What is WTO? How does it tie into the Great Patent Sell-Out?

The theme song of the attack on the U.S. Patent System is world "HARMonization." The main attack on the U.S. Patent System started with the letters of agreement with Japan in 1994, signed by the late Ron Brown and Bruce Lehman. Mr. Lehman then gave misleading testimony to Congress concerning "fast track" GATT intellectual property legislation on August 12, 1994, which started the "submarine patent" myth.

In a related attack, this time against the Internet, Mr. Lehman in 1995-6 attempted to make browsing the Web a possible felony. His bizarre notion was that Web browsers were making "illegal" copies of copyrighted materials in order to display them on computer screens. When Congress did not buy that, Lehman headed to Geneva and tried to make his legislation part of binding international treaty. He was beaten back, but it was a near thing. See "The Copyright Grab" in Wired 4.01 and "Big Media Beaten Back" in Wired 5.03, both by Pamula Samuelson, a law professor at UC Berkeley. (Just go to the Wired website, select "Wired Magazine," and search for the titles.)

Internet HARMonization has begun. And, for your worst nightmare, Lehman's legislation to make browsing illegal is still in Congress and now active again in WTO/WIPO (source: Wired, March 1998, pg 102).

Concurrently, Lehman's allies succeeded in getting U.S. patent term reduced by slipping a paragraph into GATT. We've been trying to fix that ever since, against ferocious resistance. In another strange coincidence, the same events saw the creation of a mysterious and highly secretive new organization, WTO (see below), to manage world trade. WTO, also designed in Japan, is now exposed (below) as a blatant means of circumventing U.S. law to allow other countries free access to U.S. markets without having to reciprocate. Caution: speculation flag.

Question: Under the new the Patent Office, a quasi-judicial function, is removed from the government. Its director becomes "technology Czar" without oversight and accountability to U.S. citizens. What role do you think WTO or WIPO will have in judging international U.S. patent disputes? (Hint: Part of all the legislation, including the bill that passed, has been to allow PTO functions to be contracted offshore and conducted by foreign entities.)

WTO -- Most noted for the Seattle debacle in 1999, it was established in 1994 as a major Clinton initiative, WTO is run as a centralized bureaucracy. It mostly works in secret, much like a shadow U.N. for trade matters. It claims complete control of world economic and trade (and technology?) issues.
Is this in the U.S. national interest? Is this in the long term interest of any U.S. firm?

JAPAN OBSERVER, JANUARY 1998

(Posted by The Trudel Group, with permission)

TRADE IT IN

Most Americans know little and care less about the mysterious Word Trade Organization (WTO) in Geneva, Switzerland. Perhaps they should pay more attention.

On December 5, 1997. the WTO finally released its decision in the Kodak v. Fuji litigation that had been pending for ready 2 years. Kodak had claimed that Fuji and the Government of Japan had assembled a restrictive market structure that discriminated against foreign manufacturers of film and film products in Japan. Kodak also argued that the closed market in Japan allowed Fuji to amass huge profits that could be used to fund an export drive in the U S. and other foreign markets. Kodak had originally pursued a domestic remedy under Section 301 of the 1974 Trade Act, but was forced to go to the WTO after the Clinton Administration changed its position and refused to support Kodak in the 301 petition.

The WTO decision was released to Kodak and Fuji late in the day, and the news hit the wire services in the U.S. too late to make the morning edition of newspapers on December 6, 1997. As a result, the newspaper-reading American public picked up the paper on Sunday morning, December 7. 1997 to learn of Japan’s stunning victory.

The WTO panel ruled against Kodak on 21 out of 21 issues presented for review. Even the Japanese anticipated a split decision in such a complex dispute, but the WTO sided Japan on every issue.

The decision may well sound the death knell for Kodak and the American photo-imaging industry. Kodak had already announced plans to fire 10,000 employees, and announced an additional 6,500 firings soon after the decision. Fuji continues to gain market share in the U.S., selling products at a fraction of the price charged in Japan.

Meanwhile, Kodak, which goes toe-to-toe with Fuji in the rest of the world, never seems to get beyond a 10 percent market share in Japan. Kodak finds it impossible to get its products into most stores in Japan since Fuji has exclusive relationships with the leading wholesalers of photographic products. After years of struggling with market barriers in Japan, Kodak finally ended up before the WTO. (to top of this article)

The WTO was formed at the conclusion of the Uruguay Round of the General Agreement on Taxes and Tariffs ("GATT"). GATT, which was sometimes derided as the General Agreement to Talk and Talk, was the body established with the backing of the U.S. after World War II to expand trade with countries perceived to as friendly with the U.S. GATT was established of the same time the US, was implementing the General System of Preferences or GST, which provided for greatly reduced tariff rates for imports from friendly countries.

In other words, the U.S. opened its markets to imports without requiring reciprocal access to foreign markets. GATT, GSP and other government policies worked towards the goal of allowing all "friendly" countries, even inefficient ones, to run trade surpluses with the U.S.

The U.S. spent a lot of time with multilateral solutions to trade disputes. Various revisions of the GATT, including the recent Uruguay Round, dragged on for more than seven years, with Japan refusing to negotiate on issues such as antitrust enforcement.

GATT simply bought time for Japan to invent new trade barriers to the U.S. For example, Japan’s effective ban on citrus imports from the US caused the U.S. to sue Japan three times in GATT and win. Japan simply ignored the rulings, finally "opening" its citrus market with new exclusions on American exports.

American citrus products that did pierce Japan’s projectionist shoji screen usually came from citrus groves hastily purchased by Japanese investors. The trade surplus continued to explode, and millions of American lost good jobs, consigned to lower-paying service jobs without health insurance or other benefits.

Japan doggedly negotiated the WTO and helped to fashion rules that would institutionalize its surplus with the U.S. The WTO, unlike GATT, bans domestic trade sanctions such as those provided by Section 301. The WTO also provides for arbitration of commercial disputes, with decisions that bind its signatories. This system leaves much to be desired.

Most courts In the word hold open hearings during business hours, announce decisions in public, and select judges for their impartiality. By contrast the WTO holds hearings that are closed to the public, and "announces" its decisions in secret interim reports.

Furthermore, the arbitrators leave much to be desired. I have no reason to question the honesty of the individual arbitrators, but they generally have vested interests in preserving a world trade system that assures that their own countries can make a profit on trade with the U.S.

If a WTO arbitrator rules against Japan on a trade issue, it would set a precedent that could invalidate a similar strategy pursued by his or her own country. Far example, WTO director Roberto Ruggiero excoriated the U.S. for its plans to impose tariffs on Japanese autos in 1995, while his own country, Italy had limited Japanese auto imports to 3,500 per year. In the eyes of the WTO director, the U.S. could not restrict Japanese auto imports, but Italy could. The U.S. was supposed to maintain its role as the global sugar daddy from whom all profits flow.

Kodak knew its days were numbered unless it could access the huge Japanese market and break up the cash sanctuary that funded an export drive. Kodak spent millions on meticulously researched filings based on Japanese government sources than proved the Japanese government's plan to keep Kodak out of Japan. The first page of the Kodak brief enumerated the plans of the powerful Ministry of International Trade and Industry (MITI) to keep Kodak out of Japan:

"There is a fear that Kodak will control the Japanese market when the country undergoes 100 per cent capital liberalization; MITI thus plans to prepare with the members of the industry a system which can counteract Kodak’s global strategy ... MITI will embark upon the designing of a viable system. If necessary, MITI will request the involvement of the camera industry. The intention is for the three parties, MITI, the film industry and the camera industry -- to work in unison in solving this problem."

Nihon Shashin Kogyo Tsushin 1 July 1973 page 32 (Translation by Kodak)

The WTO arbitrators evidently ignored this and other clear evidence of government collusion, and ruled that the Japanese government had played no role whatsoever in the barriers erected to Kodak. The WTO panel reasoned that actions by private companies, such as Fuji, were not subject to the jurisdiction of the WTO. The panel ignored numerous smoking guns unearthed by Kodak and absolved the Japanese government of any responsibility for market barriers to Kodak.

The WTO panel further ruled that the market restrictions claimed by Kodak predated the formation of the WTO. Since the U.S. knew or should have known about these restrictions, it should have negotiated them away during the Uruguay Round. Since the Uruguay Round took seven years to complete, U.S. action on Japan's myriad market restrictions would have made the Hundred Years War look brief by comparison. The WTO would have never been formed, which would have been better for the U.S.

The U.S. now faces the prospect of a 200--300 billion dollar annual trade deficit, with much of it ending up in Japan. Japan has refused to conduct bilateral trade negotiations with the U.S., referring such matters to Geneva, the Waterloo of the American middle class. The U.S. cannot take domestic action, such as trade sanctions pursuant to Section 301, without violating the WTO. The WTO panel in the Kodak case sided with Japan on every issue, setting precedent that will bind other American companies in other industries that are frozen out of Japan.

The U.S. should leave the WTO. There has to be a better, fairer way to run a world trading system.

Japan Observer, January 1998

by Thomas Flannigan

Law Offices of Thomas Flannigan

Chicago, IL

(312) 236-9335

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