Pirates on the High Seas: The Asia Challenge

Pirates on the High Seas

The United States and Global Intellectual Property Rights

Bénédicte Callan

1998

The Asia Challenge

To Recap, The Deep American concern with intellectual property infringement is a product of the dramatic political and economic shifts in trade during the past two decades. The United States cares about piracy because the damage inflicted by intellectual property infringement hits America’s fast-growing and information-intensive industries hardest. While pirates are active globally, Asia is the Bermuda Triangle of IP. Since Asia is less dependent on U.S. markets than Latin America, the United States cannot easily put a stop to infringement there. Complicating matters further, American concern has shifted since the TRIPs Agreement from simply negotiating IP agreements to monitoring and enforcing them behind borders, which is a much more difficult task requiring time to build native support. Ideally, the United States could collaborate with Europe and Japan in rapidly raising international IP rights to a uniform standard and underwriting the implementation process, but in reality coordination among the advanced industrialized countries is spotty. How then should the United States approach the big emerging markets in Asia?

So far the United States has used a cocktail of unilateral, plurilateral, and multilateral mechanisms—none of which it plans to give up. At present, the temptation may be to lean on bilateral negotiations. Indeed, the United States recently concluded a bilateral copyright agreement with Vietnam. Such bilateral discussions with foreign countries about their IP practices are useful, but for a number of reasons unilateral pressure should be yielded to only infrequently. First, bilateralism can backfire, and Asia particularly resents and resists unilateral pressure for stronger intellectual property rights because its use seems arbitrary and its benefits uncertain. Second, the latitude for unilateral action is increasingly circumscribed, both by the WTO and by the ability of the United states to retaliate effectively against countries. Third, the stigma attached to being cited by the USTR for poor IP practices is dependent on the credibility of our threats, and on the negative signal sent to investors. Overused unilateral pressure lessens both its threat and its effectiveness as an investment flag. Finally, bilateral agreements work against the long-term goal of creating global standards in intellectual property protection. They lead, rather, to a patchwork of uneven IP protection.

Bilateral agreements are most attractive when prospects for progress elsewhere are not good. Indeed, at the moment no large-scale multilateral negotiations are imminent, and future WTO rounds are expected to focus on new issues of competition policy, including labor standards and procurement policies. The TRIPs Agreement was not center stage in the December 1996 Ministerial Meeting, and intellectual property may remain a dormant issue until full review of implementation is over in the year 2000. But in Asia there are good alternative forums for IP negotiations in the APEC and ASEAN regional groupings, which should prevent the United States from resorting automatically to unilateralism.

Regional Agreements

Regional trade agreements are a good alternative to multilateral negotiations because they too allow cross-issue bargaining between countries. For example, to entice developing countries to go beyond their TRIPs commitments, the United States can offer collateral concessions, such as aid for establishing the IP infrastructure, allowing some compulsory licensing, or otherwise facilitating access to the U.S. market. The participation of several countries—and especially several developed countries—endows regional trade agreements with greater weight and authority than bilateral agreements. Regional agreements even have an advantage over multilateralism, in that the smaller number of countries involved can reach higher levels of standardization than can GATT or WIPO because participating nations are more likely to share some goals and the payoffs can be more targeted.

The combination of strength and flexibility in regional trade arrangements has spawned an impressive number of groupings, most of which are negotiating intellectual property agreements. The list includes NAFTA, MERCOSUR, the Free Trade Area of the Americas, APEC, the ASEAN, and, among the advanced industrialized countries, the Transatlantic Dialogue and the EU. ₁₁₉ Many of these are relatively young organizations. Their self-declared interest in pursuing intellectual property issues is testament to the growing consciousness of the importance of IP for innovation and trade.

APEC in particular represents one of the United States’s greatest opportunities for extending its IP policies regionally. The 18 APEC countries, centered in Asia, are committed to accelerating the implementation of the Uruguay Round and to broadening and deepening its accomplishments. ₁₂₀ In the summer of 1996, the APEC Collective Action Agenda included seven intellectual property stipulations. Countries have agreed to (1) meet more frequently to discuss IP issues of common concern; (2) compile a survey of national IP laws; (3) create IP contact and enforcement lists to facilitate communication; (4) explore enhanced protection for trademarks regionally; (5) discuss simplification and standardization of Asian–Pacific patent filing; (6) review enforcement problems; and (7) explore high-level, or TRIPs-plus, IP protection.

APEC offers other U.S. trade initiatives, offering an alternative, non confrontational venue for venting trade concerns. As a cooperative forum, its meetings work to accelerate the evolution of IP by familiarizing countries with the advantages of stronger IPRs. There is even a degree of competition between countries to appear serious about their commitment to APEC, and stronger IP rights, which also accelerates reform. In APEC the United States can join forces with Japan, and even the newly industrialized economies, to gain leverage in IP discussions. These countries generate a great deal of intellectual property themselves, and would benefit from IP standards. Strength in numbers is necessary to gradually upgrade intellectual property protection, as the Pacific is home to many countries—China, Indonesia, and the Philippines, for instance—that have continuously defied U.S. unilateral efforts. Finally, APEC creates a framework for offering positive incentives. Mready the United States and Japan help educate lawyers, judges, and government functionaries in the region who are to administer national IP systems, and discussions have started on building regional information centers and perhaps, eventually, regional registries.

But the allure of APEC is mitigated by its unusual framework. Unlike in a traditional free-trade area, initiatives are self-driven or episodic. Each country identifies its own "Individual Action Plan" for liberalization. Within this framework each country sets "soft" voluntary targets with the aim of completely opening trade by 2010 for the advanced countries and 2020 for the developing countries. But progress on this formal path has been slow. So far the greatest achievements have come from APEC’ s episodic identification of sectors suitable for a big liberalization push in the WTO, notably information technology goods and telecom services (both at the Subic summit in 1996). However, there is no formal cross-sector linkage (for example, textile liberalization in exchange for stronger IP rights), and this detracts from APEC’s role as a regional agreement where IP agreements might be negotiated. ₁₂₁

In this environment, Japan is comfortable with taking an educational approach to changing the IP behavior of its neighbors. A cautious, incentive-oriented strategy is well suited to APEC’s novel structure and its politically and economically diverse membership. APEC is unlikely to enact concrete and binding measures, such as the expansion of product category coverage or the resolution of how to treat parallel imports, and progress is likely to be slow. No formal decisions on regional standards for IP protection have been made, and if any are reached they are expected to be conservative improvements on TRIPs.

Thus the United States finds itself in a bind in APEC. On one hand, the United States has IP disputes with almost all the member countries that it would like to address directly. But despite the enormity of IP challenges in Asia, APEC is not organizationally capable of a radical renegotiation of TRIPs commitments. ₁₂₂ while APEC is unlikely to forge a stronger IP agreement than that under the Uruguay Round anytime soon, it allows the United States to engage several big emerging markets, China in particular, in discussions about global IP protection. The value of these positive measures should not be underestimated, as ultimately IPRs will have meaning only if there are domestic interest groups that are committed to their enforcement.

Cooperation Among Advanced Countries

An agreement among advanced industrialized countries that coordinates IP policies toward the developing world would also serve to spur changes in Asia. A unified approach to third countries increases bargaining power in multilateral forums and reduces the creation of divergent regional IP trajectories, always a danger in pursuing multiple regional IP strategies. In addition, many international IP issues remain unresolved and could benefit from partial resolution among the developed nations. Examples of such issues include some divergent interpretations of the TRIPs agreement; how countries deal with new technologies like global information networks and biotechnology; and how to rationalize and harmonize national administrative procedures for granting intellectual property rights. ₁₂₃ By reaching consensus on these thorny issues, the North could pave the way for their broader acceptance in the WTO or WIPO. ₁₂₄

The United States and Europe have been flirting with the notion of a transatlantic agreement to revive a flagging economic and security relationship. ₁₂₅ At the Madrid summit of December 1995, proposals for intellectual property cooperation recommended the identification of "specific areas of desired action" and "common positions leading towards the improvement of IPR protection within and outside the reach of the WTO and WIPO." ₁₂₆ The Transatlantic Business Dialogue (TABD) stated a need for rapid and full implementation of the TRIPs agreement worldwide, for EU–U.S. cooperation to monitor compliance, and for the creation of a joint strategy for IP by the first full review of the WTO in 1999–2000. These dates are far more important than can be hoped for from APEC or NAFTA for the refinement and deepening of global IP commitments. while the EU–U.S. discussions are significant, they represent the first, tentative steps toward the creation of a new transatlantic agenda. Perhaps its greatest benefit is as a discussion forum for industries in which both sides of the Atlantic can explore parallel interests in IP. In the near term, however, one cannot expect a formal agreement to cooperate on third-country IP policy.

Nevertheless, a more united front on IPRs—especially one that included Japan—would smooth relations between advanced countries, minimize divergence among free-trade areas, and help move forward future multilateral agreements.

Beyond Regionalism

Regional agreements represent one strategy for furthering IP standards, but they cannot be the only tool. Many countries fall outside the regional nets, including giants like India and Russia. India is especially problematic, challenging patent decisions for pharmaceutical and agricultural products. Unilateral pressure may not be capable of pushing India to adopt and enforce a higher level of IP protection, given that its reliance on the U.S. market, which was never huge, is now diminishing.

Ultimately the U.S. goal is to set up a rules-based multilateral system that includes the largest number of countries possible. A seamless intellectual property protection system, in which national boundaries do not matter, is a long-term objective, but strong global standards are more immediately achievable. Regional agreements are good for creating consensus and raising standards locally, but they must be woven together into a consistent multilateral system that is easy to monitor and administer. In its dealings with Asia, therefore, the United States must keep its eye on the global prize. The WTO and WIPO remain important players.

The most important, and least tested, aspect of the WTO is its improved dispute settlement mechanism, which, ideally, is to be an alternative to unilateral pressure in trade disputes. ₁₂₇ In the new systems, quasijudicial panels have been strengthened allowing no single country to veto an adverse ruling. Countries found at fault will be required to comply with dispute settlement panel rulings, or the aggrieved party will be allowed to retaliate. Historical precedent in GATT suggests that when a defendant is found in violation, nearly 90 per cent of the cases result in full or partial satisfaction of the claim. ₁₂₈ Of the 20 cases the United States had filed with the WTO by the end of 1996, it has lost none and won one. The remaining 18 were settled outside the WTO, largely to the satisfaction of the United States.

Table 4: IPR dispute settlement cases initiated or planned by
the United States at the WTO

		Resolution
Japan	1996	preexisting sound recordings, issue resolved
Portugal	1996	patent term, issue resolved
Pakistan	1996	"mailbox system," issue resolved
India	1996	"mailbox system," dispute to appear before WTO panel
Turkey	1996	foreign firm tax, in negotiation
Indonesia	1996	trademarks, in negotiation
Denmark	1997	enforcement issue, U.S. plans to initiate WTO case
Sweden	1997	enforcement issue, U.S. plans to initiate WTO case
Ireland	1997	copyright laws, U.S. plans to initiate WTO case
Ecuador	1997	general TRIPs obligation, US plans to initiate WTO case

The United States has had a very positive experience with the WTO dispute system in intellectual property. Of the six IP cases filed by early 1997 three were resolved bilaterally without the use of a WTO dispute panel. Japan has agreed to extend copyright protection to sound recordings made before 1971. Portugal has agreed to bring its patent laws into TRIPs compliance. Pakistan set up the required mailbox system for pharmaceutical and agrochemical patent applications. Two cases have not yet been resolved. Negotiations with Indonesia about discriminatory trademark protection and with Turkey about its box office tax on foreign films continue, but no panel has been set up. (The latter is, strictly speaking, a market access issue, but it affects a copyright-dependent industry.) Only the Indian mailbox case is at an impasse and will be heard by a WTO panel. The Indian government has not set up the required filing system, despite repeated assurances to the United States that it would do so. On the whole, the WTO dispute settlement system is proving useful to the United States. Plans to initiate four, and possibly six, new cases were announced in May 1997.

The dispute settlement mechanism is the piece de resistance in TRIPs, promising developed and developing countries a chance to be complainants in IP disputes, to receive redress, and to shape the international IP system. ₁₂₉ To take full advantage of the dispute settlement mechanism, the United States has set up an agreements and compliance center within the Department of Commerce to monitor compliance with trade agreements abroad, and the EU is considering a similar body. The more information one has on compliance, the easier it is to lodge complaints. Unlike in GATT, which turned a blind eye to their violations by developing countries, LDCs are being brought fully into the WTO trading system and must comply with all the commitments and notifications required of members. Four of the six initial IP cases were against developing countries.

But at the same time, developing countries have gained the ability to become complainants themselves. Most trade complaints in GATT and the WTO have been lodged against developed countries by other developed countries. With the WTO, however, there has been a rise in complaints by less-developed countries, both among themselves and against the United States and the EC.’ ₁₃₀ Therefore, from the point of view of less-developed countries, the WTO may be more attractive than a regional forum for future IP negotiations with the United States. The WTO reduces the American use of unilateral pressure to force change, and the dispute settlement procedure devolves power to aggrieved parties, regardless of size.

Regional agreements in Asia should be therefore, as an addition to, not a replacement for, the WTO. Of course, APEC needs to be WTO-legal, but the United States must in addition try to use the WTO as much as possible. Its dispute settlement mechanism may prove invaluable in resolving global IP disputes (as in the recent cases against Japan, Pakistan, and Portugal). If the resolution of future cases proves satisfactory, the WTO will be a great back-up, maintaining minimum levels of protection in countries where the United States cannot engage in bilateral or regional negotiations. Finally, the WTO and WIPO remain necessary to slowly bring up standards in developing countries to which the United States cannot devote its limited resources. The United States must continue to pursue IP disputes within the multilateral forums because of their ability to bring a large number of countries together to create, and abide by, new rules of the road for international trade.

Endnotes

Note 119: MERCOSUR adopted a Common protocol for trademarks in 1995, and discussions on copyrights are underway. See Robert M. Sherwood and Carlos A. Primo Braga, "Intellectual Property, Trade and Economic Development: A Road Map for FTAA Negotiations," unpublished paper, 1996. The Free Trade Association of the Americas groups 34 countries in the hemisphere and hopes to create a freetrade area by 2005. Although IPRs are under discussion, no agreement has yet been reached. In an effort to improve Asia’s IPRs, the member countries of ASEAN recently have agreed to create a single patent and trademark agency (similar in concept to the EPO) to enforce intellectual property rights in the region. Back.

Note 120: See "APEC Economic Leaders’ Declaration of Cornmon Resolve," Osaka, Japarl, November1995–website— http://www.apecsec.org.sg/osaka.html. Back.

Note 121: The APEC guiding principles do include comprehensive coverage of all sectors may allow for some inter-sector discussions. Back.

Note 122: Some of the smaller regional groupings, like ASEAN, hold greater promise of pushing Asia forward with their plans of coordinating patent and trademark laws and creating joint institutions. Back.

Note 123: Disagreement in TRIPs exist over the interpretation of when intellectual property rights are "exhausted" and what type of compulsory licensing is permitted.Improvements might include a reduction in the cost of European filing, converting the U.S. system to a first-to-file system, and harmonizing publication grace periods and opposition rules. Back.

Note 124: For an elaboration of the importance of coordinating policy and the difficulties of doing so, see Richard Steinberg, "Transatlantic Management of the Global Trading System," in Bruce Stokes, ed., Open for Business: Creating a Transatlantic Marketplace, New York: Council on Foreign Relations, 1996, pp.97–112. Back.

Note 125: For a discussion of the format, content, and likelihood of a transatlantic free Back.

Note 126: Many of the proposals were culled from the suggestions of a group of 100 American and European business representatives called the Transatlantic Business Dialogue. See the TABD Progress Report, May 23, 1996. Internet site—http://iepnt1.itaiep.doc.gov/tabd/progress.htm. Back.

Note 127: For a discussion of dispute settlement in GATT and the WTO, who uses the system and who gains from it, see Christina Sevilla, "Complaints and Compliance: The Politics of Enforcing GATT/WTO Rules," unpublished paper delivered at the Annual Meeting of the American Political Science Association, San Francisco, 1996. Back.

Note 128: Ibid. Back.

Note 129: Sevilla, "Complaints and Compliance: The Politics of Enforcing GATT/WTO Rules." Back.

Note 130: Ibid. Back.