Economists Report Empirical Evidence Of TRIPS Impact On Developing Countries

The World Trade Organization Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement has sparked decades of international debate over whether exporting stronger intellectual property norms to developing countries is beneficial or harmful.

Gathering actual data on IP, trade flows, and technology transfer is often difficult, but attendees at the WTO Public Forum yesterday heard what several leading economic thinkers have found on various critical areas of IP and trade. The WTO Public Forum is taking place from 15-17 September and is a chance for the WTO secretariat and relevant stakeholders to discuss issues in global trade.

The IP meeting was chaired by the WTO IP team, and also included discussion on geographical indications – or, product names associated with a particular place and characteristics – and the protection of traditional knowledge and genetic resources.

“The one situation in which TRIPS is interesting to developing countries is cross-retaliation,” said Fan Cui of the University of International Business in Beijing (China) who is currently a visiting scholar at the London School of Economics (UK). All the countries that have been awarded cross-retaliation – Ecuador in a banana case against the European Union, Antigua in a gambling case against the United States, and Brazil in a cotton subsidy case against the US – chose IP as the sector in which to retaliate.

Theoretically, said Keith Maskus of the University of Colorado in Boulder (US), there are several views on how IP and trade are related.

The traditional “product cycle” model says that “in the North we innovate and in the South we imitate or reverse engineer,” and that this cycle causes the transfer of technology, he said. The role of IP is then to slow down the cycle.

A newer view says that while IP can slow down the process, it can also strengthen firms and subsidiaries throughout the world, thereby increasing the rate of technology transfer, Maskus said. And an even newer view says that so many countries in the developing world have learned to innovate due to past technology transfer that reverse technology transfer is happening and changing the incentives around IP regimes.

Other IP theories try to map flows of knowledge, figure out where there are emerging markets for technology, and look at the understudied relationship between trade liberalisation and intellectual property protection, Maskus said.

Empirical studies have so far indicated that high technology imports have increased at a faster rate post-TRIPS (from this study), that exports from developing and developed countries became more sensitive to patents after TRIPS, and that multinational companies base decisions on where and how much to invest on local IP law, Maskus said.

But there are still questions that remain. One of the difficulties of economic analysis in this area is that “establishing causality is tricky,” said Carsten Fink, the World Intellectual Property Organization’s current, and first, chief economist.

Maskus cautioned that evidence suggesting trade and foreign direct investment are “IP-related, and increasingly so,” does “not necessarily imply that the developing countries need IP harmonised on the strongest global levels.” There is not much evidence coming from poor or small economies, he said, and the effect of IP policies depends on other factors like economic competitiveness and policies on innovation and human capital development.

Fink said there are still several important economic questions on which evidence remains inconclusive.

Many studies suggest a link between IP and trade, but a better understanding is needed on how trade affects welfare and knowledge diffusion, he said. On the IP / foreign direct investment relationship, studies are ambiguous, said Fink. Also “it is one thing to show FDI flows may go up or down in response to an IP regime, but it is important to know the impact” of the investment, especially on local firms, he added.

Pirated and counterfeit goods and public welfare also have an uncertain relationship, which is different across sectors. It is necessary to “go beyond estimating incidence of illicit goods,” Fink said, and at least distinguish between the welfare effects of deceptive goods – such as a misbranded medicine – and non-deceptive goods, like a fake handbag.

Another interesting question is how the territoriality of IP laws coupled with the global reach of the digital world complicates the difficulty of finding solutions.

“IP is important but still divisive; there is no clear rationale at least in my view, for the continuing trend in expansion of patent protection and the draconian measures for IP violation,” said Pedro Roffe of the International Centre for Trade and Sustainable Development (ICTSD).

He also said that a critical unanswered question is whether there is evidence that more IP encourages more innovation. “Some scholars have recently said that when innovation turns stagnant, the affected sectors call for more protection,” he added. Also needing evidence is the economic rationale for a 20-year duration of protection in patents and life plus 50 years in copyright protection, and evidence that expansion of patent protection into areas such as computer software is really increasing innovation.

“One clear consequence of patent explosion is that patents create a market… they create a market in patents, and in the supporting legal and technical services needed to support these rights,” Roffe said.

GIs, Traditional Knowledge

Geographical indications (GIs) and matters related to biodiversity are under ongoing discussion in the TRIPS Council, and were linked strategically in 2008 when a consensus text was released by a majority of WTO member states. Previously, the drive to discuss traditional knowledge and genetic resources was supported by about 100 mostly developing countries, such as India and Peru, and the drive to discuss higher-level geographical indication protection was supported primarily by the European Union.

At yesterday’s event, several speakers presented their work on these issues.

Cui said that the benefits are not trickling down to the owners of resources in the case of genetic resources. Developing countries may have some comparative advantage on traditional knowledge and genetic resources.

The centrality of a forum like the WTO “has been diminished if not displaced” on matters of IP rights in general and GIs in particular, said Dwijen Rangekar, senior research fellow at the Centre for the Study of Globalisation and Regionalisation at Warwick University (UK).

Forums and actors concerning themselves with these IP questions have “proliferated rapidly” over the last 15 years, he explained, each setting out new sets of “norms and normative considerations.”

Tim Josling, senior fellow at the Freeman Spogli Institute for International Studies at Stanford University (US), spoke on the under-appreciated role of generics, which he called “often the most important commercial names [though] they cannot be protected as GIs.” He called for a database of generics rather than a database of GIs, where members could challenge a registration but the burden of proof would be to prove a name is not a generic, rather than that it is. Special sessions of the TRIPS Council are mandated currently to create an international register for GIs.

Daniela Benavente, a researcher from Chile who recently obtained her PhD at the Graduate Institute of International and Development Studies in Geneva, presented her thesis on the economics of geographical indications.