(3) The U.S. group will do its utmost to obtain incorporation of an exemption for Canada in the manufacturing section of the bill to revise the U.S. copyright law (S. 597) now being considered by a U.S. Senate Subcommittee. Specifically, the U.S. group will inform the Department of State of the Toronto meeting and will urge the Department (a) not to oppose an exemption for Canada from the U.S. manufacturing clause, and (b) to work closely with the Government of Canada in opposing weakening of international copyright protection under the Berne Convention or the Universal Copyright Convention. The U.S. group will also bring to the attention of the appropriate subcommittee of the Senate and House Judiciary Committees the recommendations of the Toronto meeting with respect to the manufacturing clause amendment.

(4) It is anticipated that co-operative efforts on, and resolution of, the foregoing issues in a mutually satisfactory manner will lead promptly to definite future co-operation between the United States and Canadian groups on the removal of any remaining barriers to trade between the two countries affecting the printing and publishing industries.

On behalf of the U.S. group:

HEARINGS BEFORE THE SUBCOMMITTEE ON PATENTS, TRADEMARKS, AND COPYRIGHTS OF THE COMMITTEE ON THE JUDICIARY, UNITED STATES SENATE, NINETIETH CONGRESS, FIRST SESSION

Pursuant to S. Res. 37 on S. 597

Part 3-April 6, 11, and 12, 1967

[Excerpts from Statement of James H. French, Counsel, Book Manufacturers' Institute, Inc., pages 676-677]

The cultural and educational interrelationship of the U.S. and Canada indeed reflects a unique situation which requires a special solution. And there is no need to retain the protection of the manufacturing clause as to Canada. In recommending that Canada be exempted from the provisions of the manufacturing clause, we quite naturally have examined this subject from the point of view of our own self-interest. We have concluded that book manufacturers in the United States will not suffer injurious consequences if this is done. Production techniques, quality, and distances to major market areas are all so similar that we foresee no disruption in the American book manufacturing industry as a result of Canadian exemption. Canadian wage rates and costs of equipment and production are comparable to our own and will provide the kind of competition that we can contend with.

On balance, we feel that the exemption of Canada from the manufacturing clause will simply remove an irritant between Canada and the United States, will promote a healthy degree of cooperation between publishers and book manufacturers in both countries, and will help to promote an atmosphere in which friction occasioned by actions and recriminations by citizens of both countries can be significantly reduced.

We wish to make it clear that we are not reintroducing the wage parity formula that the House Committee last year found raised "complex problems of foreign policy and administration." We are recommending enactment of a direct, forthright exemption from the manufacturing clause for Canada. We do not believe that such an exemption will be found objectionable from any reasonable international trade viewpoint, or that it will in any way contravene the General Agreement on Tariffs and Trade (GATT).

Under the Protocol of Provisional Application of the GATT, the United States agreed to apply Part II of the GATT to U.S. laws in existence on January 1, 1948, only to the extent that it is not inconsistent with such laws. The manufacturing clause of the United States Copyright Law has been in existence since 1891 and represents an integral part of United States Copyright policy. Thus, to the extent that anything in Part II of the GATT is inconsistent with the dynamic implementation of United States Copyright policy through the manufacturing clause, it must give way. This is the very raison d'etre of the Protocol of Provisional Application.

Our conclusion that nothing in the GATT prevents the granting to Canada of an exemption from requirements of the United States Copyright Law derives additional support from the existence, in Article XX of the GATT, of a general exception for national measures relating to copyright. This exception clearly demonstrates the intentions of the member nations not to interfere with expressions of national policy manifested through Copyright Laws.

The exception in Article XX is made subject to "the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade." No country other tnan Canada has the same conditions prevailing in its printing industry as does the United States. Therefore, exemption of Canada from the manufacturing c'ause of our Copyright Law would not constitute "a means of arbitrary or unjustifiable discrimination" under Article XX. Far from being "a disguised restriction on international trade," such exemption would tend to expand international trade between the United States and Canada without decreasing it between the United States and other countries.

But most persuasive of all is the GATT's clear recognition, in Article XXIV, of (a) the need for special and preferential measures between adjacent countries in order to facilitate frontier traffic and (b) the desirabliity of increasing freedom of trade between such countries through closer integration of their economies.

Under these circumstances, it is difficult indeed to see how any country could justify the lodging of a complaint under the GATT if the United States exempts Canada from long-standing requirements of the U.S. Copyright Law. If the fear should prevail that such a complaint may be effectively put forth, then we believe that the Administration should move promptly to obtain a waiver under Article XXV of the GATT. Such a waiver should be quite easy to obtain.

Only a strained interpretation of this country's GATT obligations could support an argument against the exemption here requested. And in view of the clear unanimity on both sides of the border that such a result is desirable, it is difficult to see how an argument for such a strained interpretation can be defended.

Nevertheless, we recognize that it is possible to argue that the Most FavoredNation requirements of Article I of the GATT and the non-discrimination requirements of Article XIII militate against the making of any special arrangements with any single country, even one having such a special interrelationship with the United States as does Canada. In our view, however, neither of these Articles applies.

Article XIII, as its title states, requires the "Non-discriminatory Administration of Quantitative Restrictions." The entire context of this provision makes it quite clear that the provision's requirements are designed to apply to certain quantitative restrictions specifically authorized by another of the Agreement's provisions, Article XI, paragraph 2. The manufacturing clause of the Copyright Law is not a restriction authorized by Article XI, and, therefore, Article XIII does not apply to it. In any case, since Articles XI and XIII are in Part II of the GATT and are covered by the Protocol of Provisional Application, neither applies to the extent that it is inconsistent with the action proposed.

Turning to Article I, the Most-Favored Nation clause of the GATT, we do not believe that this provision, properly interpreted, prevents the proposed exemption for Canadian printing. Article I provides in effect that with respect to four enumerated categories of matters, any advantage granted to the products of one country must simultaneously be extended to the like products of all countries. The first three enumerated categories, relating to (1) customs duties and charges, (2) the method of levying such duties and charges, and (3) rules and formalities in connection with importation and exportation, clearly are not applicable. (Now that the United States has implemented the Florence Agreement, there are not to our knowledge any duties or other charges on printed matter

entering this country from abroad, certainly not on any commodities affected by the manufacturing clause.) These three categories are the only ones set forth in, and encompassed exclusively within, Article I itself.

The fourth category is actually set forth in two paragraphs of Article III relating to "National Treatment on Internal Taxation and Regulation," and is only incorporated in Article I by reference. This category breaks down into two subcategories: (a) internal taxes or other internal charges (Article III, para. 2); and (b) laws, regulations and requirements affecting internal sale, offering for sale, purchase, transportation, distribution, or use (Article III, para. 4). Paragraph 2 of Article III clearly does not apply.

On its face, paragraph 4 of Article III might appear to apply to the present proposal but for two significant facts. In the first place, the fact that national copyright laws are signed out and made the subject of a general exception in Article XX makes it clear that the Copyright Law is not the type of "law, regulation, or requirement" referred to in Article III, paragraph 4.

But, more importantly, the Protocol of Provisional Application again comes into play to prevent anything in Article III from interfering with the evolution and revision of the long-standing United States Copyright Law. Although the Protocol does not purport to apply to Article I of the GATT, it does apply to all matters referred to in Article III. Thus, when Article I incorporates paragraphs 2 and 4 of Article III by reference, making the matters enumerated therein subject to the Most-Favored-Nation principle, it does so only subject to the Protocol of Provisional Application.

Therefore, we see nothing in Article I or in any other provision of the GATT that would bar the type of action that we are proposing.

Accordingly, we ask that a provision be added to S. 597, exempting books and other printed material manufactured in Canada from the scope of Section 601. If, for any reason, direct exemption for Canada in the present bill is impossible, we respectfully urge that, at the very least, the U. S. Department of State be requested to seek the most immediate means by which Canada may be exempted from the manufacturing clause without sacrificing the general maintenance of that clause.

OPPOSITION TO DEMANDS FOR FREE USE OF COPYRIGHTED PRINTED MATERIAL Now, having just endorsed a special exception favoring Canadian printers. I am going to turn about and urge denial of the demands which have been, or may be, made by various groups of users of copyrighted printed matter for a blanket authorization to make free use of such matter. I have no difficulty making such a transition since I believe that the exemption sought for Canadian printers is just and warranted, whereas the requests for permission to make free use of copyrighted material are not.

Hon. JOHN L. MCCLELLAN,

DEPARTMENT OF STATE, Washington, September 19, 1967.

Chairman, Subcommittee on Patents, Trademarks, and Copyrights, Committee on the Judiciary, U.S. Senate.

DEAR MR. CHAIRMAN: Thank you for your letter of April 10 affording the Department an opportunity to express its views on a proposed amendment to section 601 of S. 597 which would except Canada from the provisions of the book manufacturing clause. The clause, as carried over from present law, would restrict imports into this country of books and other works by American authors not manufactured, i.e. printed and bound, in the United States by denying full copyright protection to such works.

The Department is aware of the great imbalance in the flow of books between Canada and the United States, and it is our view that the manufacturing clause's limitation on the importation of printed words should ultimately be eliminated. This Department testified before Subcommittee No. 3 of the House Judiciary Committee on August 26, 1965 that it believes the perpetuation of the manufacturing clause is contrary to our liberal trade policy and our interest in improving the free flow of educational, scientific, and cultural materials internationally. However, the Department also stated that it would be necessary first to ascertain more definitely what the effect would be of completely

eliminating this long-standing protection. In the meantime, granting of the proposed exception to Canada alone would result in a discrimination against books printed in other foreign countries in violation of the General Agreement on Tariffs and Trade (GATT) as well as many of our bilateral commercial treaties.

In this regard we have studied with care the issues raised in Mr. French's submission accompanying the proposal to except Canada. As Mr. French notes, our present restriction on the importation of books avoids conflict with Article XI of the GATT only by virtue of the Protocol of Provisional Application, which provides that the laws existing on October 30, 1947 are not in violation of Part II of the GATT. While the proposed exception would be a liberalization in the sense that it would allow increased imports of books from Canada, it is clearly discriminatory in granting a concession to the Canadians not offered to our other trading partners. The Protocol has been interpreted to allow re-enactment of laws existing in October of 1947, and to allow the liberalization of such laws. However, the proposed modification of the law creating a discriminatory exception would create a conflict with the spirit of the mostfavored-nation requirement in Article I, and in all likelihood 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" (the Protocol does not except legislation inconsistent with Article I); and would also create a new conflict with the non-discrimination requirement in Article XIII, paragraph 1, providing that:

"No prohibition or restriction shall be applied by any contracting party on the importation of any product of the territory of any other contracting party ... unless the importation of the like product of all third countries is similarly prohibited or restricted."

Mr. French suggests Article XIII applies only to prohibitions or restrictions authorized under Article XI. However Article XIV, paragraph 1, specifically excepts from Article XIII, under certain circumstances, restrictions authorized by Articles XII and XVIII, section B, thus indicating that Article XIII was meant to apply to prohibitions and restrictions generally. Consequently, this Department believes it applies also to ban new provisions that would introduce discriminatory prohibitions on imports even when these new provisions are modifications of restrictions which are themselves exempted from the GATT Article XI requirements by virtue of the aforementioned Protocol.

Moreover, a discriminatory provision such as is proposed would be contrary to the requirements for most-favored-nation treatment contained in bilateral commercial treaties with many of our major trading partners (see e.g., our Friendship, Commerce and Navigation Treaties with Germany (TIAS 3593), paragraphs 1 and 3 of Article XIV, and Japan (TIAS 2863), paragraphs 1, 2, and 3 of Article XIV, both of which contain most-favored-nation provisions similar to Articles I and XIII of the GATT).

Mr. French further contends that the book manufacturing clause is excepted from GATT requirements by Article XX, paragraph (d). This provision permits measures to secure compliance with laws and regulations for the protection of copyrights providing such laws and regulations "are not inconsistent with the provisions of this Agreement." The over-all heading of Article XX also requires that such measures do not “constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail." While Article XX(d) may permit new measures, for example, prohibiting importation of books or work that would infringe a copyright, it would not permit a new provision in a copyright law laying on a fresh discrimination among countries as to the importation of books into the United States.

A further suggestion is that Article XXIV of the GATT, which provides for exceptions for customs unions, free trade areas, and frontier traffic, applies to a provision such as the proposed exception to the manufacturing clause. However, it does not appear that such an exception would fit into any of the above categories. Customs unions and free trade areas involve comprehensive tariff and trade arrangements providing for the removal of duties and other trade restrictions from most if not all of commodities in trade between two or more countries. An agreement covering only books could not properly be considered as establishing a free trade area. The exception for frontier traffic is also inapplicable since it was intended to apply to local traffic between neighboring areas close to the frontier.

57-786-76-pt. 3—20

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,

Hon. JOHN L. MCCLELLAN,

WILLIAM B. MACOMBER, Jr.,

Assistant Secretary for Congressional Relations.

SELLERS, CONNER, & CUNFO, Washington, D.C., October 11, 1967.

Chairman, Subcommittee on Patents, Trademarks, and Copyrights, Committee on the Judiciary, U.S. 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 flaw 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