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

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

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

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

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

SELLERS, CONNER, & CUNEO,

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

on the Judiciary, U.8. Senate, Washington, D.C. DEAR MR. CHAIRMAN: On September 19, 1967, some five months after its views were requested, the Department of State wrote you a letter opposing the enactment of an exception for Canada from the provisions of Section 601 of S. 597, the Manufacturing Clause of the Copyright bill. Exclusion of Canada from the provisions of the Manufacturing Clause had been recommended in the hearings by all representatives of the United States book manufacturing industry and the international trade unions representing the graphic arts workers in the United States and Canada.

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

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

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

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

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

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

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

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

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

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

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

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

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

JAMES H. FRENCH.

TECHNICAL MEMORANDUM ON EFFECT OF EXISTING U.S. INTERNATIONAL AGREEMENTS ON PROPOSED EXCEPTION OF CANADA FROM THE MANUFACTURING CLAUSE OF THE COPYRIGHT LAW

(In response to a letter from the Department of State to the Senate Subcommittee on Patents, Trademarks, and Copyrights, dated September 19, 1967)

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

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

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

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

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

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

4. Paragraph 3 also states that an exception for Canada would "In all likelihood" conflict with the words of Article I calling for most-favored-nation treatment “With respect to all rules and formalities in connection with importation and exportation". It is hard to take this argument seriously. The State Depart. ment apparently was unable to fit an exception for Canada into any of the four categories listed in Article I, especially since no customs duties or charges of any kind are involved. There is no definition of "rules and formalities" in the GATT, but the entire context seems to be that they refer to uniform requirements for customs administration in connection with importation and exportation.

On March 24, 1948, the State Department issued "A Guide to the Study of the Havana Charter for an International Trade Organization" (Commercial Policy Series 114). Article 16 of the Havana Charter is the same as Article I of the GATT. In referring to Article 16 of the Havana Charter, the State Department explained at page 3:

"In this Article each member agrees to apply, in its import and export trade with every other member, the same customs duties and the same laws and regulations concerning customhouse procedures generally."

An exception for Canada as part of a general revision of the Copyright Law (S. 597) cannot be considered a rule or formality in connection with importation or exportation,

5. The State Department also claims that an exemption for Canada would create a new conflict with the non-discrimination requirement in Article XIII, paragraph 1. However, this paragraph refers only to non-discriminatory administration of quotas or other restrictions which come within one of the three exceptions-Article XI, paragraph 2, Article XII, and Article XVIII, Section B. It is not a blanket prohibition against any restrictions which are not equally applicable to all countries. Strong support for our position comes from a number of sources:

A. The State Department prepared a document entitled "General Agreement on Tariffs and Trade, Present Rules and Proposed Revisions." This is contained in the hearings of the House Ways and Means Committee on H.R. 5550, March 1956. The following summary of the purpose of Article XIII is contained at page 1395:

"This Article requires a contracting party imposing quantitative restrictions on imports under one of the exceptions to apply them in a non-discriminatory manner."

B. The State Department, in the Guide to the Study of the Havana Charter, referred to above, stated at page 5 :

"Article 22 (the same as GATT Article XIII], as indicated by its title, likewise deals with the same general subject as does Article 16 (GATT Article I). Under certain circumstances, a member may be permitted to usé quantitative restrictions. However, this Article insures that such restrictions as are permitted will be applied equitably to give fair treatment to exporters situated in all other member countries. It prescribes a general rule to this effect and sets forth a number of requirements to give the rule precision and enable it to be enforced."

C. In the State Department publication “Preliminary Proposals for an International Trade Organization" (Commercial Policy Series 99), the following is stated at page 9 with respect to administration of quantitative restrictions:

“One of the provisions agreed to by the (preparatory] Committee is a general rule for non-discriminatory administration of such restrictions as are permitted under the exceptions described above."

D. William Adams Brown, Jr., at page 257 of "The United States and the Restoration of World Trade" similarly refers, under the heading “Quantitative Restrictions,” to “The non-discriminatory application of permitted restrictions.”

It follows that since the manufacturing clause is not a restriction authorized by any of the three exceptions, Article XIII does not apply to it. This is actually the position taken by Mr. French in his testimony to the Senate Subcommittee, with the exception that he did not specifically mention the possibility of the other two exceptions. The result is the same.

In addition, it should be noted that the manufacturing clause is not listed among the all-inclusive "Quantitative Restrictions and Tariff Quotas on U.S. Imports in Force on November 10, 1965" published by the U.S. Tariff Commission. Also, the whole context of Article XIII, which refers to allocation of quotas among supplying countries, makes it clear that the situation dealt with has no relationship at all to administration of the manufacturing clause of the copyright laws.

6. It is stated in paragraph 8 of the State Department's letter that it would not be "feasible" to secure a waiver, although it is “in theory” possible for the U.S. to seek one. We cannot see why this should be so. If there really is a strong concern that the GATT may be applicable, the logical alternatives would appear to

be either consult with the Secretariat and/or other countries, or seek a waiver such as for the Canadian auto parts agreement. In the latter case, a waiver was granted even where it was entirely clear that the provisions of GATT applied, since there were substantial duties on auto parts and discriminatory production quotas.

As of February, 1966, 14 waivers had been granted under paragraph 5 of Article XXV of the GATT, including two to the United States.

The sole substantive reason given by the Department for its position in the present case is that to seek a waiver would conflict with the U.S. goal of maximizing international trade through application of the most-favored-nation principle. It is submitted that this reasoning is based upon a misconception of the role of the manufacturing clause as a limitation upon extension of the copyright monopoly to foreign printers. The Department has incorrectly viewed the Manufacturing Clause as a restriction on free trade, not as what it really is, a limitation on copyright.

THE PUBLISHERS ASSOCIATION,

London, January 3, 1968. Manufacturing Clause Mr. R. W. FRASE, American Book Publishers Council, Inc., Washington, D.C.

DEAR BOB: It seems very unlikely that I shall be able to come to Canada this month, but I have consulted the Officers of my Association and also Sir Stanley Unwin, and we are all agreed that we should not wish to raise any objection to the exemption of Canada from the U.S. Manufacturing provisions. I hope this is official enough for you. Yours ever,

Ron. R. E. BARKER, Secretary.

THE PUBLISHERS ASSOCIATION,

London, May 6, 1975. Manufacturing Provisions Mr. ROBERT W. FRASE, Washington, D.C.

DEAR BOB: This is to confirm that my Association has and would not have any objection to book importations from Canada being exempted from the manufacturing provisions currently contained in Section 16 of the present U.S. Copyright Law, due to be confirmed by Section 601 of the Copyright Revision Bill now before Congress

While I have not been able to find my copy of the letter I know I wrote to you about this sometime early in 1968, when you were with the American Book Publishers Council, our view now, as it was then, is that the manufacturing provisions of U.S. copyright legislation are out of date, providing a form of protection which has long ceased to be necessary (if it ever was), and that, in consequence, anyone who can be exempted from these provisions should be. Because of the intimate relation between printers in the USA and in Canada, there seems to us every reason for making an exception in respect of Canada, until such time as the manufacturing provisions can be done away with altogether. In the meantime, some of our own members might benefit from this exception because, of course, many of them are, like many U.S. publishers, Canadian publishers in their own right.

To give you the assurance I think you want: we should certainly not object to any exemption made in Canada's favour in this respect. Yours ever,

(Dictated but not signed by) Mr. RONALD E. BARKER.

TESTIMONY OF GERARD VAN ARKEL, GENERAL COUNSEL,

INTERNATIONAL TYPOGRAPHICAL UNION

Mr. VAN ARKEL. Thank you, Mr. Chairman. I want to say it was with considerable surprise that I learned that it was over 10 years ago

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