Introduction
In 1986 the world did not pay a great attention to the elementary formation of global intellectual property rights (IPRs) movements in the US. In March, concerted efforts on the protection of IPRs established the Intellectual Property Committee (IPC) with twelve multinational corporations in the United States. However, a decade later the world had to look back on the situation of march in 1986 and re-illuminate the power of the handful group of IPC when Trade-Related Aspects of Intellectual Property Rights (TRIPs) have been materialized as the new global regime on IPRs within World Trade Organization (WTO) (Sell, S. K., 2002, P.?).
In this paper, the impact of these newly introduced TRIPs will be examined. The first part of the paper will provide a historical perspective on the establishment of the WTO, and give a short description of TRIPs agreements. Furthermore, the impact of TRIPs will be explored and an example will be given which demonstrates that TRIPs have generated positive consequences to economic dynamics around the world. Afterwards, counter arguments will exhibit that no empirical evidence has been found to support the idea of TRIPs in favor of developing countries. One rather has to notice that it only brought harmful effects on economic development. The conclusion will summarize major aspects of this paper, including implication of how to overcome the problems.
The WTO and TRIPs
World Trade Organization (WTO), (fr. Organisation mondiale du commerce (OMC) - international organization established in 1995 to liberalize international trade as well as regulation of trade and political relations between member states. The WTO is the successor of the General Agreement on Tariffs and Trade (GATT), concluded in 1947, which for nearly 50 years has actually been serving as an international organization ( Winham G. R. , 2005).
The WTO is responsible for developing and implementing new trade agreements, and monitors compliance with members of all the agreements signed by most countries and ratified by their parliaments. The WTO conducts its activities on the basis of decisions taken in the years 1986-1994 in the Uruguay Round and earlier GATT agreements. Discussions of problems and making decisions on global problems and prospects for further liberalization of world trade held in the framework of multilateral trade negotiations (rounds). To date 8 rounds of such talks have taken place including Uruguay Round, and the ninth - Doha Round - that has started in 2001. The WTO rules regulate only the trade and economic issues. Economic foundation of the requirements of trade liberalization is the economic theory of comparative advantage, developed at the beginning of the 18th century by David Ricardo. The stated purpose of the WTO is the dissemination of ideas and principles of free trade and stimulation of economic growth. Many believe that free trade does not make life of the majority more prosperous, but only increase the wealth of already rich (both countries and individuals). WTO Agreements were also accused of unfair priority of the transnational corporations in industrial countries in contrary to their less competitive counterparts from the developing world. (Winham G. R. (2005)).
The IPRs protection within the WTO has been dramatically introduced. Before this, protection of intellectual property rights has a long international history. Among multilateral international relations were completely different approaches to solving the issues covering the protection of Intellectual Property Rights. All previous international discussions proved to be not very successful. Negotiations on the GATT during the Uruguay round offered new opportunities for conducting such discussions. During these negotiations, the developing and developed countries have finally come close to solve this issue and treated an agreement on aspects of intellectual property rights related to trade (the so-called "TRIPS" agreement). This agreement represents a major step forward to the international system of intellectual property rights protection and obviously will be its base in the future. One of the greatest advantages of this agreement is that it provides a much clear dispute settlement mechanism, which offer us possibility of better control over our partners' complaints as well as measures to ensure open access to their markets where we all can also take part in. (Amorim C. (2008), UNCTAD (2002)).
Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement is a universal treaty applied to all technologies in products and process, which includes copyright, trademarks, patents and trade secrets, etc. For the first time in a multilateral international practice in the agreement contains obligations of States-participants to respect international standards for the protection of property rights from all sorts of violations, as well as rules for resolving disputes. The main objective of TRIPS is not to regulate the international relations in the sphere of intellectual property, but to ensure their implementation. TRIPS came into effect on the 1 January 1995, and since then the state which is willing to join the WTO is obliged to apply all its provisions. (UNCTAD (2002)).
Critics say that small countries have very little influence on the WTO, and, despite the stated aim of helping developing countries, developed countries are concentrated primarily on their commercial interests. Also, they claim that the issues of health, safety and environmental protection are constantly ignored in favour of additional benefits for businesses. (Sell S. K., (2002)).
Discussion on the Impacts of TRIPs
WTO Members deal in their Interest, representing their producers. In this regard, it would be advisable to look first at the prospect of the TRIPs. The developed members prove two main objectives of the WTO negotiations relative the developing members. Firstly, to expand their access to the markets of the developing countries. The second is to prevent the developing member countries in the implementation of operations that may be unfavorable to developed countries. (Abbott F. M. (2005)).
In countries, which import technology, the rent is paid to the producer, i.e. it leaves this country. It means that IPRs is not only a mechanism of income redistribution, but it may also carry out large transfer between countries. In this regard, imports can decrease welfare of the country, as foreign producers are profiting at the expense of domestic users (Hoekman B. M., Kostecki M.M., (2001)).
According to Maskus and Penubarti (1995, 1997) national IPR can have a positive effect on manufacture import. That means that stronger protection leads to more trade. However, several studies have also shown that the amount of money transferred from South to North is increasing. (Maskus K., Penubarti M. (1995, 1997)). Researching of McCalman (1999) tries to estimate the value of technology transfer (represented by patents) if TRIPs protection is implemented and concludes that industrial countries such as the US or the EU are the main winners of this process. For instance, the US gained return on IPRs that exceeds US5$ billion. Despite this, many high-income countries experienced major losses as well as developing countries such as India, Mexico and Brazil. (McCalman P. (1998)).
The rise of prices that can result from market power functioning is affected by several variables. First, the market structure is significantly different before and after the application of IPRs. Then, it is possible to say that such factors as number of firms that compete with rights holders, that competition's nature, market entry and exit simplicity, the differentiation between the quality of products, openness to trade, and the mechanism of wholesale and retail distribution play very important role in the impact of IPRs determining. If the market before the introduction of IPRs was comparatively competitive, then the higher is the probability that prices would be affected badly by the IPRs afterwards. Secondly, if demand elasticity is low, market power will be both influenced and will win in importance after the implementation of the IPRs. Thirdly, the outcomes will be determined by the possibility to regulate competition and to make interventions. (Hoekman B. M., Kostecki M.M., (2001)).
Price regulation is a common phenomenon for many countries, but also may have their own unintended consequences. When prices fall, companies will not try to sell products, as well as trying to circumvent price controls by inflating costs. One of the important policy options is the competition law that has to ensure a "fair-play" when the power of the right holders will be limited. The problem of competitiveness in developing countries can, however, start if only several distributors operate on this market. TRIPS agreement has a different impact on individual members. The impact of IPRs is mainly dependent on FDI, on the incentive to innovate. On the example of Indonesia pharmaceutical firm, we show how companies adopt TRIPS.
Kalbe Farma PT is an Indonesian pharmaceutical company, which produces and distributes medicaments for therapeutic use. Without TRIPs Agreement the firm could copy and sell their products mostly in developing countries such as Bangladesh, Malaysia, Nigeria, etc. Management revised its product development strategy after the state began to accept conditions of TRIPS. Kalbe Farma produced drugs that were patented abroad, but that did not require a patent within the country. The company was free to distribute products to the market in Indonesia, but was hampered in exporting to the markets with the patent laws. Such imports were illegal, as it was not purchased from the right owner or licensee.
Management did not wait for the new TRIPS law, and decided to develop a new marketing strategy, involving foreign firms and Indonesian companies. The main idea was to keep the market rights, and to begin to sell products legally. The company has also started a campaign of negotiations with world-leading pharmaceutical suppliers in order to get licenses for a wide range of products to become the leader of the Indonesian market. It was logically supplemented with the investments in the R&D as the company understood that strong patent protection of the domestic market will attract lots of foreign companies and competition will only increase. (Hoekman B. M., Kostecki M.M., (2001)).
Disadvantages
Given the negative experience of technology transfer, it is important to create favorable conditions for obtaining the maximum profit from the use of IPRs. It may take the form of taxation for such goods, where the foreign producer has an advantage, dissemination of know-how, compliance with the law on competition, and direct regulation. The TRIPs agreement allows governments to change the provisions in the law to maintain control over the behavior of right owners and punish them in case of abuse of power on the market. (Hoekman B. M., Kostecki M.M., (2001)).
But analysis shows that the application of IPRs has a different impact on developed and developing countries. The precondition for successful development of countries is to develop their own technological capacity and allow them to borrow the experience from developed countries. It implies an effective education system and strong institutions. (CIPR, (2002)).
The extension of IPRs will lead to profits of developed countries, but the success of developing countries can be achieved in the course of direct transferring of inventions and technological innovation, and thus increasing economic growth. (CIPR, (2002)).
From a market point of view, the use of IPRs licensing agreements by developing countries is not seen like to limit access of foreign goods and services to domestic markets. (Abbott F. M. (2005)). Even though the extension of IPRs does not show positive growth in the economies of developing countries, but we see that the more open economy, the more IPRs affect the economic growth. (CIPR, (2002)).
Although experience shows the opposite, even so, developing countries are trying to acquire new technology through import of goods or direct investment conditions requiring transfer of technology in the form of patent or know-how licensing to the domestic enterprises. (Abbott F. M. (2005)).
Developing countries may try to enforce circumstances of transferring licenses for the technology in support of domestic businesses. That is, be able to use technology and compete with the licensor during or after the term of the license. Even though developing countries try to improve technology transfer, it does not mean that developed countries would not consider these requirements as an opportunity to limit such practices. However, there are still chances for the removal of restrictions on such agreements. (Abbott F. M. (2005)).
Developed countries can also follow aggressive strategy of claims for an appropriate competition regime, whereas developing countries can decrease the potential discretion. According to TRIPs this is called "soft limitation" - when competition measures in place. Developed countries from their side will try to increase the number of anti-competitive measures they would like to prohibit by means of TRIPs. Developing countries would struggle with such intention as it is the core of their advantage. (Abbott F. M. (2005)).
Very important issue of the expansion of IPRs is how it helps or hinders the transfer of technology to developing countries, which are necessary for their development. Even if the technology transfer takes place, it does not mean that internal forces will be able to use these technologies for future development. And also the technological transfer may have a fragile character. Many countries use weak IPRs, in order to receive technology and use reverse engineering, so as to develop the domestic industry, but the application of TRIPS violates this process. (CIPR, (2002)).
It is obvious that those developing countries that have achieved some progress, owned weaker than strong forms of IPRs. IP protection is an important tool for those developing countries which are at a high level of technological development. As we talk above, there is a very important fact that the effective use of the received technologies also need to have an educated staff, strong institutions, otherwise acquired technologies will not give the yielded result. (CIPR, (2002)).
Conclusion
Since the establishment of TRIPs agreement, the global economy has been significantly changed in regard to the intellectual property rights protection. During the period of protectionism under TRIPs, product life cycles have been shortened; and thus developing countries find it even more difficult to compete with developed countries. (CIPR, (2002)). Furthermore, one of the most effective strategies for industrial development has been the adaptation of 'learning by imitating'. However, with the introduction of TRIPs, this essential tool has helped developing countries to catch up rather than seriously putting a threat on the competition of developed countries. Despite the negative consequence, developing nations still enjoy some significant freedom in the development and application of TRIPs and competition rules within their own territories. In many ways this freedom could be the ideal position for them, and may contradict to negotiate any new TRIPS and competition rules. (Abbott F. M. (2005)).
Finally, it can be said that this paper has tried to examine the evolution of development of Intellectual Property Rights. We have learned about the experience of implementing TRIPs in both developed and developing nations. Hence, we can see that patents are very important tools that promote technology transfer and lasting innovations. But the influences extended throughout IPR regimes have had different effects.
Protection of IP rights can be seen as a reward for the inventor. On the other hand, before the expiration of the patent the information is closed to the public, which prevents that science can develop further in order to progress the development of all human beings.
