158-60. "Res judicata is a general principle of international law." See Lauterpacht, supra note 92, at 325-26; Rosenne, supra note 90, at 84. In Effect of Awards of Compensation Made by the United Nations Administrative Tribunal (1954) I.C.J. Rep., at p.53: The Court said that it is a "well-established and generally recognized principle of law" that "a judgment rendered by a judicial body is res judicata and has binding force between the parties to the dispute."

278. Sinclair, supra note 68, at 98: "It seems clear that, in determining which treaty is the 'earlier' and which the 'later,' the relevant date is that of the adoption of the text and not that of its entry into force. Adoption of the second treaty manifests the new legislative intent."

279. NAFTA, art. 103: Relation to Other Agreements, affirms existing rights and obligations under GATT and other agreements. The reference to GATT does not embrace the subsequent Uruguay Round Final Act, but rather refers to GATT 1947 as it was when NAFTA was adopted. This interpretation is supported by comparing Article 103 with NAFTA, Article 2005: GATT Dispute Settlement. Article 2005 specifically refers to the "General Agreement on Tariffs and Trade, any agreement negotiated thereunder, or any successor agreement (GATT) . . . ." Similarly, NAFTA, Article 2101(1), refers to "GATT Article XX and its interpretative notes, or any equivalent provision of a successor agreement . . . ."

280. For example, excluded from the scope of dispute settlement under Chapter 20 are review and dispute settlement in anti-dumping and countervailing duty matters which are handled under the procedures in Chapter 19.

281. NAFTA, art. 2004: Recourse to Dispute Settlement Procedures.

282. Annex 2106 measures and counter-measures remain "under this Agreement" (i.e. under NAFTA) where they operate (notwithstanding any other NAFTA provision) exclusively in accordance with FTA provisions. For dispute settlement jurisdiction over measures under NAFTA, Annex 2106, relevant are the arguments for jurisdiction over disputes arising from the unilateral denunciation of a treaty with a compromissory clause. See D. W. Greig, supra note 34, at 511: "If the denunciation is legally valid, then the Court has no jurisdiction, because the clause forming part of the treaty is also invalid. On the other hand, if the Court is to rely upon the clause as a basis for its jurisdiction, is it not pre-judging the dispute in favour of the treaty's validity? The dilemma is more apparent than real. A dispute arising out of an act of termination, withdrawal, etc., is as much a dispute relating to the interpretation or application of the treaty as would arise from any other alleged breach of its provisions. It would be most unsatisfactory to countenance the possibility that, by contending that a treaty was terminated, a party could destroy the jurisdiction bestowed by the treaty for resolving disputes arising thereunder. The Court must have what might be called a provisional jurisdiction to decide whether the purported termination is effective." Similarly, a NAFTA panel must have a provisional jurisdiction to decide the status of the alleged Annex 2106 counter-measure. This conclusion in favour of recourse to a NAFTA panel is supported by the impossibility of constituting a panel under the FTA which was suspended on January 1, 1994.

283. According to the July 13, 1995 Model Rules of Procedure for Chapter 20 of the North American Free Trade Agreement, Rule 33, "A Party asserting that a measure of another Party is inconsistent with the provisions of the Agreement shall have the burden of establishing such inconsistency."

284. Id., Rule 34, "A Party asserting that a measure is subject to an exception under the Agreement shall have the burden of establishing that the exception applies." A Party invoking a provision providing for an exception must demonstrate the conformity of its actions with the provision. See 2 GATT Index, supra note 55, at 750-51.

285. For the requirement of proportionality, including measures of equivalent commercial effect, see Boisson de Chazournes, supra note 269, at 39, 45, 52, 187-200.

286. Le Monde, (Paris), Oct. 19, 1993, at 9.

287. "GATT/Audio Visual: Mitterrand Calls for Cultural Exemption Clause," Eur. Rep., 1888, at V; External Relations, (Brussels), Sept. 25, 1993, at 10-11; "EC Movie Protection Sought," Wall St. J., (New York), Oct. 5, 1993, at A13; Jamie Portman, "Europeans Battle American Cultural Juggernaut in Trade Talks," Gazette, (Montreal), Oct. 6, 1993, at B3; Jack Ralite, "Le vol du public," Le Monde, (Paris), Oct. 15, 1993; "Bill Clinton rejette l'idee d'un traitement specifique pour l'audiovisuel," Le Monde, (Paris), Oct. 16, 1993; "Le nouveau defi americain" and "M. Sutherland s'emploie a rassurer les professionels europeens du cinema et de l'audiovisuel," Le Monde, (Paris), Oct. 17-18, 1993, at 1; Mario Vargas Llosa, "De l'exception culturelle francaise" Liberation, (Paris), Oct. 19, 1993, at 6; "From 'Fast Track' to French Films, Making Sense of the World Trade Talks," Wall St. J., (New York), Dec. 13, 1993, at A6.

288. See Croome, supra note 13, at 372.

289. Id., at 376.

290. Canada, Dept. Foreign Aff. & Int'l Trade, Agreement Establishing the World Trade Organization: Canadian Statement on Implementation, Canada Gazette pt. I, Dec. 31, 1994, at 4933. Id., at 4924: "Under the GATS, market access and national treatment are not automatic. They flow from the result of specific commitments entered into by a member on particular sectors or sub-sectors, in light of negotiations, and which are recorded in each member's national schedule, appended to and fully part of the GATS."

291. Compare TRIPS, Article 3: National Treatment, with NAFTA, Article 1703: National Treatment.

292. For example, TRIPS, Article 3(1), refers to the exceptions already provided in the Paris, Berne, and Rome Conventions and to the Washington Treaty on Intellectual Property in Respect of Integrated Circuits. Some Berne and Rome Convention exceptions are also applied with regard to TRIPS, Article 4: Most-Favoured-Nation Treatment. See paragraph (b).

293. NAFTA, art. 1706(1)(a), and TRIPS, art. 14(2).

294. Here, the hypothesis sidesteps the entirely separate question of MFN. Some say the TRIPS, Article 4, MFN requirement does not apply to domestic regimes to compensate record producers for the private copying of their sound recordings. As one of the justifications for denying MFN to all WTO record producers, there is a not entirely plausible argument that the producer's domestic remuneration right with respect to private reproduction is something entirely distinct from the TRIPS right to authorize or prohibit the direct or indirect reproduction of the sound recording. More convincing is the contrary argument that, both economically and legally, the larger TRIPS right to "authorize or prohibit" in logic already contains the lesser right to receive equitable remuneration. In this connection and in other respects, there is a probability that WTO panels will soon have to answer a number of significant questions touching private-copying regimes.

295. NAFTA, art. and Annex 2106: Cultural Industries.

296. TRIPS, arts. 3(1) and 14(6), are thought to apply the "private use" exception in Rome Convention, art. 15(1)(a), to the record producer's exclusive reproduction right in TRIPS, Article 14(2).

Audi Alteram Partem

Thursday, October 7, 2010

Intellectual Property Rights and Non-Violation Nullification or Impairment of Benefit

Intellectual Property Rights and Investment Protection

The NAFTA Cultural Industries Exception

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