Excerpt from the 2014 Trade and Development Report: Global Governance and Policy Space for Development, published yesterday by the UN Conference on Trade and Development. From pages 80 to 86:
Successful development experiences have generally been associated with structural transformation. This section examines the constraints faced by developing countries in adopting the trade and investment policies they deem to be the most suitable for structural transformation. In particular, it focuses on the multiplicity of trade agreements (multilateral, bilateral and regional) and how they restrict national policy space.
Multilateral agreements maintain some flexibilities and incorporate some special and differential treatment (SDT) for least developed countries (LDCs); however, they typically limit or forbid the kinds of policies that played an important role in successful processes of structural transformation in the past. This process of limiting national policy space began with the Uruguay Round Agreements [URAs], which included several rules that were not directly related to trade flows. Subsequent bilateral and regional trade agreements have increasingly included rules that can be important for the design of comprehensive national development strategies, such as government procurement, capital flows, trade in services, and environmental and labour issues. Many of them have also included disciplines concerning IPRs and investment-related measures that are more stringent than those already incorporated in multilateral agreements. In a sense, these bilateral and regional agreements are no longer “trade agreements”; they are more comprehensive economic integration treaties, often referred to as economic partnership agreements…
1. Multilateral trade agreements: Constraints on policy choices and remaining flexibilities
… A second set of obligations results from the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), which establishes multilateral minimum standards for granting and protecting the use of intellectual property (IP) (e.g. copyrights, patents and trademarks) in foreign markets. The agreement severely restricts reverse engineering and other forms of imitative innovation which previously were used by many countries, including the now developed ones, for their structural transformation processes. This has also adversely affected competitive conditions in all countries, as it has been found that patents “are increasingly used as strategic assets to influence the conditions of competition rather than as a defensive means to protect research and development outcomes” (Max Planck Institute for Innovation and Competition, 2014: 2). Moreover, the recent rapid rise in the number of patent filings and grants has led to an increase in costs that disproportionally benefits TNCs at the expense of smaller enterprises and individual inventors. There is some flexibility in the TRIPS Agreement through its mechanisms of compulsory licensing and parallel imports. In addition, varying patentability standards, such as the granting of narrow patents for incremental innovations that build on more fundamental discoveries, may be useful for adapting imported technologies to local conditions.
The Doha Declaration on the TRIPS Agreement and Public Health, which was adopted at the WTO Ministerial Meeting in 2001, clarified some of these flexibilities. Even though the Declaration focused on public health issues, many of its clauses have broader implications and concern I P in any field of technology.
Therefore, they may also be used to promote domestic production (Correa, 2014). However, there is little evidence to suggest that these flexibilities have been incorporated into national laws and regulations and put to effective use (Deere, 2009). This may be because of the proliferation of RTAs, many of which incorporate more stringent provisions than the TRIPS Agreement. But it could also be because it is not always clear which I PR regime is appropriate at a given stage of development. This lack of clarity makes it difficult for policymakers to determine how the flexibilities available could be used in industrial policy instruments to suit the requirements of national technological capabilities and social priorities.
In this context, it may be useful to identify three stages of industrial development: initiation, internalization and generation. At the early or initiation stage, mostly mature technologies are incorporated into domestic production through informal channels of technology transfer (such as the acquisition of machinery and equipment, reverse engineering and subcontracting) as well as through formal modes of transfer (such as turnkey agreements and foreign-direct investment (FDI)). At this stage, the IPR regime has little or no positive impact on local innovation, although it may affect access to goods by the local population.
Thus, the IPR regime should allow as much margin as possible for the absorption and diffusion of acquired technologies. This is the situation in LDCs, where technology efforts typically focus on mastery of operation and low-level design technology. Similarly, in other developing countries strong I PR protection most probably will not allow for more technology transfer or local innovation. At the internalization stage, some low-intensity research and development (R&D) industries emerge, and local producers are able to develop “minor” or “incremental” innovations, mostly from routine exploitation of existing technologies rather than from deliberate R&D efforts.
Strong IP protection may have little or no impact on innovation, while reducing the diffusion of foreign inputs and technologies and increasing their costs. A flexible system is ideal at this stage, but at the very least the design of I PR legislation should aim to allow reverse engineering and technology diffusion by making full use of the remaining flexibilities in the TRIPS Agreement and in various RTAs. Finally, at the generation stage, some industries may benefit from IP protection to consolidate their innovation strategies domestically or internationally, as is the case in some of the more advanced developing countries such as B razil and India. However, there will still be some tension between the interests of local innovators and the society at large, since increased levels of IP protection may reduce technology diffusion by restricting the access of other local producers, as well as access by local consumers to the products of innovation because of consequently higher prices….
2. Regional trade agreements: Additional constraints on policy choices
… RTAs generally include more stringent enforcement requirements or provide fewer exemptions (such as allowing compulsory licensing only for emergency situations). They also prohibit parallel imports, and extend obligations to cover additional IP issues (such as life forms, counterfeiting and piracy) or exclusive rights to test data (such as those relating to pharmaceuticals). Furthermore, they may contain more detailed and prescriptive IP provisions, and reduce the possibility for States to tailor their IP laws to their specific domestic environments or adapt them to changing circumstances.
