Trade Openness and the Elimination of Trade Barriers - Research Paper Example

IPR Name Course Lecture Date In the past two centuries the world has experienced unprecedented economic openness and integration. As the drivers of Globalization, developed countries propose increased trade openness as a precondition for development to occur on a global scale. Indeed, Globalization has seen developing countries become more involved in world trade more than ever before. The pace of growth in developing economies has also accelerated significantly in the era of globalization. Trade between developed and developing countries is the fastest growing category of world trade1. Trade openness and the elimination of trade barriers is a matter of bitter debate between the developing and the developed world. Developed countries lead the push for greater liberalization of markets, while developed countries fear exploitation by their more advanced trading partners. However, Developed countries have continued to push for the protection of Intellectual property, which is limitation to trade openness. Empirical evidence shows that a more open trade environment leads to accelerated development. According to some commentators, developing countries are stifling development in poor countries by applying harsh Intellectual property regimes. Nevertheless, access to the knowledge contained in IP is key to growth in developing countries2. For any economy to develop it must have access to technology that is in most cases protected by IPRs. Commentators who support greater protection of IP argue that people develop technology so they can exploit rent from its usage3. Removing this protection would be tantamount to removing the incentive to innovate more technology. On the downside, economies that do not innovate their own technology will lag behind the rest of the world in development. The high rents taken from IPR lead to an increase in consumer prices and eliminate the benefits of trade openness to developing economies. IPRS leads to monopoly and Dampens competition Intellectual property rights (IPR) are recognized as exclusive rights to an inventor to recover the cost he incurred in inventing and researching any new technology. For period of time an IPR is exclusive, access to this technology is limited in the market. Fewer consumers access the product than it would be normally the case with a non-patented product. Through registration of IPR, competitors that can manufacture and offer the patented product at a lower price are prevented from doing so. This granting of exclusive patent rights is the cost of innovation and invention4. This cost is justified by the fact that patents are supposed to bring in long-term benefits. However, each type of IP requires a varying degree of protection. The level of protection is dependent on the market structure, demand for product and R&D costs5. Therefore, IPR regimes must aim to strike a balance between protecting the rights of the individual IPR holder and public interest including national development6. To encourage national development the granting of IP’s must be done for the right reason, and to the correct parties, for an appropriate duration of time7. For the sake of development IP regimes must be flexible and include some exemptions and exclusions. In a regime where IP’s are tightly protected, IP holders stand to gain immoral profits that are far beyond the costs of developing the new technology. Today, the globalized economy is replete with cases where IP holders make unjustified profits, as they monopolize the production of an in-demand commodity. In the views Piotr Stryszowski favouring IP rights holders over public interests means the public is at the mercy of IP holder when it comes to access to such essential goods and services like food, medicine and information8. Furthermore, industrial development is negatively affected while IP holders establish monopolies for the supply of some goods. In some circumstances IP owners hold a whole sector or economy captive. The TRIPs agreement , other Bilateral and multilateral agreements represent the globalized approach to intellectual property rights management. In the views of Martin Khor the Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS’) regime has tilted the balance towards IP holders910. Before the TRIPS agreement, National government had a higher degree of flexibility in their IP policy. With TRIPS nations could no longer exempt some sectors from patentability. Formerly, some nations were able to shield their food, chemical and medical sectors from stringent observance of IPRs. With TRIPS every signatory of the treaty has to observe minimum standards meaning that many IPR are now enforceable in countries did not formerly recognize them11. Unfortunately, most IP holders are residents in developing countries while Technology is most needed in developing economies to spur growth. The US patent System heavily favors the owners of IP over other parties. Unfortunately, the Global IP regime is founded on the American system which has been criticized for a number of critical flaws. In the 1980’s the US formed the special appeal courts for patents apart from the federal court system12. Further changes in the 1990’s also saw reduction of the cost of filing and processing a patent, presently an individual only needs to only part with the patent application fee. The effect of the patent reform meant that in US jurisdictions it was easy to apply and get a patent, enforce IPR rights against other parties resulting in large awards. Parties who had been accused of violating IPR were in harder position to challenge the validity of the patents that were dragging them to court13. One of the most unfortunate effects of stringent patent laws is that patents can be obtained for trivial inventions, or for things that are trivially obvious. For example, a US company holds a patent for a particular way of making a sandwich14. Secondly, stringent patent laws enable corporations to get huge awards over trivial IPR infringement issues. Thirdly, many holders of IPR use them as a way of harassing rivals who are engaged in similar businesses. Finally, some patent approvals are for knowledge that we are already familiar with. Where patents are approved for existing technology, other people who use the technology in their daily life are blocked from using it. Effects of IPR system on growth in developing nations Worryingly, Globalization means the US IPR regime has spread to the rest of the globe. The spread of stringent IPR regimes is aided by international trade treaties such as TRIPS. Arguably, TRIPS was pushed through by representatives of developed countries, who own the majority of IP rights15. Developing countries were initially apprehensive of a treaty that may limit their access to technology that may enable their economies grow at accelerated rates. The greatest proponent for the harmonization of the Intellectual property rights protection is the World Intellectual Property Organization (WIPO). Just like TRIPS, WIPO calls for greater protection of IPRs in the globalized economy16. Analysts are worried that the acceptance of WIPO’s stand by developing countries will lead to dissemination of a dysfunctional IPR management regime that is skewed in favor of IP holders. The position of those who do not posses any development –oriented technology is further weakened by Bilateral and Multilateral trade agreements between developed and developing countries17. To gain trade concessions, developing countries are required to implement more IP management regimes that afford patent holders stronger protection. The current IP regime is further widening the gap between developing and developed countries. According to Martin Khor more than three quarters of patents in third world countries are the property of foreigners18. Most of these foreigners are residents in developed countries. Whatever commercial benefit is gained by use of the IP ends up in foreign hands. This unfortunately leads to capital flight from poor countries where it is needed most. Thus, patents are one of the biggest hurdles to industrialization in developing countries. In the views of Chang most countries which can be referred to as middle-level countries achieved industrialization status before the advance of the current IP regime19. Chang points at South Korea where industrialization was founded on reverse engineered technology. In the present globalized IP management regime this reverse engineering is prevented by a stringent IP regime. Developed countries are now worried that their industries may be dominated by patent-holding foreign firms. In most cases, local industries in developing countries are unable to handle the competition from technically superior foreign rivals. Patenting this technology means local industries have no opportunity to upgrade their technology to equal standards as that of foreign patents-holders. A uniform approach to IP management is more detrimental to developing countries as they do not have instruments to regulate anti-competitive practices20. On the contrast, developing countries have a robust anti - trust and competition law which effectively deal with abuses by IP holders. Furthermore, developing countries are expected to shoulder a heavier rent burden once they harmonize their IP management with the rest of the world. According to Finger, the developed world will be required to pay US$60 billion as IPR loyalties21. Implementation of the TRIPS will see the developed world earn $41 billion in patent rents with the US taking the hugest share of $19 million22. On the other hand, the developing world will be required to pay more to comply with TRIPS obligations that were forced down their throats. The TRIPS IP regime has been heavily criticized by economists who support the liberalization of global markets. Rein accuses the system of exhorting rents from poor countries and consumers for the use of knowledge, while the benefits they get in return are insignificant23. Rein says that the WTO has now become a rent-collecting agency for rich nations. He calls for the removal of the TRIPS agreement from the WTO agreement, arguing it has no relation to trade. Rein’s view is shared by Srinivasan who argues that TRIPS needs to be urgently renegotiated. In the views of Srinivasan, there is little empirical evidence to support the idea that higher IP standards spur innovation24. He argues more stringent protection of IP only serves to increase the cost of technology to the masses. Srinivisa points out the role of IP protection in strengthening the monopoly position of producers from developed countries. In the views of Srivinisan, IP protection is thinly veiled trade protectionism. Unfortunately, TRIPS allows rich IP holder to extort poor developing countries, but does not provide for a system where the losers can be compensated. Rein notes that developed countries agreed to pay an additional $60 billion without getting any benefit despite paying this large amount25. While developing countries benefit immediately from the harmonization of the IP regime, benefits to developing countries are in the future and remain uncertain. It is doubtful that the acceleration of innovation in the developing world will occur as justified by charging rents on IP use in developing countries. Srivinsan sums up the situation as follows; benefits to developing countries,” if any, are uncertain and in the future, but the costs to developing countries are concrete and at the present”26. The reduced welfare effect of implementing the TRIPs agreement is discussed in detail by Arvind Panagariya 27. Through a theoretical model of the Global IP protection regime Panagariya is able to illustrate how TRIPS and WIPO have become the new tools of trade exploitation by developed countries. More Patents, more monopolies A harmonized global patent management system will give holders a weapon to harass their competitors. As the trend of relaxing requirements for patent awards picks up in developing countries, the Anti-competitive effect of IP laws also keeps increasing. By 2002 there were over 177,000 patents up from 62,000 in 198328. The Jaffe and Lerner point out that most of the patents awarded during this period are of dubious merit and do not put public interest into consideration. With the new harmonized patent regime, it is easier for patent holders to sue and win cases against rivals for patent infringement. Whether the patent holder files suit in a developed or developing country chances of succeeding have increased manifold. Indeed, there have been a recent explosion of patent related cases in courtrooms around the world. In most cases, companies prefer to pay for patent licenses instead of engaging in costly court battles with the patent holder. In effect, patent rent collection has become a line of business for some big companies. For example, Texas Instruments is alleged to collect over $1 billion in patent licensing and court settlements every year29. Clearly, Texas instruments is a corporation that is using the harmonized patents protection system to harass rivals across the globe. In some case, revenues collected from patent enforcement activities exceed revenue from some corporation’s core business activities. In the US where most patent protection enforcement occurs, patent holders have been known to sue for “trivial’ patent infringements. In a recent case in the US, J. M Smucker threatened to sue Albie food for selling crustless peanut butter and jelly sandwich which it allegedly held a patent for. Albie argued that J.M Smucker’s patent was dubious as the sandwiches they had patented were popular in Michigan in the 19th century. On re-examination, J.M Smucker’s patent was revoked although the parties had reached an out of court settlement. In the view of Jaffe and Lerner, the US and TRIPS patent management system need to be urgently reformed30. They argue that the flow of the patent application must be stemmed; examination of patent applications should also be more rigorous, while patent holders should be discouraged from using patent litigation as a revenue collection activity. On the contrast, the Australian IP law requires more rigorous analysis of a patent before it is granted. For a patent to be granted in Australia a Physicality requirement must be fulfilled. For a patent to be recognized in Australia it must be in the form of a machine, a device or a new method of transforming matter into a new physical state31. In Grant v Commissioner of Patents [2006] FCAFC 120, the Full Federal Court held that “an invention must result in the production or alteration of a physical object or produce a physically observable effect”32. The court rejected the opinion that a business method for protecting the assets of a person from the claims of creditors should be considered an invention. At the Full court, a method that does not result in some physical manifestation was ruled as merely “intellectual information” which is not patentable33. How the skewed Patent protection system is affecting trade, development and welfare The IP protection system has been accused of pushing the cost of some commodities beyond the reach of the world’s poorest communities. A comparison of patented drugs and generic ones reveals the price distorting effect of patents. There is a huge price discrepancy between generic and patented HIV/AIDS drugs. For example, it costs US$3, 271 to treat one patient per year with patented 3TC, while treatment using its generic version cost US$190 per patient per year34. On the other hand, Virumune (nevirapine) costs $3,508 in the US, while its Generic version is only $34035. These prices are clear indicators that patent holder abuse the monopolies they are granted for the exclusive manufacture of such essential commodities as HIIV/AIDS drugs. Indeed, the HIV/AIDS scenario is only reveals a fraction of the drug industry that is controlled by major pharmaceutical companies who hold IP over the best treatment options. Furthermore, the profiteering motives of pharmaceutical companies are found in their pricing policies. These companies “charge what the market can bear” for their patented drugs, meaning consumers pay the highest possible prices for these drugs. Pharmaceutical giants have been accused of charging more for drugs in poor countries where they have secured monopolies. Allowing Patents on Life forms One weakness of the TRIPS IP management regime is that it allows for the patenting of plant and animal life. Although, the principles of patent law exempt patenting of naturally occurring substances, Article 27.3 of the TRIPS agreement allows for the patenting of non-biological and microbiological processes36. At the same time, the article makes it optional for signatories to allow patenting of plants and animal, and the processes that make animals and plants. The effect of these provisions, has led the organization and individual to engage in a “gene race” to obtain patents on naturally occurring genes37. This scenario further disadvantages developing countries as patent monopolies for naturally occurring substances are granted to institutions in developing countries. Patents on Agricultural resources The granting of patents on plants and seeds is one of the most unfortunate effects of the IP system in the food security. Organizations in developing countries are obtaining patents on seeds and later selling them to farmers at exorbitant prices38. In effect, the rights for world’s staple food are now increasingly in the hands of institution in the developed world. Conclusion The effect of Intellectual property rights on globalization is profound. As seen in this analysis the Global IP rights management regime is heavily skewed in favor of IP rights holders in developed countries. TRIPS the international agreement for the management of Intellectual property rights is designed by developing countries and forced upon developed countries. The insistence by developed countries on stringent protection of IP rights, goes against the principle of trade openness they propose. As seen in the discussion, the IP regime only provides a method for rich countries to exhort rents for usage of technology that they might not even validly own. Furthermore, IP limits the public access to such essential products like medicine and food. IP can thus be concluded to be a force that reverses the trade openness gains brought about by globalization. The Intellectual property rights regime is taking the global economy back to the dark day of trade monopolies. Due to the stringent application of IP laws, the public is once more at the mercy of monopolistic IP holders. One example of IP owners abusing their monopoly privileges is the exploitive prices consumers pay for patented drugs. Thus, patent owners cannot be left to determine how much they should charge to recover the cost of coming up with a new technology. Bibliography A. Articles/Books/ Reports Chang, Ha-Joon ‘Intellectual Property Rights and Economic Development: historical lessons and emerging issues’ (2001) 2 (2) Journal of Human Development 287, 309. Fowler, Cary, Melinda Smale, and Samy Gaiji. "Unequal exchange? Recent transfers of agricultural resources and their implications for developing countries." Development Policy Review 19, no. 2 (2001): 181-204. Frontieres, Medicins Sans. "Prescriptions for Action." MSF Briefing for the European Parliament (2001). Harrison, Joshua, ‘On the convergence of US and Australian patent law’ (2001) Melb. J. Int'l L. 2 351. Jaffe, Adam B., and Josh Lerner, ‘Innovation and its Discontents’ (2006) 1 Capitalism and Society 3 Khor, Kok Peng. Intellectual property, biodiversity, and sustainable development: resolving the difficult issues (Penang, Zed Books, 2002). Khor, Martin. Intellectual property, competition and development. Third world network (TWN), 2005. Maskus, Keith Eugene. Intellectual property rights in the global economy. Peterson Institute, 2000. McEniery, Ben. "Physicality in Australian Patent Law." Deakin L. Rev. 16 (2011): 461. Oh, Cecilia, ‘IPRs and biological resources: implications for developing countries’ (2003) 8 Journal of Intellectual Property Rights 400-413. Panagariya, Arvind. "TRIPS and the WTO: an uneasy marriage’ (World Trade Organization, 1999) Rein, J, ‘ International Governance Through Trade Agreements: Patent Protection for Essential Medicines’, (2000) 21 Nw. J. Int'l L. & Bus. 379. Shand, Hope. "New enclosures: why civil society and governments need to look beyond life patenting." CR: The New Centennial Review 3, no. 2 (2003): 187-204. Singh, Kavaljit. "Patents vs patients: AIDS, TNCs and drug price wars’ (2001) Third World Resurgence 11-15. Srinivasan, T. N. “The TRIPS Agreement: A Comment Inspired by Frederick Abbott’s Presentation." (Yale University, 2000). Stryszowski, Piotr K. "Intellectual property rights, globalization and growth (2006) 4 Global Economy Journal 6 B. Treaties Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS’ Opened for signature 15 April 1994, 1869 UNTS 299, 33 ILM 81 (entered into force 1 January 1995) Read More