International Commercial Law - Research Paper Example

4001 Words Law 898 Intеrnаtiоnаl Соmmеrсiаl Law Аssеssmеnt 3 Rеsеаrсh Еssаy Submitted By: NAME: INSTITUTION: COURSE: INSTRUCTOR: DATE: © 2015 INTRODUCTION ‘An overly protective [legal regime] will limit the social gains from invention by reducing incentives to disseminate its fruits while an overly weak system could reduce innovation by failing to provide an adequate return on investment’. In view of this statement, the present research essay intends to evaluate its accuracy and importance in international commercial transactions. To do this, the present author attempts to answer conclusively five pertinent questions dealing with certain issues such as foreign direct investment and trade policies, intellectual property, TRIPS and TRIMS and the role of the Appellate Body in the China issue among other concerns. The author finally presents a short summary of the key issues arising from the discussion of the questions. 1. (i) The Legal and Risk Factors that need to be taken into account when deciding to invest in foreign countries When investing in a foreign country, there are a number of legal and risk factors that need to be considered. According to the explanation forwarded by1, “foreign direct investment (FDI) occurs when an investor based in one country – the home country – acquires an asset in another country – the host country – with the intent of managing that asset”. Legally speaking, it is very inconveniencing for an investor to produce in one location and serve foreign markets through exports. To gain a competitive edge, majority of ‘service industries’ require the physical presence of the service provider in the various foreign markets as underlined by2. When considered closely, it is noted that FDI is the engine that drives ‘most cross-border trade dealing in services’. This is as opposed to trade involving ‘manufactured goods’ where FDI often trails behind the ‘trade’ instead. As observed by3, these conditions were “explicitly recognized in the Uruguay Round when the participants agreed to include rules on ‘commercial presence’ in the General Agreement on Trade in Services”. According to explanations proffered by4, there are a number of legal implications that necessitate investors to produce in more than one country. For investors with interests in foreign countries, it is mandatory for them to locate different stages of production in different locations for obvious reasons. For instance, 5 accepts that the availability of certain factors of production in one country as opposed to their scarcity in another country may be very critical in this decision. For this reason therefore, it may be economical for a firm to locate a certain labour-intensive stage of its production chain in one country with low labour costs, while at the same time locating yet another of its production stages requiring substantial amounts of ‘human capital’ in another location endowed with abundant skilled labour6. In this way, an investor is bound to achieve a number of objectives such as “minimising production costs, establishing production sites in a number of nations, and using trade as a means of supplying demand for particular products – including inputs – in particular markets” as espoused by7. Apart from adopting the vertical FDI demonstrated in the foregoing sections, an investor may decide to have the horizontal FDI where similar types of production activities take place in different countries for a number of legal reasons. From the outset, an investor may be driven to have similar types of production activities in different countries due to the existence of trade barriers or because of the motivation to have a competitive edge over their competitors. Additionally, 8argues that horizontal FDI may be motivated by the notable reductions in transport costs if the firms were to move bulkier products closer to consumers or due to the fact that local production makes it easier to adjust to local product standards among other incentives. In addition to the preceding legal factors, there are a myriad of risk factors that need also to be considered when investing in a foreign country. 9 Agree that the most daunting risk factor resides in the management of assets located in foreign countries because of the enormous extra costs involved. The investor will first of all need to collect relevant information concerning local laws and regulations, manage local labour relations which will entail increased commuting to reach and manage the diverse multi-cultures involved. Moreover, investing in foreign countries will entail the use of production technologies, which becomes complicated when their full exploitation demands the presence of other complementary technologies10, or the hiring of personnel with scarce special knowhow. ii) The policy rationales for regulating investment Certain policies have been formulated for the mere purpose of regulating investment particularly in foreign countries. One such policy rationale resides in the current removal and/or relaxation of regulatory barriers to investing in foreign countries. In this relation, 11report that the previous lengthy screening procedures before authorisation was done have been greatly reduced in scope. Similarly, the former sectoral restrictions on investing in foreign countries by local companies have been significantly liberalized. Still in line with these policy rationales, there has been a remarkable shift away from the imposition of performance requirements and towards a liberalisation of regulations concerning the transfer of funds. Further, 12indicates that the regulation of investment has resulted in an increased ‘acceptable standards’ of non-discriminatory treatment of foreign investors as opposed to what was the case in the past. Finally, international arbitration mechanisms for the settlement of disputes between foreign investors and host states have gained widespread acceptance with the advent of investment regulation. 2. i) Why regulate invention (intellectual property) and investment As illustrated by 13 in their report on WIPO, invention is quite important as it offers tremendous potential not only to build businesses, generate revenue and create jobs, but also to address critical global questions and challenges as it largely helps to improve living standards. Based on this revelation, it becomes very imperative to regulate invention because it is poised to bring a lot of benefits among them being that of imparting stakeholders with 21st century skills, strengthening and broadening fundamental research, building and maintaining physical infrastructure and developing an advanced information technology eco-system as illustrated by14. Similarly, 15argues that a number of strategies can be used to achieve this goal including “tax credits for research and experimentation, support and tax incentives for entrepreneurs, streamlining regulatory review processes, innovation incentives such as funding of prizes and instituting a stable, predicable, and transparent system for the protection of intellectual property rights”. These strategies and other policies are designed and intended to mobilize inventors, whether working in government laboratories, office parks or home garages. Considering the regulation of investment on the other hand, it has been established that investors in foreign countries involved with FDI are overly attracted and continue to participate unabated. This is probably due to the fact that a number of restrictive and draconian rules and regulations are reduced, if not completely eliminated. In this instance, regulation of both intellectual property and investment will force industry players to engage in best practices that include “promotion of patent quality and licensing to enable IP systems to optimize innovation as well as investment”16. ii) The extent to which this regulation may (or may not) affect companies’ ability to invest or invent It is to a very great extent that regulating intellectual property will affect companies’ ability to invest as demonstrated in the extant literature. 17for instance underscores the role played by this regulation in informing China’s decision to invent as well as invest widely in foreign countries. Following this, it is reported that since China joined the WTO and the associated TRIPS Agreement in 2001, the nation is reported to have concluded a long-protracted urge to adopt mare relaxed reforms in the area of investment and invention18. In spite of the latest accord, the country is said to be still being ravaged by constant forgery, scam and innumerable barriers to investment. Even though the country has tried to rise above these challenges, some areas and business concerns are still struggling to survive. But with the embracing of this regulation, it is my informed view that these identified problems will be mitigated. 3. i). Analysing the way in which TRIPS and TRIMS attempt to ‘discipline’ relevant laws and policies at the domestic level. Trade-Related Intellectual Property Rights (TRIPs) is the agreement that attempts to protect a myriad of business concerns in the world from retrogressive and oppressive rules and regulations that are set to govern and control international dealings in goods and services19. Even though TRIPs treaty avoids addressing foreign investment directly, its concerns with the welfare of intellectual property, operations of the domestic investment as well as dispute settlement at the international arena causes a lot of undue interference as noted by20. In line with the TRIPs treaty, each member of the World Trade Organisation is mandated to protect the intellectual property of all nationals of other WTO member states. Covered in this pact includes all the key areas of IPRs including “exclusive rights, trade names, patents, layout-designs of integrated circuits and undisclosed information or trade secrets”21. The TRIPs pact achieves this duty by first of all defining the basic requirements that must be satisfied for the protection to occur. Secondly, the pact must also identify the contents of what is being protected for each area of intellectual property enumerated above.22. TRIMs on the other hand refer to the Agreement that addresses certain measures of trade-related investment and purposes to encourage setting up business interests across international borders in addition to facilitating the robust growth as well as gradual freeing of global transactions23. TRIMs does this by first of all applying the measures that touch on the investments, both domestically and abroad, and which are within the realm of the General Agreements on Trade and Tariffs. Even though it is clear that majority of the measures are formulated with the aim of addressing Foreign Direct Investment, TRIMs attempts to strike a balance by bringing the domestic concerns on board. ii). The Role they play in liberalising international trade Both TRIPs and TRIMs play a major role in liberalizing international trade in that they provide some multilateral and bilateral agreements between states that are able to impose additional IP enforcement obligations on the said states for commercial reasons. According to observations made by24, it is noted that in an effort to enforce IPRs, the concerned states must seek the relevant knowledge to create a uniform playing ground especially for the EU member states. In reality therefore, the participating states must ensure that the measures they recommend are acceptable and amicable to all in enforcing IPRs. Secondly, it is imperative that the states ensure that the measures they recommend are very simplistic in nature as well as being “a size fits all” in terms of price, gender, race, religious affiliation and design. The measures should not have a long ‘lag phase’ in implementation. Finally, it is also suggested that the measures should be workable and not abstract so that both small and large, developing nations and developed nations can comfortably adopt them, without causing any undue barriers to legal business transactions while protecting and freeing global trade. 4. i). Critical evaluation of the role of the Appellate Body in China-measures Affecting the Protection and Enforcement of Intellectual Property Rights Dispute DS362 under the WTO dispute settlement system. The Appellate body is known to arbitrate any cases that go beyond the normal dispute resolution process. When involved with the protection and enforcement of intellectual property rights, this body becomes even more involving. This argument is particularly confirmed to be true when dispute resolution in most nations is looked vis-à-vis the WTO system. The particular case of China best explains this scenario because the country is said to have been in concerted efforts to apply the World Trade Organisation’s dispute settlement system. The most noticeable aspect of this attempt is that the Chinese nation purposes to create equilibrium amid the IPRs and dispute resolution25. The foregoing is represented in provisions that contain lowered levies implemented in stages on items falling under the ‘Information Technology Agreement’ (ITA) as well as the total removal of “import quotas, licenses and other border requirements”26. The same provisions have the obligation of progressing transacting rights for both domestic and overseas ventures and persons alike. This is of course after a rigorous verification and registration procedure. To increase the scope of WTO mandate in international business transactions, the protection of agricultural products was added to the IPRs. China took up this inclusion wholeheartedly by streamlining her domestic standards alongside the international standards. In this attempt, it is reported that the Asian nation abolished a number of ‘local standards’ that functioned as trade barriers in the name of ‘protectionism’. In order to ‘fit-in’ well with the TRIPs agreement as informed by WTO, China also carried out a widespread review of her laws and regulations in the area of IPRs. Apart from China’s full commitment in protecting and enforcing IPRs, the Asian nation also called upon itself to resolve disputes involving intellectual property rights amicably in line with provisions by the WTO dispute settlement system. In this instance, China became a strong member of WTO and has ever since participated in a myriad dispute resolution cases being either “a complainant, a respondent, or a third party”27. The majority of disputes have in one way or another been settled out of court due to the strong belief by China that the WTO dispute settlement system was a ‘politico-diplomatic’ gimmick for public relations. According to the report under consideration, it is indicated that mutual settlement of disputes out of court was short-lived because a number of countries including the USA soon after arraigned China in court to answer to a number of draconian protectionist policies that turned out to be barriers to business transactions internationally28. The highly hyped “China’s automotive industrial policy” is a case in point where the plaintiff (the USA and others) held that the provisions of the policy favoured “domestic production of auto parts” while at the same time ‘strangled’ foreign investment29. On the basis of the report mentioned in the foregoing, it is arguably in order to state that the provisions therein were against what TRIMs pact stood for. This claim was proffered by the USA, arguing that the China’s automotive industrial policy emphasized too much on ‘a local-content measure’ that contravened the TRIMs pact. After numerous deliberations with experts and authorities, China withdrew all contentious ‘controls and duties’ as demonstrated in the “coke exports and anti-dumping” respectively. Considering all the cases that have been mentioned in the foregoing, it is illustrative of them that those other countries that transact international business with the Asian country have opted to apply the WTO dispute settlement system more often than ever. Many of these transacting partners of China especially the USA have forced the nation to rethink its policies on both domestic and global investment. Because of these regular and the prospects of protracted court libel, China has opted to resolve disputes emanating from the “protection and enforcement of intellectual property rights” amicably rather than battling it out in court30. This decision has been found to go down very well with the Asian nation, which has in effect been able to circumvent breaching of WTO mandate31. ii). The incentives provided by this decision for Member States to invoke the system Nevertheless, China’s record in the WTO has not been without controversy – not surprising given such a huge and complicated accession. Implementation of WTO commitments has been mixed. A raft of sensitive cases against China, mostly prosecuted by the USA, is working its way through dispute settlement. China has stayed conspicuously on the sidelines of the Doha Round. At the WTO mini-ministerial meeting in July 2008, it was partly responsible for blocking an overall deal32. Nevertheless, the following decision as it has been presented in the foregoing has been very instrumental in influencing decisions for member states to invoke the WTO dispute settlement system. The first incentive in this decision is that member states feel safe and protected against uncanny industry players and as such carry out their mandate unperturbed. A case in point is when China’s enforcement of Intellectual Property Rights, which is still very problematic, but show marked improvement in the attraction of foreign investors inside and outside the country. This fact is more so emphasised by complaints testified by US and EU. But as observed by33, it is unrealistic to expect a quick, across-the-board fix in such a continent-wide, fragmented economy like that of China. 5. i). The contrasting concerns between developed and developing nations that dominate TRIPS discourse As discovered throughout extant literature accessed for this research essay, developed and developing nations have contrasting concerns as regards their exploitation of the TRIPs discourse. It is not clear whether there is a distinct relationship between innovation and IPRs as highlighted by34. Some proponents hold that the protection of IP could bring benefits to developing countries by creating an incentive structure necessary for knowledge creation and diffusion, and encourage technology transfer and private investment, while others claim that the domestic companies in developed countries were deterred by the high patent litigation costs and therefore preferred to remain out of the patent system35. All in all, it emerges that the thousands of patents that have been granted, for example in the field of pharmaceuticals in many developed and developing countries have reflected real innovation. ii). Whether TRIPS strikes a fair balance between the two blocks According to accessed information, it has emerged that TRIPs strikes a fair balance between the developed and developing nations in addressing issues concerning intellectual property rights and innovation as well as FDI. Take for example the issue of technological progress as illustrated by36, “developed countries had achieved this milestone breakthrough via government interventions like compulsory licensing, cross-licensing, government funding and those made through competition policy, but not through the IP system alone that only secured the investment of inventors”. Similarly, it is noted that developing countries would have to use the flexibilities provided by the TRIPS Agreement if they wanted their societies to benefit from innovations just like their counterparts – the developed countries. CONCLUSIONS This research essay has established that an overly protective legal system will limit the social gains from invention by reducing incentives to disseminate its fruits while an overly weak system could reduce innovation by failing to provide an adequate return on investment37. This is true because there will exist barriers to trade on one hand and de-motivators to invest in foreign countries on the other. Similarly, there exist costs and legal factors that work against FDI. With TRIPs and TRIMs, there is a marked liberalisation of international trade and a fair balance between the developed and developing nations38. This resides in the regulation of invention and investment, making good business sense. Finally, the decision of the WTO dispute settlement system in the China case is a big encouragement to member states to adopt it. BIBLIOGRAPHY Alam, Shawkat, Mukhophadhaya, Pundarik and Randle, David, ‘The WTO Agreement on Trade in Services, Water Services, and Human Rights from the Perspective of Developing Countries’ (2011) 58(1) Netherlands International Law Review, 43-75. 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