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TRADE BARRIERS EVOLVE WITH MOVIE STREAMING TRENDS

streaming

TRADE BARRIERS EVOLVE WITH MOVIE STREAMING TRENDS

We’re All Streaming Now

During our collective stay-at-home period, movie streaming has grown to the point where industry analysts are wondering whether many people will return to movie theaters. Netflix reported 15.8 million new subscribers for the first quarter of the year, more than double their forecast, according to the Wall Street Journal. Some studios are eschewing the traditional theatrical release and going straight to digital. As some indicator of how the trend is taking off, the Motion Picture Academy has said that — just for this year — movies released via streaming would be eligible for the upcoming Oscars.

Streaming movies online has been growing in popularity in recent years, but the coronavirus has accelerated the trend. Unfortunately, where consumer and commercial trends go, trade policy barriers may follow.

The Hollywood Juggernaut

Movies both reflect and shape our national cultures. Hollywood has traditionally dominated among international viewership (a phenomenon that has been shifting over recent years), sometimes to the consternation of “keepers of culture” in other countries. As far back as the 1920s, European countries offered subsidies to domestic film producers and imposed so-called screen quotas to establish a minimum number of screening days for domestic films. The OECD keeps track of restrictions on services trade in OECD member countries, including audiovisual services, the category under which movies fall. According to the OECD, eleven countries still today reserve a quota for local motion pictures shown in theaters or on television.

Other measures to shore up local culture against the tidal wave of cultural influence that is Hollywood include import quotas, tax breaks to domestic film industries, foreign investment restrictions, requirements for local sourcing of cast and crews, and blackout periods during which no new imported films may be released, often during prime movie-going periods or timed to political events.

Film Distribution in Hollywood

Ready, Action…Trade

Such measures discriminate against the film industries of other countries and constitute barriers to trade. Policymakers have sought to address screen quotas in trade agreements such as the WTO’s General Agreement on Tariffs and Trade (GATT) and the original North American Free Trade Agreement (where Mexico agreed to reduce its screen quotas). Provisions to remove barriers to audiovisual services have also been included in many recent bilateral free trade agreements.

In the case of Korea, whose vibrant film industry reached a pinnacle of global recognition with the Academy’s choice of Parasite as Best Picture in 2020, formal restrictions targeting foreign films date back to Korea’s Motion Picture Law of the 1960s. The Korean government abolished its import quota in the late 1980s, and only after the Motion Picture Export Association of America (MPEA) in 1985 filed a complaint (later withdrawn) with the U.S. Trade Representative under section 301, the same tool being used today to try to address China’s technology transfer requirements. In 2006, just prior to the Korea-U.S. (KORUS) free trade agreement negotiations, Korea agreed to reduce by half its screen quota from a minimum of 146 days to the current 73 days per year.

Digital Era Trade Restrictions

While cultural protections for film have traditionally focused on theatrical screenings, screen quotas don’t work in the digital era, where on-demand audiovisual services such as Netflix and Amazon Prime are increasingly capturing viewership. As a result, new forms of trade barriers are popping up.

For example, China has imposed tighter regulatory controls in recent years, limiting foreign content purchased for streaming in the Chinese market, which has over 850 million digital consumers. U.S. streamers must license their content for China under a 30 percent streaming quota. Chinese content, however, can reach global audiences through video streaming platforms with no such numerical limits. In today’s tense political environment – and with China marking the 100th anniversary of the establishment of the Communist Party in 2021 – we could anticipate increased censorship, which would exacerbate the problem of foreign content scarcity while simultaneously elevating the risk of piracy and other illegal distribution of unauthorized content.

In line with a longstanding European Union (EU) focus on protecting the European film industry, the EU passed a law in late 2018 that requires Netflix, Amazon and other online streaming services to dedicate at least 30 percent of their output to films made in Europe, which they must subsidize by either directly commissioning content or contributing to national film funds. Regulation now applies similar rules to similar services, whether online or offline.

U.S. and European trade discussions are now focused on a limited set of issue areas, but in an earlier push for a Transatlantic Trade & Investment Partnership (TTIP) in 2013, the camera zoomed in on issues of culture in trade negotiations. At the time, the European Commission was given a negotiation mandate that expressly excluded opening the European audiovisual sector to competition from U.S. firms.

China has 850 million digital consumers

Competition Makes Most Things Better – Even Movies

Culture clashes aside, there is a strong case that greater competition has been the force behind successful film industries outside of Hollywood. Researchers Jimmyn Parc and Patrick Messelin posit that the success of contemporary Korean cinema is due to “less interventionist public policies over the last two decades,” together with “benchmarking, learning, and innovating among non-subsidized private companies.” They point to data from the decade preceding the industry’s opening in the late 1980s, when the Korean film industry released around 90 films per year with an average revenue of KRW ₩0.9 billion per film (roughly USD $0.7 million at the current exchange rate). From 1989-2005, around 75 films were released per year with an average revenue of KRW ₩2.7 billion per film (roughly USD $2.2 million at the current exchange rate), a signal of the improvement in film quality.

Brian Yecies of the University of Wollongong Australia agrees that Korea’s efforts to liberalize in the 1980s and address censorship enhanced competition. As Hollywood expanded into Asia-Pacific markets, Korean cinema became stronger. The increased distribution and exhibition of U.S. films, Yecies argues, gave birth to a new generation of moviegoers who also increased their consumption of Korean content. Park Moo Jong credits three elements with reviving the Korean film industry: talented young filmmakers, the virtual abolition of government censorship, and remarkable technological developments. In short, he says, “Good films attract fans.”

EU streaming requirements

The Streamed Show Must Go On

In a 2019 submission to the U.S. Trade Representative, the Motion Picture Association pointed out that the industry’s international sales “now depend increasingly on member companies’ ability to capitalize on major distribution windows in the digital market.”

The need to remove barriers to stream internationally and enable competition holds true for online streaming as it has for many years for screening in theaters. As streaming gains momentum, trade agreements will continue to tackle the array of barriers the U.S. film industry faces abroad, from intellectual property challenges to subsidies to foreign investment restrictions. Likewise, negotiators will work to advance market access for creative content as it flows through both traditional and new distribution platforms. After Parasite’s surprise Best Picture Oscar win, who knows if 2021 may bring our first direct-to-digital winner? Put your feet up and get the popcorn ready.

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Leslie Griffin is Principal of Boston-based Allinea LLC. She was previously Senior Vice President for International Public Policy for UPS and is a past president of the Association of Women in International Trade in Washington, D.C.

This article originally appeared on TradeVistas.org. Republished with permission.
section 301

USTR Initiates Section 301 Digital Services Tax Investigations Covering India, the European Union and Several Other Countries

The Office of the U.S. Trade Representative (“USTR”) announced on June 2, 2020 that it is initiating Section 301 investigations on Digital Services Taxes (“DSTs”) adopted or under consideration by Austria, Brazil, Czech Republic, the European Union (“EU”), India, Indonesia, Italy, Spain, Turkey, and the United Kingdom (“U.K.”). The Section 301 DST investigations could lead the U.S. to impose new punitive tariffs and could significantly raise global trade tensions.

USTR is soliciting public comments from parties and these must be submitted no later than July 15, 2020. Written comments should be submitted through the Federal eRulemaking Portal at http://www.regulations.gov under docket number USTR-2020-0022. According to the Federal Register notice, the USTR invites comments with respect to:

-Concerns with one or more of the DSTs adopted or under consideration by the jurisdictions covered in these investigations.

-Whether one or more of the covered DSTs is unreasonable or discriminatory.

-The extent to which one or more of the covered DSTs burdens or restricts U.S. commerce.

-Whether one or more of the covered DSTs is inconsistent with obligations under the WTO Agreement or any other international agreement.

-The determination required under section 304 of the Trade Act, including what action, if any, should be taken.

Over the last couple of years, various governments have enacted or considered taxes on revenues generated by companies from providing digital services within those jurisdictions. While the proponents of DSTs argue that the tax corrects corporate taxation to cover previously untaxed or undertaxed revenues, the position of the Trump administration, including the USTR, is that DSTs unfairly discriminate against “large, U.S.-based tech companies” such as Amazon and Google. USTR’s announcement provides a brief but detailed overview of the current status of each of the named jurisdictions’ enacted or proposed DSTs.

USTR’s initiation of Section 301 investigations follow a period of intermittent tensions between the U.S. and some of its trading partners over proposed DSTs. In December 2019, the U.S. and France nearly began a trade war over the DST adopted by France, which USTR described as “unreasonable, discriminatory, and burdensome on U.S. commerce.” However, these tariffs were never implemented on imports of products from France. In January of this year, the Trump administration had also threatened the U.K. with tariffs on imports of British cars if the U.K. pressed forward with its DST.

A possible result of these new investigations will be the institution of additional tariffs on imports of products from each of the named countries but that remains to be seen and will depend in large part on the support or opposition to the institution of trade remedies in the comments filed on the record of these investigations.

Husch Blackwell continues to monitor the Section 301 investigations on Digital Services Taxes and will provide further updates as more information becomes available. We encourage clients and companies to review the USTR’s announcement and Federal Register notice.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

IP DEFICIENCIES

TRADE POLICY’S NAUGHTY AND NOTORIOUS LIST FOR IP DEFICIENCIES

Making a List

The Office of the US Trade Representative (USTR) published its 2020 “Special 301” and “Notorious Markets Review” annual reports on April 29. The Special 301 report identifies trading partners that do not adequately or effectively protect and enforce intellectual property (IP) or otherwise deny market access to U.S. innovators. Thirty-three countries were cited this year as presenting the most significant concerns.

The Special 301 report categorizes countries based upon the severity of the IP deficiencies as assessed by various U.S. government agencies and the private sector. The ten countries USTR placed on its “Priority Watch List” will be subject to an action plan to resolve the issues that caused this designation. The remaining 23 countries have been placed on the “Watch List” because of IP deficiencies, but deficiencies that are not as detrimental to U.S. economic interests as those on the Priority Watch List.

2020 PWL Countries on Map (1)

The Special 301 report also indicates countries that will be subject to an “out-of-cycle” review. Generally, this means that rather than waiting until the annual review occurs, USTR will conduct interim reviews of specific IP deficiencies at various times during the year to assess a country’s progress in remedying the concern. This year, USTR designated Saudi Arabia as a Priority Watch List country and also indicated it would be subject to an out-of-cycle review in 2020. Malaysia is not on either the Priority Watch List or the Watch List, but is identified as being subject to an out-of-cycle review because of concerns lingering from 2019 about its enforcement regime.

Checking it Twice

The 2020 Special 301 report also identifies “significant cross-cutting IP issues” deserving of special attention. These include: IP protections, enforcement and market access for pharmaceutical and medical devices; restrictive patentability criteria; inadequate border measures or lack of customs enforcement authority, inability to stop in-transit shipments and to destroy infringing goods; online and broadcast piracy affecting the copyright industries, government use of unlicensed software, inadequate protection of trade secrets, and market access barriers due to EU-type geographical indications implementation.

Tech Transfer and Online Infringement Top the List

In addition to these persistent cross-cutting issues, technology transfer and online IP infringement have become a key focus of U.S. concerns.

Technology transfer requirements triggered the investigation and imposition of tariffs on China-origin goods after the United States concluded that China used joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies. But China is not alone in this regard. The Special 301 report notes that U.S. IP owners operating in foreign markets find “an increasing variety of government measures, policies, and practices that require or pressure technology transfer from U.S. companies. These measures are sometimes styled as means to incentivize domestic ‘indigenous innovation.’ In practice, they disadvantage U.S. companies, requiring them to give up their IP as the price of market entry.”

The technology transfer issue may be exacerbated during a time of economic downturns and hardships as they are being experienced globally today. Thus, U.S. companies may need to be more willing to openly challenge governments that impose these requirements in the future.

The issue of IP enforcement is a mainstay in the report year after year. The report heading, Border, Criminal and Online Enforcement, now refers to traditional enforcement shortcomings (border and criminal) as well as more recent challenges posed by online infringement.

The Internet’s impact on IP infringement is significant. Consumer demand supports massive production of counterfeit goods. The volume of counterfeits, in turn, spurs increased criminal conduct in producing and distributing the counterfeit goods. The Internet provides a vehicle for ordering goods and conducting financial transactions that feed the illegal activity.

Underscoring the enforcement challenge, U.S. Customs and Border Protection (CBP) reported that in fiscal year 2019 it processed approximately 1.8 million express consignment and international mail shipments every day (over 600 million in a year). CBP also reported that in fiscal year 2019, over 90 percent of the 27,599 IP seizures occurred in the express carrier and international mail environments.

IP seizures of international mail

Gaining Notoriety

USTR’s Notorious Markets List identifies online and physical markets that “reportedly engage in, facilitate, turn a blind eye to, or benefit from substantial copyright piracy and trademark counterfeiting.” Produced as the result of an annual Review of Notorious Markets for Counterfeiting and Piracy, this year’s report cited 38 online markets and 34 physical markets as rife with pirated and counterfeit goods. The report also explored the nexus between online piracy and malware.

While CBP reports enforcement challenges at the U.S. border, USTR’s Notorious Markets report underscores the economic threats posed by online and physical markets abroad that raise concerns because the “scale of infringing activity in these markets can cause significant harm to U.S. intellectual property (IP) owners, consumers, legitimate online platforms, and the economy”.

Notorious markets

The 2020 Notorious Market Review, while maintaining a focus on the distribution of pirated content and counterfeit goods online, dove deeper into challenges related to counterfeit and pirated goods on e-commerce platforms and third-party marketplaces. Emerging piracy models include illicit streaming devices and other portals and apps that harm the digital marketplace for legitimate music, television and movies.

The report identifies specific social media platforms that contribute to the proliferation of infringing goods available on the internet. USTR, in identifying specific platforms, encourages these platforms to begin to address problems of IP infringement by “establishing industry standard IP enforcement policies, increasing transparency and collaboration with right holders to quickly address complaints, and working with law enforcement to identify IP violators”. These recommendations are consistent with recommendations that were issued in the Department of Homeland Security’s January 2020 report, Combating Trafficking in Counterfeit and Pirated Goods.

Seller Beware

USTR’s annual reporting regarding the state of IP in countries around the world is a valuable tool for U.S. enterprises considering commercial activity abroad. Indeed, both reports are the product of U.S. industry engagement with government to provide valuable information about their experiences.

Due to the value of IP assets, the need to assess risk to an IP portfolio is an absolute necessity in today’s global commercial environment. USTR’s annual reports provide enterprises with an opportunity to determine how and whether countries have made progress over the past few decades to improve their IP environment for businesses or whether significant business risks remain.

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Tim Trainer was an attorney-advisor at the U.S. Customs Service and U.S. Patent & Trademark Office. He is a past president of the International AntiCounterfeiting Coalition. Tim is now the principal at Global Intellectual Property Strategy Center, P.C., and Galaxy Systems, Inc.

This article originally appeared on TradeVistas.org. Republished with permission.
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USTR Considers 301 Tariff Exemption Requests for COVID 19 Medical Supplies

As the country faces the global health crisis caused by the COVID-19 outbreak, recent announcements by the Office of the U.S. Trade Representative (“USTR”) signal the possibility of some relief from special tariffs on imports from China. Since July 2018, as reported previously here, the Trump Administration has imposed tariffs under Section 301(b) of the Trade Act of 1974 on nearly all U.S. imports of Chinese goods, including medical supplies that are now in high demand because of the outbreak.

USTR based the tariffs on its findings in an investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. There have been four rounds of tariffs, broadening the scope of products that are affected. With each round, USTR allowed requests for exclusion of particular products that are not adequately available in the United States.  Prior to the most recent announcements, the opportunity to request exclusions from any or all of the four lists had lapsed, but USTR continued to consider whether to grant requests that had already been filed but remained outstanding.

National priorities have changed as the COVID-19 outbreak in the United States has worsened, increasing the need for medical supplies. On March 25, USTR published a notice of the opportunity to request additional exclusions for products expected to be helpful in responding to the crisis.

Requests can be made through the online portal regulations.gov, but the window closes June 25, 2020, unless extended. Requests “specifically must identify the particular product of concern and explain precisely how the product relates to the response to the COVID-19 outbreak. For example, the comment may address whether a product is directly used to treat COVID-19 or to limit the outbreak, and/or whether the product is used in the production of needed medical-care products.” Decisions will be made on a rolling basis. Any responses to exclusion requests should be submitted within three business days after a request is posted.

In addition, USTR states that it has been prioritizing, in consultation with the U.S. Department of Health and Human Services, the processing of previously filed exclusion requests “addressed to medical-related products related to the U.S. response to COVID-19,” granting approximately 200 separate exclusions on March 10, 2020, March 16, 2020, and March 17, 2020. Products excluded in this manner have included medical masks and other personal protective products.

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By Matthew R. Nicely, Joanne E. Osendarp, Eric S. Parnes, Dean A. Pinkert and Julia K. Eppard at Hughes Hubbard & Reed LLP