CITING CONTINUED RECORDING PIRACY, U.S. SUSPENDS UKRAINE'S SPECIAL DUTY-FREE STATUS AND ISSUES PRELIMINARY SANCTIONS LIST

The United States Government August 7 decided to suspend the special duty-free status for certain Ukrainian exports to the United States. It also published a preliminary list of other products that could face sanctions, due to Ukraine's persistent failure to curb unauthorized production of optical media products (CDs, CD-ROMs, DVDs, etc.). U.S. industries have estimated that this piracy has caused over $200 million in annual damages and has disrupted markets throughout the region and beyond.

In a press release published in Washington, U.S. Trade Representative Robert B. Zoellick said that although the United States has been urging Ukraine to take measures to stop the production of pirated optical media products for over two years, the the problem continued to exist. "Pirating U.S. intellectual property cheats Americans", Zoellick said. "It's wrong. Such intellectual property piracy also hurts Ukraine and cheats their own creative artists. Their inaction undermines investment opportunities and weakens innovation, creativity, and technology in the marketplace.

"The United States is moving forcefully to protect our rights and, if necessary, we will impose trade sanctions," Zoellick continued. "We welcome foreign products into our markets, but we insist that we be treated fairly in return."

According to USTR, the suspension of special duty free status for certain Ukrainian exports to the United States will take effect approximately 10 working days from the date of publication in the Federal Register notice announcing the U.S. decision. The U.S. market will remain open for these products; however, importers will have to pay normal U.S. tariffs on these goods.

The status previously granted to these selected Ukrainian products comes from the U.S. Generalized System of Preferences (GSP), a program designed to foster economic growth between the U.S. and developing GSP beneficiaries. The GSP program provides duty-free access to the U.S. market for most products of developing and least developed countries that have been designated by the United States as GSP beneficiary countries.

In addition to suspending Ukraine's GSP benefits, USTR has issued a preliminary list of other products that could face sanctions. At present no sanctions against these products have been imposed. A decision whether to impose sanctions against products from the list will be made after the United States seeks public comments and holds a public hearing. The hearing will also review whether sanctioning such products would encourage Ukraine to provide adequate protection of intellectual property rights or if it would adversely affect U.S. economic interests. The United States is particularly interested in potential impacts on U.S. small or medium-size businesses, so that any adverse affects on such businesses can be minimized. If Ukraine continues to fail to honor its commitments to stop the ongoing piracy and to establish a strong optical media licensing regime to prevent future piracy, then the U.S. Government may also act to impose trade sanctions on Ukraine.

Background

According to U.S. recording industries, for the past few years Ukraine has consistently ranked as the largest producer and exporter of pirated optical media products in Europe. . Ukraine's exports of unauthorized compact discs (CDs) are disrupting markets throughout the region and beyond. For over two years, the United States has been urging Ukraine to take measures to stop this piracy and prevent its recurrence. Despite the commitments Ukraine made as part of the June 2000 U.S.-Ukraine Joint Action Plan to Combat Optical Media Piracy in Ukraine, the Ukrainian Government has failed to curtail the piracy. The two principal elements of this Joint Action Plan were that Ukraine (1) would immediately use its existing law enforcement authority to stop the piracy and (2) by November 2000 would establish an optical media licensing regime, which would serve to prevent a subsequent recurrence. Unfortunately, Ukraine still has not complied with either of those commitments.

Consequently, the United States on March 12, 2001, identified Ukraine as a Priority Foreign Country under the "Special 301" provisions of the Trade Act of 1974, and immediately initiated a Section 301 investigation. In April, U.S. officials consulted with the Ukrainian Government in Kyiv. The United States also sought public comments on possible action under Section 301, including the possible suspension of duty-free treatment for Ukrainian products under the GSP. The United States Government held a public hearing on April 27, 2001.

More than a year has now passed since Ukraine made commitments to combat optical media piracy and more than four months since Ukraine was identified as a Priority Foreign Country. Credible reports indicate that large volumes of optical media products have been pirated in Ukraine almost up to the very present, and that at this time Ukrainian CD factories are still in a position to engage in large-scale piracy. Thus the U.S. Government felt compelled to suspend GSP treatment of Ukrainian products and issue the preliminary list of products which could face sanctions. . Complete information on the requirements for submitting comments and participating in the public hearing, as well as the proposed sanctions list, will soon be set forth in the Federal Register notice, and will be posted on the USTR web site ( www.ustr.gov). For a copy of the Ukrainian products covered under GSP, go to www.dataweb.usitc.gov/scripts/tariff/toc.html .