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 of patented pharmaceuticals can seek to have certain patented drugs excluded from the jumbo groups if they demonstrate that such products provide "significant therapeutic improvement," only two patented drugs, produced by German and Swiss manufacturers, have been excluded and the process for determining whether a drug provides significant therapeutic improvement lacks transparency. The only two requests by U.S. manufacturers to exclude patented products from the new jumbo groups were rejected. The German Government may put additional classes of drugs under its jumbo reference pricing system later this year.

It is important to understand how these types of regulatory regimes affect patient welfare, research and development funding, and innovation. The Department of Health and Human Services, along with USTR and other U.S. health and economic policy agencies, are jointly approaching individual OECD countries through bilateral consultations, such as with Germany and Canada. USTR, in close coordination with U.S. health and other economic policy agencies, also will lead efforts with such countries in FTA negotiations, such as with Australia. These discussions are tailored to the specific circumstances of each country, but utilize a common set of principles aimed at advancing U.S. interests, including promoting innovation in the pharmaceutical sector and enhanced patient access to innovative and generic drugs. These efforts, coupled with the ongoing analysis of global intellectual property protection through the Special 301 process, should provide a more complete picture of the impact of regulatory and intellectual property protection regimes on innovation and offer potential opportunities to encourage continued strong development worldwide by innovative industries, such as the pharmaceutical sector.

WTO Dispute Settlement

Dispute settlement efforts this year continue to focus on resolving disputes that were announced through previous Special 301 determinations, using the full range of tools available. These tools include informal consultations and settlement, which can be more efficient and are therefore the preferred manner of resolving disputes, or where those are unsuccessful, full utilization of the dispute settlement process.

At the conclusion of the 1999 Special 301 review, the United States initiated dispute settlement consultations concerning the European Union's (EU) regulation on food-related geographical indications (GIs), based on concerns that the regulation was inconsistent with the EU's TRIPS Agreement obligations. These consultations were based on the United States' long-standing complaint that the EU GI system discriminates against foreign products and persons – notably by requiring that EU trading partners adopt an "EU-style" system of GI protection – and provides insufficient protections to trademark owners. Because those consultations failed to resolve the matter, on August 18, 2003, the United States requested the establishment of a panel, and panelists were appointed on February 23, 2004.

On April 20, 2005, the WTO Dispute Settlement Body ("DSB") adopted a panel report ruling in favor of the United States that the EU GI regulation is inconsistent with the EU's obligations under the TRIPS Agreement and the General Agreement on Tariffs and Trade 1994. In the panel report adopted by the DSB, the panel agreed that the EU's GI regulation impermissibly discriminates against non-EU products and persons. The panel also agreed with the United