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Trade, Intellectual Property Rights, and the World Trade Organization Kamal Saggi
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Trade, Intellectual Property Rights, and the World Trade Organization Kamal Saggi
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Trade, Intellectual Property Rights, and the WorldTrade Organization
Kamal Saggi
Department of Economics
Vanderbilt University
Abstract
This chapter surveys the literature on international trade and the protection of
intellectual property rights (IPRs) in the global economy. The discussion is orga-
nized around the major questions in the eld. How does openness to trade a¤ect
national incentives for patent protection? What is the rationale for international
coordination over patent policies? Given that countries are highly asymmetric
with respect to their technological capabilities, what incentives do lagging coun-
tries have for enforcing IPRs and what are the consequences of requiring them to
do so? To what extent do empirical studies support the major arguments for and
against the Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS)? Finally, can the structure of TRIPS both in terms of the core obliga-
tions it imposes on WTO members and the exibilities that it provides them with
respect to exhaustion policies and the use of compulsory licensing be reconciled
with existing models of IPR protection in the global economy?
Keywords : intellectual property rights, TRIPS, WTO, innovation, trade, for-
eign direct investment, imitation, patent protection, welfare, exhaustion policies,
compulsory licensing.
JEL Codes : F12, F23, F43, F63, O31, O34, O38.
Abbreviated title : The global protection of intellectual property
E-mail: kamal.saggi@vanderbilt.edu; phone: (+1) 615-322-3237. For helpful comments and discus-
sions, I thank Kyle Bagwell, Kamran Bilir, Lee Branstetter, Rick Bond, Difei Geng, Bernard Hoekman,
Olena Ivus, Keith Maskus, Phil McCalman, Petra Moser, Walter Park, Bob Staiger, Alan Sykes, and
Mark Wu. All errors are my own.
1 1 Introduction
Of the eight rounds of multilateral trade negotiations sponsored by the General Agree-
ment on Tari¤s and Trade (GATT), the Uruguay Round (1986-1994) was the longest
and the most far-reaching.1It involved 125 countries and its coverage was unusually
broad in that it included negotiations over trade in services as well as over rules and
regulations pertaining to intellectual property rights (IPRs), areas that the multilateral
trading system had stayed clear of since GATT s inception in 1947. Negotiations over
IPRs were driven by a deep-rooted sense of dissatisfaction in the United States (US)
with the state of IPR protection in the global economy, especially with the widespread
imitation and piracy occurring in major developing countries despite the existence of ma-
jor international IPR treaties prohibiting such activities.2Supported by the European
Union (EU) and Japan, the US pushed hard to have IPRs included in the multilateral
negotiating agenda of the Uruguay Round, the eighth and nal GATT round. These
multilateral IPR negotiations eventually culminated in the form of the Agreement on
Trade Related Aspects of Intellectual Property Rights (TRIPS), perhaps the most con-
troversial multilateral trade agreement in existence today.
While TRIPS was preceded by several international IPR treaties, it was unique in
that, from its inception, it was part and parcel of the single undertaking nature of the
World Trade Organization (WTO).3As a result, TRIPS became the rst major interna-
1While the Doha round of trade negotiations has been ongoing for a longer time period than the
Uruguay round, it has so far failed to deliver a bargain acceptable to all sides.
2In the mid-to-late 1980s, several major policy reports issued by leading governmental organizations
in the US raised concerns about the substantial losses being incurred by key US industries due to
inadequate IPR protection in foreign countries. See, for example, USITC (1988), US-Chamber of
Commerce (1987), and the annual reports issued by the o¢ ce of the United States Trade Representative
(USTR). Even today, the USTR regularly places many countries on a watch listor a priority watch
listdue to their weak protection of IPRs (as perceived by the US), where those on the priority list can
be subject to retaliatory sanctions by the US. See Maskus (2000a) for an overview of the international
situation prior to TRIPS and Maskus (2012) for some constructive proposals targeted at improving the
e¢ ciency and equity of the global IPR system.
3Major international IPR treaties that pre-date TRIPS include the Paris Convention for the Pro-
2 tional IPR treaty to be fully backed by a potent dispute settlement mechanism. Broadly
speaking, TRIPS obligates all WTO member countries regardless of their economic
conditions and technological capabilities to adopt and enforce certain minimum stan-
dards of IPR protection. But since most developed countries already had relatively high
levels of IPR protection prior to TRIPS, the main practical e¤ect of TRIPS was to
force developing countries to align their IPR regulations with those of highly developed
countries such as the US and Japan.
Although TRIPS o¢ cially took e¤ect on 1 January 1995, it did not require the
mandated global adjustments in IPR regulations to occur immediately or equally quickly
in all countries: while developed countries were given only one year to make their laws
and practices TRIPS compliant, developing countries were given ve years (until 2000)
whereas the least-developed countries were granted until 2006, a deadline which was
further extended to 2013 in general, and to 2016 for pharmaceutical patents and trade
secrets in particular. Even so, within the developing world the Uruguay Round was
perceived as having created a development de citprimarily because it yielded TRIPS.
Policy-makers in major developing countries such as Brazil, India, and China were not
the only ones opposed to TRIPS , there was widespread skepticism among academicians
and other neutral observers regarding the expansion of the multilateral trading system
into the sensitive realm of intellectual property. Indeed, it is fair to say that a shadow
of skepticism hangs over TRIPS even today.
From the viewpoint of a typical developing country, TRIPS seemed like a bad deal
due to the expectation that strengthening local IPR protection would raise domestic
prices by increasing the market power of IPR holders without having a substantial
e¤ect on the pace of global innovation since its own market constituted a relatively
tection of Industrial Property (1883), the Berne Convention for the Protection of Literary and Artistic
Works (1886), the International Convention for the Protection of Performers, Producers of Phonograms
and Broadcasting Organizations (Rome 1961), and the Treaty on Intellectual Property in Respect of
Integrated Circuits (Washington, D.C., 1989).
3 insigni cant part of the world market. Furthermore, developing countries feared that,
by restricting local imitation and reverse-engineering, stronger IPR protection would
make it harder for them to technologically catch up with developed countries. There
are two counter responses to these legitimate concerns. First, the argument for TRIPS
rests on raising IPR protection throughout the developing world as opposed to doing so
in any one developing country in isolation. Thus, what matters is the collective market
size of all developing countries. In this regard, the facts presented in Table 1 are rather
illuminating: from 1990-2013, the collective share of lower and upper middle income
countries in global GDP increased from approximately 31% to 47% whereas that of
high income countries declined from 68% to approximately 52% (WDI, 2015).4It is
di¢ cult to believe that the level of IPR protection in half the world economy, which is
roughly what developing countries collectively account for today, can be irrelevant for
determining global incentives for innovation.5
[Table 1 here]
The second frequently o¤ered counter to the claim that TRIPS is not in the interest
of developing countries is that stronger IPR protection in such countries would increase
the incentive of rms from developed countries to invest in their markets and to transfer
technology to them, both via arms-length arrangements such as technology licensing
and through intra- rm transactions between multinational rms and their subsidiaries.6
4Similarly, the high income countriesshare of global exports of goods and services declined from
over 85% in 1990 to just over 70% in 2013 (WDI, 2015).
5Indeed, some of the di¢ culties underlying the seemingly endless Doha Round of trade negotiations
(launched in 2001) may re ect the fact that the Doha Round has coincided with a major shift of global
economic activity from developed countries to developing ones, perhaps the largest such shift ever to
have been witnessed over such a short period of time (10-15 years).
6Multinational rms dominate global R&D to such an extent that R&D spending of some of the
biggest multinationals in the world exceeds that of many developing countries, even large ones. For
example, in 2009 the Japanese multinational rm Toyota invested more in R&D than all of India, a
country of roughly 1.2 billion people; in a similar vein, over twenty multinational rms invested more
in R&D than Turkey (UNCTAD, 2010).
4
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