Apart from the budding of leaves, the rites of spring are marked by another annual phenomenon, the issuance of the annual Special 301 Report by the Office of the United States Trade Representative (USTR), widely known as the USTR Watch List. For those not steeped in US trade law, the Special 301 report dates back to the late 1980s and is based on the US Trade Act of 1974, later amended to take intellectual property (IP) issues into account. As stated by USTR, the process is “the outcome of a Congressionally-mandated annual review of the global state of intellectual property (IP) rights protection and enforcement”. Global, that is, except for the United States (More on this later). That is because the legislation requires USTR “to identify countries that deny adequate and effective IP protections or fair and equitable market access to U.S. persons who rely on IP protection” (Federal Register). In other words, it is a US government document that catalogues and categorizes the state of IP protection in other countries if their conditions are considered to be impediments to US exports and/or result in US companies or rights-holders being treated unfairly. The practices identified relate to lack of effective legal protection resulting from lax enforcement (e.g. weak border control of counterfeit products or ineffective anti-piracy measures to protect copyrighted content) or deficient laws (loopholes or lack of legislation in key areas resulting in a failure to protect IP rights adequately), policies that weaken or fail to respect IP standards, at least as interpreted by USTR, and non-transparent, discriminatory or other forms of trade restrictions that impede access to copyright protected content. The exact wording, taken from USTR’s website can be found at the end of this blog.[i]

Note that the policies of the identified countries in question–or lack of policies in some cases–don’t have to discriminate against US rightsholders in order to be included in the USTR report. Normally in trade agreements, “national treatment” is sought in order to avoid discrimination on the basis of nationality, i.e. foreign products and services (in this case US goods and services) should be given the same treatment as domestic equivalents. There is also an expectation that a country’s domestic laws (which form the basis of national treatment) will be consistent with its trade agreement commitments. So, for example, if Ruritania has wide exceptions in its domestic copyright law that permit indiscriminate downloading of music and movies, (let’s say there is an exception “for purposes of cultural appreciation”), this does not directly discriminate against US music labels and studios. Even domestic Ruritanian content producers are affected by this very loose fair use regime although in real-life terms this lopsided legislation would affect US interests significantly more than Ruritanian, since the majority of the content consumed in Ruritania is of US origin. However, since US products have been accorded national treatment, the US would find it difficult to bring a trade dispute case. This is where the Watch List comes in handy since USTR can list any practice it feels justified in calling out without being restricted by the limitations of international trade agreements.

While in the Ruritanian case US interests are disadvantaged by the law’s interpretation, so too is the nascent local content industry, i.e. the limited number of Ruritanian music and film producers who are also getting ripped off. The locals can’t seem to get much traction for changes to the law (because who doesn’t like something for free)? Here again the Watch List can play a role. By working with US IP interests, the USTR 301 Report provides an indirect means for domestic IP stakeholders to bring their concerns to the attention of their own government, assuming that Ruritanian officials are responsive to concerns raised by USTR. So, in this way a unilateral US process can be an effective vehicle to raise all IP boats, although the direct focus is on protecting US intellectual property interests.

The Watch Lists embedded in the Special 301 report are compiled from submissions provided by US companies and trade associations in response to a Federal Register notice. These inputs are then vetted by officials in US embassies and consulates overseas, with additional input from various US government agencies.  The final decision as to who is placed on which list and for what reason is decided by USTR. There are essentially two lists, a “Priority Watch List” (PWL), where countries facing the most serious allegations of inadequate IP protection and enforcement are named. Being on the PWL could result in USTR initiating formal trade investigations or imposing sanctions if there is no improvement. The second list is the “Watch List” (WL), a longer list of countries where the USTR has concerns about their IP practices but the issues are not as serious as in those countries placed on the PWL. For WL countries, the focus is on monitoring and “encouraging” change. Thus, while each situation is a bit different, the outcome of the process can range from pressure and threats to encouragement and reward. When the hearings are held, foreign embassies will often appear to explain their government’s policies in an attempt to stay off the designation list. Some countries take this process very seriously, others less so. In years past, countries like Taiwan, the Philippines and Malaysia regularly appeared on the Watch List. Over time, they addressed the issues of concern and no longer have the dubious honour of being named.

Other countries, like Canada, seem less concerned about being named, at one point calling the USTR report “… invalid and analytically flawed because the process relies primarily on US industry allegations rather than empirical evidence and objective analysis”. Or maybe the Canadian government has realized that no matter what actions it takes, the goal posts will move as new complaints surface from one US industry or another (BigPharma doesn’t like the pharmaceutical approval process in Canada, US food producers don’t like the recognition Canada accorded to European Geographical Indications in the Canada-EU Trade Agreement, or whatever), and it will continue to be designated as has been the case for at least the past 20 years.

As an example, for many years one of the US complaints was that Canadian border officials did not have ex-officio authority allowing them to seize counterfeit goods in transit (presumably enroute to the US from China or somewhere). That issue was fixed in the update to NAFTA (the USMCA/CUSMA) but now the complaint is that “Canadian authorities have yet to take full advantage of expanded ex officio powers”. Not that this would surprise me. CBSA, the Canadian Border Services Agency, seems to be particularly challenged these days. CBSA’s ineptness extends to an apparent inability to stop a massive movement of stolen Canadian vehicles being shipped in containers through the Port of Montreal to the Middle East and Africa. Given the criminal networks engaged in this large-scale, well-organized theft and hijacking of cars, (which has become an epidemic in Toronto—full disclosure, members of my family have been victimized with cars being stolen from in front of their home in the middle of the night three times in the past 24 months), perhaps using their ex-officio authority to interdict the transit of counterfeit goods is not high on CBSA’s to-do list.

Apart from industry complaints, it would be fair to say that broader political factors also sometimes enter into designation decisions. For example, for many years Ukraine was regularly named to the Priority Watch List for a range of IP transgressions. While its IP record has probably not markedly improved, it is fighting for its life against Russian aggression and presumably strengthening its IP laws is not a current top priority. Therefore, reasonably, the review of Ukraine has been “suspended” although it is not off the hook. Other countries that figure regularly on the “Priority Watch List” (PWL), constitute the “usual suspects”, the ones you would expect to be on such a list; China, Russia, India, Venezuela and three or four others. In 2024, there were 7 PWL countries. There were also 20 named to the less serious “Watch List” category, among them places like Algeria, Belarus, Pakistan, and Turkemenistan, (Uzbekistan was removed this year) but also NAFTA partners Canada and Mexico.

During the USMCA/CUSMA negotiations in 2018, under the Trump Administration, Canada was downgraded to the PWL, the most serious transgressor category. As I commented at the time, this was clearly a politically-driven negotiating tactic to exert pressure on Canada during the negotiations and, frankly, strained the credibility of the process by equating a rule of law country like Canada with other countries on that year’s PWL. Not that Canada has clean hands. This year’s USTR comments about Canada’s Watch List designation cite several concerns. One is the failure of CBSA to fully exploit its ex-officio powers, mentioned above. There is also concern that the courts are not issuing sufficient deterrent level penalties when those trafficking in counterfeit goods are caught. There is also the allegation that “Levels of online piracy remain very high in Canada, including through direct downloads and streaming. Piracy devices, apps, and subscription services are reportedly sold throughout Canada, both in physical retail locations and through online channels.” All probably true, but is the problem any worse in Canada than in the US? See my next blog.

The USTR report also includes a concern with which I very much agree, namely, “the broad interpretation of the fair dealing exception for the purpose of education, which…has significantly damaged the market for educational authors and publishers”. However, I suspect that even if the Canadian government finally got around to fixing this injustice (which I hope will be the case), Canada would still be on the WL some other reason.

To summarize, the Special 301 Watch List process has been effective in raising IP standards generally in many areas globally but is not immune from influence arising from US domestic political factors. It is also consciously not designed to identify IP shortcomings in the United States. But what if the US was also reviewed under the Special 301 provisions? If USTR applied the same critical lens to IP practices in the United States that it applies to other countries, (at least in the area of copyright), what would a US Watch List designation look like? The results might be surprising to some readers. To find out what this might look like, stay tuned for my next blog post, “The USTR Watch List Designation You Will Never See”.

This article was first published on The Credits