The Harmonisation of the Protection

of Intellectual Property:
Impact on Third World Countries

By Sandro Sideri

UNU/INTECH Working Paper No. 14

June 1994
 CONTENTS

1. Introduction 1

2. Definitions and justifications 3

3. Intellectual property arguments and LDCs 7

4. North, south, and TNCs: some dynamics of the balance 15

5. Standards 21

6. Harmonization at the global level: the role of GATT and the Uruguay 23
Round
7. Harmonization at the regional level with particular reference to the 33
EC’s single market
8. Other IP agreements 37

9. Are there alternatives to higher standards of IP protection? 41

Endnotes 48

Bibliography 57

iii
1. INTRODUCTION

Technology, or more specifically, the ability to utilise effectively the new technologies
and absorb them into the productive process, is increasingly crucial in determining
comparative advantages, creating competitiveness, and promoting economic growth and
development. This paper deals with the causes of the ongoing attempt to achieve global
harmonization of protection for intellectual property (IP), particularly for high technol-
ogy, and the problems which have been encountered in the harmonization process.
Although most basic research, and much agricultural research, is freely available for
developing countries (LDCs), industrial technology must be bought from the firms that
own the patents or other rights covering it. The price depends on the nature of the legal
system protecting technology and on the bargaining position of the parties concerned
[Stewart, 1990: 303]. Harmonization, which means in effect a stronger IP regime, would
have considerable effects for the LDCs.
Both the substantive content of intellectual property rights (IPRs) and their enforcement
influence the conditions of trade, hence most IP issues are bound to be ‘trade related’.
The attempt to replace the principle of national treatment with an internationally man-
dated protection of IPRs reflects primarily the desire of national industries in the
developed countries (DCs) to secure the world-wide exploitation of their innovations.
Inadequate IP protection is thought to cause three types of trade-related problems: (a)
loss of export sales and royalties, and a reduction in the value of investments of innovating
firms, in the markets where their IPRs are appropriated without compensation; (b) loss
of sales by the same firms in third markets, when unauthorized products are sold there;
and (c) lost sales in their home market, when imports involve unauthorized use of goods,
works or processes covered by domestic IP laws [Weiss, 1990: 89]. If these problems
could be treated as a trade rather than IP violation, ‘the enforcement mechanisms of the
GATT, rather than the apparently ineffectual ones of local courts could be used’ [Page
et al., 1991: 47]. Furthermore, differential national treatments of IPRs, such as copy-
rights,1 may effectively constitute non-tariff barriers (NTBs) to knowledge-intensive
products [Braga, 1989: 244]. All these considerations have been used to justify the role
of GATT in IP matters, a role which should not necessarily exclude other institutions
which have already been dealing with some of them.
One of the main instruments used to transfer technology internationally has been foreign
direct investment (FDI). One important reason for many firms to engage in FDI is to
protect their IPRs through the internalization of the market, which in turn has increased
their awareness of differences in regulatory regimes across countries and consequently
their demand for some harmonization of IP protection. Hence the linkage between the
so-called Trade Related Intellectual Property Measures (TRIPs)2 and the Trade Related
Investment Measures (TRIMs), both issues on the agenda of GATT’s Uruguay Round
for the first time.

1
It must be remembered that the drive toward harmonization was already implicit in the
Third World’s attempt to establish the New International Economic Order during the
1970s, and particularly in the proposal for a ‘Code of Conduct on the Transfer of
Technology’. Although the UNCTAD Code was based on the principle of preferential
treatment for LDCs, the fact that they pressed earlier for international regulation of the
technology issue has made it the more difficult for them to resist the introduction of the
TRIPs into the Uruguay Round and the harmonization that the DCs demand.
In a world economy, the interdependence of which has increased together with the pace
of technological change and product development costs, the need to find the right
international framework for IPRs has became very pressing. Yet, the issue of infringe-
ment of IP rules concerns not only the straightforward matter of piracy3 and theft, but
also violation of ‘patent protection of [the] technological inputs critical for industrializa-
tion, food security (for example fertilisers) or health of poor populations, which have to
pay more for patent-protected goods’. While LDCs have shown from the beginning a
willingness to negotiate a multilateral framework of rules on the counterfeit trade, they
have objected to embarking in difficult discussions on the nature of intellectual property
protection itself or to getting involved in any attempt to improve standards of protection
[Kostecki, 1991: 271-2]. The DCs, on the other hand, have from the outset of the TRIPs
negotiations pushed beyond the issue of counterfeiting in the pursuit of a comprehensive,
global GATT agreement on all internationally important aspects of IP protection, includ-
ing basic principles, substantive standards of protected rights, and rules on national
enforcement [Reinbothe and Howard, 1991: 158].
The differences between the various national systems for IP protection have caused bitter
disputes [Beath, 1990: 424] because interdependence and international integration re-
quire the improvement of technical compatibilities. Hence the call for international
standardization, i.e. an essentially voluntary method of achieving compliance with a
prescribed set of specifications, which by virtue of the efforts of various interests,
including consumer pressure, is assuming the characteristics of an international public
good [Kindleberger, 1986]. A circular process is emerging in which globalization creates
a demand for uniformity which in its turn enhances globalization. Meanwhile, technology
is rapidly eroding the basic notion of national sovereignty in many areas of economic
affairs. ‘In some cases, strictly national rules lose much of their meaning’, while ‘in
others, at least the thrust of the rules requires change’ [Blumenthal, 1988: 540].
Clearly, the introduction of the TRIPs into the GATT system and the harmonization of
IP protection may amount to setting the multilateral framework for the conditions of
international competition into the next century [Subramanian, 1990: 509-10]. The
resulting changes are going to affect most business practices, since the main aims of this
multilateral framework are (a) ‘to alter significantly the balance of negotiating power in
favour of the transnational enterprises compared to that of the governments of host
countries, both developed and developing’; and (b) ‘to limit the economic sphere for
government’ [Vaitsos, 1990: 82] namely its ability to intervene and regulate the two
crucial, and highly interlinked, sectors of FDI and technology transfer.
Before looking at the issues of harmonization in general it will be necessary to consider
the nature of IPRs and the largely macro-economic arguments which are advanced to
justify them, followed by a particular look at how these general arguments amy apply to
an LDC and to the economic balance between LDCs and DCs.

2
2. DEFINITIONS AND JUSTIFICATIONS

Intellectual Property Rights (IPRs) include industrial property and copyrights and similar
rights.4 Industrial property deals principally with patents for inventions, trademarks and
geographical indications for identifying names or symbols, industrial designs for designs
and shapes (such as the layout of semi-conductor chip products),5 plant breeders’ rights
to new plant varieties, and trade secrets6 for proprietary information. Whereas ‘patents
cover ideas to the extent that the ideas can be embodied into tangible forms ... primarily
to mass-produced articles of commerce’ [Stern, 1987: 198], copyrights, and most of the
other IPRs, are utilised for literary and artistic creations, ‘not ideas as such, but only
particular expression of ideas in a particular tangible written form’ [Stern, 1987: 200].
More recently, attempts have been made to also bring some commercial items, such as
computer software, under copyright coverage. Slavish copying of items, and the misap-
propriation of knowledge of commercial value, such as trade secrets, is also prohibited
under legislation on so-called ‘unfair competition’. This can therefore also be included
under industrial property law. Lately a re-evaluation of basic copyright policies has taken
on greater urgency because (a) improved technologies for duplicating copyrighted media
have lowered the costs of infringement; and (b) the emergence of new products and
technologies in computer programs, semiconductor devices, and electronic transmission
of data and broadcast signals has blurred the basic distinction between patentability and
eligibility for copyright [Maskus, 1993: 175].
This paper will concentrate on industrial property rights, and specifically on patents, since
these are at the focal point of the current debate on harmonization.
Historically, the very idea of a patent system has been ardently opposed, causing heated
controversies in many countries. The conception of patents was linked to the increasing
practice of granting various types of monopoly privileges, a practice born in fourteenth
century Italy but later spreading to Northern Europe and finally to England. The idea of
patent protection came under attack during the second and third quarter of the last century.
It came to be generally accepted in most Western countries only after the economic crisis
of 1873 when protectionists won out over the free traders [Machlup and Penrose, 1950:
6] and when the increasing interdependence of nations became ‘for many the chief
argument in favour of the international protection’ [Penrose, 1951: 89].
All Industrial Property Rights relate to knowledge, specifically to knowledge with
commercial usefulness. Patents apply more narrowly to technological knowledge, tech-
nology being knowledge employed in the production of goods and services for the
satisfaction of human needs. The nature of these rights, and the economic justifications
for them, arise from the fact that knowledge can be possessed and used simultaneously
by different individuals, a characteristic referred to as ‘nonrival possession’ [Romer,
1990] or ‘perfect expansibility’ [David 1993a: 219]. Once technology has been created,

3
its use by others does not reduce the innovator’s ability to use it, but it definitely reduces
the innovator’s returns.
Since the production and distribution of new scientific and technological information
absorbs resources, some institutional arrangements for resource allocation are required.
One such arrangement is the construction of IP rights (IPRs), mechanisms for the
protection of what amounts to a private monopoly which enables inventors or originators
‘to collect (differential) fees for the use of their work by others’ [David, 1993a: 226]. It
has long been recognized that the patent system represents ‘an unsatisfactory compro-
mise’ [Johnson, 1976: 420-1].7 The patent system suffers from a ‘lack of theoretical
principle’ [Plant, 1934: 51] and of ‘logic ... so that it survives only because there seems
to be nothing better’ [Jewkes et al., 1958: 252-3]. It rests in fact on ‘a basic economic
inconsistency’, which is ‘not only to tolerate but to encourage individual limited islands
of monopoly’ within free-enterprise economies [Machlup, 1958: iii]. A recent survey of
the topic concludes that ‘the theory of intellectual property protection is fragmented and
provides no robust answer to the question of the appropriate or optimal level of protection
under various sets of real-world circumstances. In particular, its relevance to developing
country concerns must be considered marginal’ [Braga, 1990: 32].
The justifications for this system follow the general form of rationalizations for govern-
ment intervention in a situation of market failure [Arrow, 1962: 164-5]. The market failure
in this case is due to the fact that from the supply side technology presents the hallmark
of a public good, and moreover a durable and strong one due to its economies of scale
[Kindleberger, 1983: 377]. The main properties of a public good are nonrival possession,
low marginal cost of reproduction, and substantial fixed costs8 of original production.
Under these circumstances ‘free’ market conditions fail to allocate the optimum level of
resources to the production of the public good, since they create no financial incentive
for the first investor, although once an innovation is developed it is almost freely available
and of benefit to the whole society. In other words, the public or social return on
innovation is, in the absence of an IP regime, going to be much greater than the private
return, and private investment will therefore tend to remain short of the socially optimal
amount needed for science and technology generation.9
That not enough human capital can be expected to be devoted to research is due to the
fact that research has positive external effects and it ‘produces an input that is purchased
by a sector that engages in monopoly pricing’, hence there is ‘a wedge between the
marginal social product of an input used in this sector and its market compensation’
[Romer, 1990: S96]. Arrow has analyzed this problematique as an ‘appropriability
problem’ arising from the intangible nature of knowledge, a relevant feature of which is
that its benefits are not necessarily and perfectly appropriable, i.e. there is incomplete
appropriability, even under a patent system.10
Treating knowledge as a nonrival good (i.e. a purely technological attribute of a good the
use of which by one firm or person in no way limits its use by another), ‘makes it possible
to talk sensibly about knowledge spillovers, that is, incomplete excludability’, which is
a function of both the technology and the legal system [Romer, 1990: S96 and S74-5].11
On the other hand, if the returns arising from an innovation were to be successfully
appropriated this would lead to underutilization of the innovation, so that there is a
tendency to underinvest in R&D under both competition and monopoly [Arrow, 1962:
175 and 172;12 Nelson, 1959: 161-2; Dasgupta and Stiglitz, 1980: 267]. In other words,

4
the larger the gap between the social and the private rates of return from innovative
activities, the more likely it is that under-investment will affect these activities.
Thus it can be argued that it is ‘most unlikely that the market mechanism can be relied
upon to produce knowledge in appropriate amounts’ [Dasgupta and Stoneman, 1987: 1].
The creation of monopolies to exploit innovations is one of the three alternative ways for
coping with this market failure; the other two being either a subsidy or public involvement
in research and development, both to be financed by means of general taxation. Yet none
of these three alternatives -- for short also called ‘property’, ‘patronage’ and ‘procure-
ment’13 ---- ‘provides a complete and perfect solution to the problem that they all address’
[David, 1993a, 226-27; Dasgupta, 1988: 2-5].
It follows that since the rationale for protecting IP is to be found in the need to provide
firms with a sufficient incentive to innovate, either through the rent generated by IPRs or
by other means which do not depend on the legal system and which may make protection
even more lasting. In the longer term, the privatization of knowledge is expected to cause
factor productivity to rise and all sort of new products to appear. Yet, since there is no
way to know whether the resulting situation will be better or worse than that which would
have otherwise have prevailed, this always remains a second-best solution.
By ‘internalizing the external economies of knowledge ... the patent system increases
incentives for invention ... but ... only at the expense of higher prices, lower output, and
the inefficiencies usually associated with monopoly’ [Nordhaus, 1969: 88-9].14 The other
main limitation of the property solution is that it undoubtedly reduces the availability of
knowledge. Benefits would be increased if competitors could imitate and improve on the
innovation to ensure its availability on favourable terms [Levin et al., 1987, 783]. In fact,
the better protected the IP is, the more the fee for its use can be raised. Therefore, this
fee, i.e. the price of the industrial technology one wishes to buy, ‘is dependent on the
nature of the legal system protecting technology in the originating countries, the monop-
oly or oligopoly position of the technology sellers, and the bargaining position of the
technology buyers’ [Stewart, 1990: 303].
Another limitation of the ‘property’ (i.e., patent) solution is the waste of resources in
parallel efforts and ‘research races’ in order to be the first to obtain the patent. However
pressure of competition will ensure that only a few firms engage in R&D activity, in
extreme cases only one firm [Dasgupta and Stiglitz, 1980: 289].15 R&D may also
concentrate on research fields assumed to yield higher profits, while leaving other areas
which from the societal point of view are more important under-researched. Naturally,
whether or not the allocation of resources under the IPR regime is considered efficient
depends on which society’s viewpoint is chosen.
The introduction or strengthening of an IP regime will, it is argued, have two broadly
desirable effects: it will increase the patent owners’ technological accumulation (and
provide extra profits which may serve to finance their investments), and it will provide
incentives for increased R&D and innovation. There is no general agreement as to
whether in fact stronger IP regimes do increase R&D activity,16 and even if an effect is
shown, it is not certain that the resulting innovations will be relevant to LDCs.
Another, often forgotten effect of introducing IP protection is the cost of establishing and
staffing administrative mechanisms to monitor and enforce IP regulations.17

5
When one adds all of these effects to what Nordhaus called the inefficiencies usually
associated with monopoly [Nordhaus, 1969: 88-9] it will be clear that the theoretical
arguments for harmonised, and thus stronger, IP regimes are far from self-evident. Strong
IP protection will tend to cause socially inefficient monopoly pricing and gives the
innovator inadequate incentives to develop second generation products. And if a strong
IP protection ‘need not be an enemy of diffusion’, it can also be argued that weak
protection ‘need not be inimical to economic growth’ [Ordover, 1991: 44]. Besides, ‘even
if technology competition were fierce, the resulting industrial structure would be oligopo-
listic’ anyway [Dasgupta, 1988: 1].

6
3. INTELLECTUAL PROPERTY ARGUMENTS AND LDCS

In support of strong IP regimes, it has been argued that ‘the only way to ensure that firms
undertake every research project that is efficient is to let the firms collect as profit all the
social value they create’. In this way ‘households still benefit, but in their capacity as
shareholders rather than as consumers’ [Scotchmer, 1991: 31]. The analysis of the costs
and benefits of such a system has then to move to the international level, because
shareholders may belong to one country and consumers to another. Since IP protection
leads to the transfer of income from consumers in the markets in which IP is protected to
the inventors or producers, mostly in the DCs, the harmonization of IP regimes would
tend to cause a redistribution of welfare away from Third World countries and in favour
of the most industrialised ones. More than 40 years ago, Penrose warned that ‘no amount
of talk about the ‘economic unity of the world’ can hide the fact that some countries with
little export trade in industrial goods and few, if any, inventions for sale, have nothing to
gain from granting patents on inventions worked [i.e. exploited] and patented abroad’
[Penrose, 1951: 116-17]. We have also seen that the theoretical justification for the patent
system is based largely on a trade-off between promoting technological innovation
(supposedly aided by IP protection) and the negative effect of delaying the diffusion and
utilisation of knowledge. Given LDCs’ limited capacity for innovation, one would expect
them to favour a regime of weak or minimal IP protection.
In the early 1970s LDC nationals held no more than about 1 per cent of the world stock
of patents [UNCTAD, 1975: 38]. Although this is still valid for many LDCs, many others
have moved away from such a predicament. For them harmonization and stricter IP
protection remains an open question. Nevertheless, the Paris Convention ‘does not
address the problems that exist for a country that is a large importer or purchaser of
technology, but is not a large exporter of technology’ [Evenson, 1990: 354] and it has
been argued that there appears to be little reason for small countries to adopt a patent
system [Lyons, 1987: 199].
The alternative is to allow LDCs a free-riding position. This position has recently
reemerged in the literature based on the consideration that because DCs’ innovations are
not conceived or developed for LDC markets, the world’s supply of such innovations
would not be affected by LDCs’ adopting them without paying for them.
It seems, however, necessary to review more accurately the various arguments on which
the case for extending stricter IP protection to LDCs has been built. The arguments in
brief are that such protection encourages FDI (argument (i)), that it fosters technological
progress, although it may hamper diffusion of innovations (argument (ii)), that southern
consumers may in some circumstances benefit (iii), that it fosters the innovative capacities
within LDCs (iv), and that a system of IP protection and licensing creates an environment
for the transfer of tacit knowledge which is not visible in the product or codified in its
patent (v).

7
(i) The first argument is based on the positive link which seems to exist between
stricter IP protection in a country and the inflow of FDI and technology. FDI
is considered to be essential for creating high-technology sectors. This view
is supported by studies made of specific sectors, which have been summa-
rised by the UNCTC [1990: 4]. But while some authors feel confident enough
to conclude that this is generally the case [Siebeck, 1990: 92] others consider
the evidence inadequate to permit a definitive analysis [Braga, 1990: 83;
Maskus, 1993: 167]. The UNCTC warns that the interrelation between IP
protection and the promotion of investments ‘is much more complex’ and no
simple causal link can be established between the two. Actually, it appears
that IPRs are usually not considered an important determinant of investment
decisions by firms’ executives and levels of protection in DCs have varied
over time with no discernible relation to FDI flows [UNCTC, 1990: 5].
Turkey abolished patents in the pharmaceutical sector in 1961, yet the
absence of protection has not negatively influenced the inflow of FDI, nor
has it stimulated the development of a domestic technological infrastructure
and innovation capabilities, or reduced anti-competitive practices, such as
transfer-pricing, usually associated with patent protection [Kirim, 1985].18
Brazil abolished patent protection on pharmaceuticals, foodstuffs, agricul-
tural chemicals and some metal alloys in 1969. Once again there is little
evidence of any impact on FDI flows or the transfer of technology [Frischtak,
1990: 78-80]. Pharmaceuticals were the least protected subsector, yet inter-
national firms’ share of total sales in this sector was the second highest of all
industrial sectors, at 71%, in the period 1970-85. FDI flows in pharmaceuti-
cals grew from $113 million in 1971 to $971 million by 1984, while the
market share of Brazilian companies decreased from 33% in 1967 to 15% in
1988 [Grynszpan, 1990: 107]. It may be that the TNCs increased their
presence in these sectors to pre-empt the development of pirate industries.
(ii) The second argument for stronger IP protection in LDCs emerges from
questioning the supposed trade-off between promoting technological pro-
gress and technology diffusion, or transfer. If innovation and diffusion are
seen as parts of one process, short-term gains from faster diffusion of existing
knowledge under a lax system will in the longer term be offset by the slower
rate of innovation in the originating countries. Thus the LDCs themselves
stand to profit from technological accumulation in the DCs. However, the
argument that stronger IP protection in LDCs favours innovation in the DCs
is challenged by the consideration that ‘unimpeded diffusion of existing
technology is immediately beneficial not only for consumers but also for
those who would improve that technology. Because technological advance
is often an interactive, cumulative process, strong protection of individual
achievements may slow down the general advance’ [Levin et al., 1987: 788].
Even if strong IP protection by LDCs enhances a faster rate of innovation in
the North, some of the global gains thus generated may accrue to LDCs only
where they are large consumers of the goods produced (see argument (iii)
below).19
There is then a counter-argument that impending imitation from the South
raises the North’s incentive to innovate, because firms in the North earn
greater profits during their period of monopoly production. Thus continual,

8
 but not immediate, diffusion of new discoveries spurs the innovators to
search for the next generation development which will restore their monop-
olies. As the South’s imitation causes production to contract in the North, the
displaced workers are absorbed in R&D activities, leading to accelerated
technological innovation [Grossman and Helpman, 1990: 90].
Also related to the development/diffusion dichotomy is the argument that
if strong protection of IPRs serves to promote technological progress rather
than diffusion, LDCs’ limited capacity to innovate forces them to seek weak
or minimal IP protection.
Although the acquisition and diffusion of technological knowledge is also
promoted by standardisation,20 its introduction, and especially switching to
other standards, i.e. other countries’s standards, is a costly process. Which
explains why each country has a strong interest in having its own standards
accepted by others in order to retain its positive externalities.
The suggestion of fostering innovation through government financed
R&D, thus avoiding IP protection, has been rejected on the assumption that
it may actually delay diffusion [David, 1993a: 237-8]. Yet, this proposition
can be also criticised because often (a) foreign R&D is beyond the scope of
policy in the technology-adopting country; (b) domestic R&D may be
directed to developing new products for exports; and (c) the mechanism
through which certain kinds of innovations are diffused to small and medium-
sized enterprises in LDCs may differ from that assumed by David, except in
the case of radical innovations made in DCs [Teubal, 1993: 254].
To conclude, the problem of the trade-off at the international level is in
some sense similar to that arising at the domestic level, for which the solution
of stronger IP protection has been advocated. But the trade-off referred to
here cannot continue to be resolved by those who are presently doing it,
namely the TNCs and the governments of the DCs, which clearly can in no
way be assumed to represent world interests. There are, therefore, two aspects
one can distinguish in this argument. The moral one, namely who decides to
introduce more protection in order to obtain more innovation and in whose
interest; and the practical aspect that makes it impossible to be sure that an
increase in IP protection will cause more innovation.
(iii) It has also been argued that the South ---- i.e. its consumers ---- may benefit
from protecting Northern IPRs, hence eliminating the conflict of interests
between the two regions. Theoretically, and within a partial equilibrium
model of duopolistic competition between a Northern and a Southern firm,
such a possibility, seems, however, valid only in cases where Southern
consumers ‘absorb much of the world’s output of the good subject to cost
reduction or when the cost savings to be reaped from innovation are quite
dramatic’. In other words, the South should agree to protect IPRs only when
the effectiveness of R&D in reducing production costs ---- i.e. in the market
structure prevailing with protection ---- is high enough to make the South gain
much on the consumption side from the research efforts of the Northern firm.
In all other cases LDC’s social welfare ‘will be higher when it eschews
protection of foreign intellectual property than when it succumbs to pressure
from the North’. Since the North ‘always benefits from having the patents of
its firm respected outside of its borders’, even in the extreme case that ‘the

9
 Northern firm captures none of the surplus from any licensing agreement that
materializes between itself and its Southern rival’, the interests of these two
regions with respect to the system of IPRs do conflict. However, since the
protection of IPRs, which creates the potential to license patents, enhances
global efficiency, at least for substantial innovations, ‘the North ought to be
willing and able to compensate the South for any losses that it would incur
in the course of providing such protection’. Furthermore, firms do not patent
all innovations, and trade secrets are by definition non transferable
[Hortsmann et al., 1985]. Thus the conflict becomes one ‘between the
benefits of widespread diffusion of technology and the increased competition
that such diffusion entails, and the costs of dampened incentives to generate
technological breakthroughs’ [Chin and Grossman, 1990: 97 and 103-6].
In this connection the argument has even been made for unequal treatment
of foreigners in patent enforcement procedures by countries possessing some
domestic capacity for innovating. Based on a simple application of the new
strategic trade theory, the call for discrimination to promote indigenous R&D
effort ‘hinges on the fact that monopoly profits accruing to foreign nationals
do not enhance national welfare’. That discrimination can enhance the
country’s welfare seems possible in at least two cases: (a) when the ‘small
country’ assumption holds in respect of foreign technologies but not for
domestically created ones so that there are no dynamic gains from granting
protection to foreign nationals, because then the dynamic gains of a protec-
tion limited to domestic nationals tend to outweigh the static losses if a
minimum R&D capability exists in the country; and (b) even when ‘the
"small country" assumption is relaxed so that cost reductions in the domestic
market cannot be secured in the absence of intellectual property protection
to foreign nationals’, ‘for a wide variety of situations discrimination can be
welfare enhancing even though the R and D generated domestically is
inferior to that generated abroad’. The higher welfare generated by the poorer
technology is related to ‘the nature of the monopoly profit-consumer surplus
trade-off’, which amounts to a kind of infant industry argument for promoting
or protecting the creation of R&D in LDCs [Subramanian, 1990a: 549;
1991: 946].
Related, but different, is the call for low protection without discrimination,
i.e., without unequal treatment of foreigners and nationals, a policy consid-
ered more appropriate for small LDCs for which the gains from a high level
of IP protection appear to be negligible. In fact, since information is not a
free good, LDCs should not endanger future information imports by refusing
to pay for it, but instead push the costs as low as allowed by ‘the importance
of LDC markets in calculations by technology creators of the profit maxi-
mizing levels of future technology to be supplied to the world’ [Magee, 1977:
335].
(iv) The general theoretical arguments advanced for the patent system itself may
also be argued to apply to the case of the LDC’s own R&D capacities. But
the LDCs, at the less privileged end of a dynamic North-South system and
facing the threat of the imposition of an international patent system, are in a
quite different situation to that faced by the DCs when they were establishing
their national patent systems and R&D capabilities. Whether, in present

10
 circumstances, stricter IP protection would enhance R&D in LDCs remains
a moot point. After all DCs themselves only recently adopted those improve-
ments and extensions of their industrial property system which they now
expect from the LDCs. Indeed, before the revision of national patent laws
following the coming into force of the Munich Patent Convention of 1968,
the levels of protection prevailing in Europe were relatively low [Ullrich,
1989: 132 fn.10].
There is general agreement that LDCs underinvest in R&D, but the avail-
able literature is inconclusive on whether higher returns and investments take
place in those LDCs which more strictly protect IP [Siebeck, 1990: 2]. At
any rate most authorities, according to Braga [1990: 80], agree that such
protection is ‘neither necessary nor sufficient for strong technological activ-
ity’. Moreover, to adopt stronger IP protection ‘on the OECD model might
be globally optimal, but it would not be optimal for individual developing
countries’ because it would probably hinder domestic adaptive R&D and
eliminate the options to copy and do reverse engineering [Evenson, 1990:
353]. This applies at least for the pirating countries. According to Evenson,
the strengthening of IPRs seems to be more needed by the less developed
countries because they require ‘stronger incentives for domestic adaptive
invention to develop the capacity and the industrial relevance of their current
R&D’ and because ‘most of their technology purchase arrangements are
inter-linked, complex contracts calling for technical assistance, capital, etc.’,
so that any lack of protection of the potential seller’s IPRs is bound to raise
rather than to lower the cost of such packages [Evenson, 1990: 354]. Not only
does this view conflict with that expressed by many, including Deardorf
[1990: 505-6], but (a) it is irrelevant in most LDCs where R&D activities
require much stronger incentives than merely stricter IP protection; and (b)
it ignores the fact that by far the majority of patents in developing countries
are held by foreigners, most of them in the hands of corporations, nearly all
of them unused. The fact that these patents are not used arises from the
strategic considerations of foreign enterprises and not from any domestic
conditions in the LDCs [UNCTAD, 1975: 52].
On the whole, the evidence appears to support the overall conclusion
reached some time ago by Vaitsos, that the registration of patents in LDCs
bears practically ‘no direct causal relationship whatsoever with inventive
activity, domestic or foreign’ [Vaitsos, 1972: 90]. Moreover, particularly for
large countries, a process of industrialization which does not rely too much
on imports of technology may result in a diverse and deep technological
capability [Lall, 1985: 70-1].
(v) More recently, the argument for strict IP protection by LDCs has been based
on the not too new recognition that ‘most industrial R&D generates two
distinct types of output. The first type consists of product-specific informa-
tion that enables a firm to manufacture a particular new good (or an old good
by a new and cheaper process)’. This ‘codified’ component, in the form of
blueprints, drawings, specifications, and design, amounts to the transforma-
tion of experience and information into symbolic form. The second output
comprises more general technical information, which may facilitate the
undertaking of subsequent innovations.

11
 While the returns to the product-specific information will generally be
appropriated by the innovator with the help of patents and secrets, the
additions to general knowledge are more difficult to appropriate [Grossman
and Helpman, 1992: 335]. Although slow and costly to transmit, as it often
requires face-to-face communication [Teece, 1981: 83], without this uncodi-
fied or tacit knowledge potential users will not necessarily be able to make
use of the codified information, i.e. ‘production processes will not deliver
output of the expected quality at the anticipated rate’ [David, 1993a: 240].
And since firms tend to codify whatever can be protected as IP, while
everything else is kept secret, IPRs pertain primarily to the codified aspects
of technology [Arora, 1991: 1-4].
Therefore, it is maintained, the more protected is the codified information,
i.e. the stricter the enforcement of IPRs, the easier the transfer of tacit
knowledge. Furthermore, tacit and codified components of technology are
complementary, and form part of a continuum, of which patents and trade
secrets are only some elements. Because IPRs concern only one of these
elements, namely patents, their ‘conceptualization is inadequate’ to either
explain or facilitate the process of technology transfer. Given that the scope
of patent protection will affect the incentives to transfer tacit know-how,
Arora maintains that arms length contracting, which is strongly affected by
IPR regimes, can successfully achieve the transfer of technological know-
how, although he recognises that in weak IPR regimes ‘complementary
investment plays an important role in the transfer’ [Arora, 1991: 3 and 5].
Since ‘tacit know-how is more valuable when used in conjunction with the
codified components of the technology, inter alia, because both are strongly
influenced by the specific conditions under which the licensor operates the
technology, and learns about it’ [Arora, 1991: 36], when ‘the tacit knowledge
components are vital and remain unavailable domestically’ [David, 1993a:
243] and when the knowledge has a high tacit component, clearly the transfer
of technology ‘cannot be separated from the transfer of personnel, which is
typically difficult if the contractual relationship is arms-length and non-ex-
clusive’ [Jorde and Teece, 1990: 80]. Actually, technology transfers to the
South differ from North-North transfers because the tacit know-how compo-
nent is much more important, so that the potential competition posed by the
licensee is less, and because new and untried technology rarely enters the
exchange [Arora, 1991: 7-9].
The conclusion which has been drawn from this argument is that the amount
of tacit know-how provided increases in line with the degree of protection
afforded to the codified element of the technology to be transferred, with the
degree of complementarity between these two elements [Arora, 1991: 36-7]
and with the ‘technological distance’21 between the firms involved. It is
therefore maintained that when IP protection is weak, licensors are very
likely to supply lower levels of technological know-how by restructuring the
flow of tacit knowledge. This analysis is advanced as a reason for LDCs to
adopt stricter IP protection in order to facilitate the design of ‘contracts for
the successful implementation of technologies by bundling the provision of
assistance (conveying tacit knowledge) together with licensing of the use of
codified information such as patents and copyrights’ [David, 1993a, 242-3].

12
 David and Arora have also pointed out that although stricter protection of
IPRs may hamper the process of discovery and invention, it may be instru-
mental in bringing about the successful transfer and commercial application
of new scientific and technological knowledge [David, 1993: 19] because
effective licensing under an IPR regime must be complemented by assistance
contracts for conveying tacit knowledge. David then claims that weaker IP
protection ‘involves accepting the tradeoff of slower and less widespread
diffusion of technological innovation to the developing countries in exchange
for a more rapid pace of knowledge accumulation that may eventually
become available to all’ [David, 1993a: 242-243].
The argument based on tacit knowledge, however, does not seem to take
fully into account that at any rate not much complementary know-how can
be transferred to countries possessing little technological capability.22
The difficulty extends even to North-South transfers taking place within
TNCs [Teece, 1976]. Where some technological capability does exist the
need for tacit knowledge becomes less pressing, or it can be obtained from
domestic sources. Furthermore, if the role of tacit knowledge is proportional
to the complexity of the process or the product design, its relevance for the
simpler and less sophisticated technologies most needed by LDCs is bound
to be minor. It seems, therefore, that the tacit knowledge argument might be
relevant only for the most advanced LDCs, mainly for a few newly-industri-
alized countries (NICs). However, since these already posses technological
capabilities, they are better equipped either to provide themselves with most
of the tacit knowledge necessary for operating new technologies or to receive
it through FDI or other assistance arrangements with foreign suppliers of
codified technological information. In other words, their ‘learning to borrow’
is already rather well developed.
In fact, the tacit, uncodified character of much innovative activity would
be a reason to argue that ‘the problem with the property rights regime may
lie less with the lack of patent protection than with the lack of a robust
legislative instrument for trade secrets protection that is effectively enforced’
[Frischtak, 1990: 61]. Trade secrets are considered particularly vital during
the weeks and months from the moment of innovation or discovery until the
day a patent application can be prepared and filed. Informal surveys of
executives engaged in technology transfer licensing suggest that trade secrets
represent, very roughly, two-thirds of the technology transferred [Sherwood,
1990: 130]. Furthermore, the more complex the process or the product design
and the more technologically distant are the firms, or the countries, involved,
the more serious are the transfer problems posed by tacit knowledge. Since
this is often the case when LDCs are concerned, their potential advantage as
latecomers seems largely exaggerated. Yet, together with the need for ‘learn-
ing to borrow’ [David, 1993a: 240-41],23 LDCs must be reminded that not
only IPRs are required to make technology work. Furthermore, since the
more successfully a firm absorbs technology, the higher the chance of
becoming an innovator and a dangerous competitor, the foreign firm provid-
ing the technology has a strong incentive to keep out of the transaction some
uncodified information. Thus, strengthening and harmonizing IPR protection

13
 becomes less relevant: the only relevant issue is the control of piracy, control
which can be performed at DC’s points of entry.
It seems correct, therefore, to conclude with Maskus that it is ‘difficult to envision any
clear interests of the poorest countries’ in the stronger IP protection which the Uruguay
Round is attempting to set up and that, on the whole, ‘the expected dynamic benefits from
stronger and more harmonised IP regimes would fall largely on the industrial countries’
[Maskus, 1990: 407]. Mody strengthens the argument by maintaining [1990: 204] that
‘there is neither a theoretical basis nor an institutional capability for forging a worldwide
consensus on appropriate levels and mechanisms of protection ... [they] are already
becoming counterproductive in some areas’. The difficulty of demonstrating that LDCs
in general have a need for stricter IP protection derives from the notion that only those
countries with a significant concentration of imperfectly competitive inventive enter-
prises have ‘an incentive to maintain a high degree of patent protection as well as to press
for longer patent protection elsewhere’ [Berkowitz and Kotowitz, 1982: 12]. Since LDCs
do not fall into this category, stricter protection should be recommended only to NICs
and also to some more advanced LDCs in order to prevent them becoming competitors
too soon.
Even though the attempt to improve the protection of the innovator’s rights may aim at
stimulating research and rewarding investment, internationally uniform IP laws, particu-
larly patent laws, also tend to stifle the creativity of other innovators, to freeze techno-
logical advantages, and therefore economic power, in the hands of those who already
have it, and, ultimately, contribute to slowing down economic growth.

14
4. NORTH, SOUTH, AND TNCS: SOME DYNAMICS OF THE
BALANCE

There is an ongoing conflict between the technological innovators and the imitators, i.e.
those that copy or ‘invent around’.24 This conflict has been highlighted by the growing
control retained by TNCs on new technologies, the large role they play in international
trade and technology and the overall process of globalization of the world economy.
Simple production processes and simple products, which are most suitable for LDCs, are
also more copiable, so it is more difficult to appropriate the returns from less sophisticated
innovations. To minimize copiability TNCs then favour the production of technologies
that are more complex and sophisticated so as to make their transmission through markets
less efficient, i.e. more difficult, than within firms. The difficulty of appropriating the
returns of simple inventions, together with the efficiency of transferring high technology
worldwide inside firms rather than through the market, explain the tendency of TNCs and
private markets to seriously undersupply the technologies most needed by LDCs, namely
simple product technologies and production technologies which intensively utilise un-
skilled labour [Magee, 1977: 335; 1981: 124].
McCulloch has highlighted a very relevant consideration, that ‘the model of knowledge
as a public good with a transfer cost near zero is largely irrelevant for North-South
technology transfer. For these transactions the major costs of making the transfer lie in
creating required local know-how and infrastructure. The ineffectiveness of compulsory
licensing25 as a remedy for nonworking of Southern patents suggests that even making
patented technology freely available to Southern users would have little immediate
impact on its local application by Southern firms’ [McCulloch, 1981: 118-9]. The
discussion of the free-riding option tends to overlook two facts: the different technologi-
cal needs and tastes in the South and the South’s potential to undertake innovation for
these needs. It follows that not only may ‘Southern patents ... have a role to play in
promoting the development of technologies appropriate to the South’, but ‘increased
patent protection in the South need not always be good for the North’. Just as the increase
in innovative activity in the North, due to patent protection there, may be at the cost of
some products particularly suited to Southern requirements, increased patent protection
in the South raises the range of innovations, but also shifts it away from the North’s
preferences. Although ‘it is not clear a priori whether the South ought to have a lower or
higher level of protection than the North’, it appears that the South’s greatest incentive
to free ride is for products presenting little taste differences between the two regions
(computer software or economics textbooks), while it should grant strong IP protection
to other products, such as some pharmaceutical or agricultural innovations [Diwan and
Rodrik, 1991: 28-9, 37, 46-7].
Another important consideration in this balance of benefits is that the effects of progress
work asymmetrically. Technical progress in the North, even where it widens the techno-

15
logical gap between the two areas, always benefits the South, whereas a narrowing of the
gap, i.e. a ‘catch-up’, by an LDC, may not benefit the North and may possibly negatively
affect it. Since progress in the North tends to be biased towards goods not produced by
the South, while progress in the South competes with the North’s exports, the closing of
the gap reduces the North’s gains from trade. Hence the real and relative income of the
technological leader becomes a function of maintaining the lead, an objective which can
also be obtained through technological protectionism [Krugman, 1985: 36, 45-47].
Krugman has also demonstrated that while LDCs always gain from faster process
innovation in the North but may lose from faster product innovation, the North gains in
both cases. With technology transfer, the North always loses if product technologies are
more rapidly transferred, but may not do so if process technologies are transferred. LDCs
always gain. Thus, progress in process technology may lead to less inherent North-South
conflict. TNCs’ apparent bias toward transferring product technologies may be detrimen-
tal to the welfare of Northern labour, since it is the North’s special ability to produce
certain goods that constitutes the only source of inequality in wages. Consequently, the
transfer of technology to LDCs shifts demand toward the goods they produce, capital
starts moving there and the relative income of LDC labour rises [Krugman, 1979: 255
and 264].
Extending Krugman’s early model, Dollar shows that the North’s ability to introduce and
temporarily monopolize new technology enables its workers to earn a premium over the
wages paid to their counterparts in the South. This difference in labour costs constitutes
the main incentive for the diffusion of the technology to the South. An increase in the
labour force in the South causes wages in the North to rise by increasing demand for
Northern products, hence improving its terms of trade. In the long run, however, the
improvement in the North’s terms of trade leads to the more rapid diffusion of technology
and a capital flow towards the South, leading in turn to a fall in Northern real wages. The
growing downward pressure exercised over time on Northern wages by the increased
supply of labour in the South is due to the combined effect of both a reduction in Northern
labour’s marginal physical productivity and a decline in the latter’s terms of trade.
Consequently the South experiences a real increase in wages. The same effects are caused
by a more rapid diffusion of technology to the South. Indeed, the North’s specialisation
in exporting capital-intensive and importing labour-intensive goods is due less to initial
differences in factor endowments than to the North’s ability to keep introducing new
products.
Finally, since ‘over time the technology and capital that nations have available will be as
much the result as the cause of trade ... some government control of the process of capital
and technology transfer may be desirable in order to prevent further erosion of the world’s
relatively open trade in goods’ [Dollar, 1986: 178, 185, 188-9].
If the innovation process is perceived not as ‘a number of stages which proceed
sequentially ... in a linear and predictable fashion’ (the traditional serial model) but rather
as ‘an incremental and cumulative activity’ which is irreversible [David, 1993a: 218],
resting on ‘the existence of tight linkages and feedback mechanisms which must operate
quickly and efficiently, including links between firms, within firms, and sometimes
between firms and other organizations like universities’ (the simultaneous model) then
it is the organization of innovation, rather than just the organization of R&D, which must
change [Jorde and Teece, 1990: 77-8]. Since in the simultaneous model ‘lateral and

16
horizontal linkages as well as vertical ones’ become essential to obtain the necessary
capabilities, it has been argued that anti-trust laws may seriously hinder the innovation
process,26 particularly in mid-sized firms [Jorde and Teece, 1990: 76-79]. Therefore
complex bilateral and multilateral contracts, internal organization, or various hybrid
structures are often required to shore up obvious market failures [Jorde and Teece, 1990:
80] and to deal with the imperfections characteristic of the market for know-how. This
is more so the closer one moves to real, cutting-edge capabilities which are mostly
‘generated by precompetitive, collaborative research and development’ as in microelec-
tronics, biotechnology, and new materials [Teubal, 1993: 253].
In the simultaneous model of innovation, firms, in seeking ‘to bring technology to the
market and to hold competitors at bay’ rely less on the price mechanism or the adminis-
trative processes within the firm and more on interfirm agreements, and particularly
strategic alliances (the commitment of two or more firms to a common goal) which
include consortia and joint ventures. When the national anti-trust legislation is hostile to
joint R&D activities, as is the case in the US, it also tends to inhibit technological
innovations and international competitiveness [Jorde and Teece, 1990: 84-86].
New technological factors are affecting the balance of interests in IP matters. Some of
these factors offer advantages for LDCs, such as (a) cheaper access to more traditional
technology, due the acceleration of technological developments and the shortening of
product life cycles27 (b) the proliferation of public as well as private sources for
technology transfer, although this advantage is counteracted by the diminished political
incentive to transfer technology to the Third World since the end of Cold War; and (c) a
broader spectrum of chances for co-operation, an advantage that may apply mainly to the
more advanced countries in the Third World [Van Wijk and Junne, 1993: 7-11].
There has been an intensification of the demand from DCs for stronger IP protection,
particularly in advanced technologies such as IPRs on semi-conductors, copyrights on
computer programmes, patents, and plant breeders’ rights. This new pressure is connected
to the revolutionary impact of the technological breakthroughs of the 1970s on micro-
electronics and biotechnology [Kaplinsky, 1989: 377-81]. It is no coincidence that
computer programmes, plant varieties and biological inventions are also the more easily
copiable innovations. It has been argued that the ability to reproduce constitutes a capital
good in itself which deserves legal protection, in some cases even ‘novel and sui generis
forms of intellectual property protection’ [Vaitsos, 1990: 83-84].
New technological factors have altered the North-South balance in specific areas, such
as agriculture, biotechnology and microelectronics. Agricultural technology had been an
area in which most knowledge was a public good, but given the growing role played by
TNCs in the production of food, hybrids and fertilizers, in particular, the most advanced
technologies have become private property. Will the acceptance by LDCs of stronger
patent protection facilitate their diffusion?
Stewart [1990] has summarised the implications of the emerging fields of biotechnology
and microelectronics for LDCs. According to her analysis, the net gains for LDCs from
biotechnology are likely to be small, except for those LDCs that are able to diversify out
of primary production, and to establish some local R&D capacity. This is because (a)
some of the new products will be substitutes for primary products presently exported by
LDCs, (b) new varieties will offer a sharp increase in agricultural productivity and savings
on most inputs, including herbicides and fertilizers, which will impel growers to adopt

17
the new seeds. For producers of primary products with a demand elasticity of less than
one, this will reduce their net revenues and worsen their terms of trade (c) the changes
favour the trend toward large-scale farming and an increased degree of vertical co-ordi-
nation and control [Stewart, 1990: 310-12].
As for the implications of microelectronics, they will not necessarily be negative for those
LDCs ‘with a good basis of skills and infrastructure and a flexible labour force’. Such
countries can try to adopt the new technologies, thus increasing their productivity and
international competitiveness. The less developed Third World countries ‘are likely to
suffer a deterioration in international competitiveness’. The absence of design, manage-
ment and maintenance skills and complementary infrastructural facilities prevents the
widespread introduction of these new technologies [Stewart, 1990: 313-15].
Other factors behind the demands for more IP protection are that (a) investments in R&D
are becoming larger, (b) the number of actors carrying out R&D, against whom IP has to
be protected, is also increasing, (c) since innovations may have more unforeseeable
applications, IP protection for the broadest possible field is sought at an early stage of the
technological cycle, and (d) the fact that research has become a more co-operative
endeavour involving several institutions [Van Wijk and Junne, 1993: 3-7].
In the 1960s and 1970s LDCs took the initiative in IP protection and harmonization, with
attempts at revising the International Convention for the Protection of Industrial Property
of 1983 (the so-called Paris Convention, amended in 1925, 1934, 1958 and 1967)28 and
at creating a Code of Conduct on the Transfer of Technology. The effect of these new
factors has been to create a demand from the DCs for world-wide strengthening of the
global technology system, as a result of which many LDCs have strengthened their IP
protection. The insertion of the TRIPs in the Uruguay Round and the acceptance by the
LDCs of the Draft Final Act and the Review concerning this topic are the most recent
manifestations of the campaign waged by the most advanced DCs in favour of the
extension, strengthening and harmonization of IP protection. The about-turn in the LDCs’
position is explained by their awareness of the widening of the technology gap, due also
to stagnating transfer from the DCs and to the technological requirements of their
increasing reliance on export-oriented development strategies [Van Wijk and Junne,
1993: ch.3]. This has made them more attentive to the risk of trade retaliation from DCs
unhappy with the level of protection they were offering. Yet, if retaliation could be
assumed away, the abandonment of the patent system might represent a better alternative
for LDCs, since their losses from reduced domestic innovation under a more open system
would be outweighed by savings in international royalty payments. It has in fact been
demonstrated that ‘for a relatively long world patent life, even very large countries will
find it profitable not to have a patent system’ and they should ‘not grant local patent
protection for foreign companies’ [Berkowitz and Kotowitz, 1982: 8 and 16].
On a rather different level it has also been argued that making the international technology
system more open and accessible may generate substantial benefits for both DCs and
NICs [Ernst, 1990: 33]. Although no definition of such a system is provided, it seems
reasonable to assume that it includes less, rather than more, IP protection. However the
argument rests on the assumption of a fundamental shift in the international demand
structure, particularly for manufactured exports, with increased imports by Japan, the
NICs, China, India and Eastern Europe. This would create ‘greater scope for continuous
expansion by NICs of exports of a variety of manufactures’ and thus growing comple-

18
mentarity of technologies and production structures between the more advanced NICs
and the OECD countries. This would mean that intra-industry trade would increase,
capital goods producers in the DCs would experience robust demand in the NICs as the
latter invest in upgrading production, and this would lead to better ‘prospects for
cross-investment and technology diffusion’ [Ernst, 1990: 51-2]. Not only is this ‘opti-
mistic scenario’ becoming more unlikely, but it leaves out most of the remaining Third
World.
At present LDCs are acutely concerned with DCs’ insistence on protecting product
innovations, rather than just process innovations, particularly in the food, chemical and
pharmaceutical sectors. DCs consider that process patenting is insufficient to protect IP
and can give rise to counterfeiting, i.e. ‘inventing around’ or producing the same good
by some other means. LDCs give more weight to two disadvantages of product patenting
[Bifani, 1990: 170 and 169]. The first is that once product patents are obtained, R&D
investment in alternative processes is discouraged since all other possible production
processes can be protected only through dependent patents, which require authorization
from the main patent holders. This will be particularly limiting for the development in
LDCs of processes more appropriate to their domestic factor endowments and socio-eco-
nomic and environmental conditions. However ‘if traditional technologies have less
learning potential than the ‘inappropriate’ technologies, then LDCs may face a trade-off:
current output may indeed be lower (unemployment higher) with the inappropriate
technologies, but future output may be higher’ because of the greater learning potential
inherent in the new technologies and ‘the increased capacity to learn that is engendered
by the process of learning’ [Stiglitz, 1987: 140-1]. A second disadvantage from LDCs
point of view is that product patents stimulate importation of the protected goods, rather
than their local production, so they offer a weak mechanism for the transfer of technology.
The move toward greater harmonization of IPRs, both globally and regionally, will not
necessarily increase the availability of industrial technologies for LDCs. ‘National
innovation systems29 will remain national’ [Mowery, 1993: 56]. The more global the
harmonization and the stronger the protection offered to IP the more likely it is that the
general technology gap between DCs and LDCs will increase, with the result that FDI
will continue to stay away from LDCs. Meanwhile, the shift toward non-equity engage-
ments will allow foreign companies operating in developing countries to continue
exercising robust control from the outside [Van Wijk and Junne, 1993: 8-9].
By classifying LDCs according to their level of technological development and their
market orientation it is possible to obtain a first approximation as to the relative
importance of various channels for technology transfer.30 For Asian countries the most
important channel seems to be imports of capital goods, for Latin America it is FDI, and
for African countries technical co-operation grants. Meanwhile, some Asian countries
other than Japan are themselves becoming technology exporters [Van Wijk and Junne,
1993: 54-56].
It follows that there is no general yardstick for adequate or fair standards of IP protection.
‘Countries must, as they always did, experiment with various standards of industrial
property protection, utilising the preferential treatment that Article XVIII of GATT
provides for LDCs, in order to find out which one meets their needs best at a given stage
of their general economic development. Uniform standards of protection will suit uniform
markets only’, as has been demonstrated by the IP harmonization within the Common

19
Market [Ullrich, 1989: 157]. Hence regional harmonization or harmonization among
similarly developed countries appears more effective and fairer than global harmoniza-
tion that forces together economies at very different levels of development.

20
5. STANDARDS

It will be worth considering technical standards and their international harmonization

here, because there are some resemblances to the issues raised in relation to IP, and both
standards and IPRs are of interest under the general heading of the diffusion of technol-
ogy. To make efficient use of their resources countries need to build their technological
infrastructures, which form closely interconnected sets of institutions and actors, public
as well as private, that diffuse technological information and related services, including
the provision of research and its financing. As development strategies become more
export-oriented, norms and standards become more important, if product specifications
in different markets are to be met. Since standards tend to reduce transaction costs and
product variety (thus reducing the unit cost of physical production) [Kindleberger, 1983:
384] they facilitate large scale production and give rise to network externalities.31 The
existence of these externalities influences the adoption of both technologies and standards
[Farrell and Saloner, 1985]. Standards ‘also help technological diffusion because they
implicitly embody technology’ [Dahlman, 1993: 314] since to meet the better or higher
standards, better technologies are also required.
Standards are structured, technical documents describing the design, material, processing,
safety and performance required of a product. They are subdivided32 into technical norms
issued by state authorities, which are therefore legally binding, and ‘voluntary standards’
which refer to voluntarily agreed codifications regarding products and production meth-
ods [European Economy, 1988: 49]. Voluntary standards are intended to facilitate
communication within an industry. The importance of standards derives from their
relevance for the development and diffusion of new technologies and products, and thus
their impact on the structure of markets and the performance of industries. The main
problem in the process of standardisation is ‘that market competition does not lead to
enough standardization to optimize the efficiency of existing network technologies’. This
means that the state has a role in pushing the system out of ‘wrong’ standards and toward
more appropriate ones.33 However, the direction and extent of government intervention
is not easily determined. One option is to support R&D work on ‘gateway technologies’,
i.e. adapters, transformers and code translators which ‘permit ex post facto integration of
distinct system variants into larger networks’, thus increasing compatibility between
systems. These do produce immediate cost savings but ‘may exact unforeseen economic
penalties by discouraging investment in R&D programmes aimed at establishing the
technological dominance of one system over its rivals’ [David, 1987: 233-4].
Since technical standards have widely been considered as cost-increasing trade barriers,
their international harmonization is viewed mainly as a means to reduce trade barriers.
In some cases, such as communication between computers, telecom equipment, and
perhaps bio-technology, standards are needed to create a market since only after stand-
ardisation has taken place does the market emerge. This process of ex ante standardisation

21
‘may imply advanced research and co-ordinated product development or adaptation of
prototypes’ which ‘may also enhance the world-wide competitiveness of all firms
involved’ [Pelkmans, 1987: 256-7].
Harmonization is certainly not a costless process, but it seems to generate several
advantages for the countries involved, advantages that are greater the larger the number
of countries joining the harmonised network [Farrell and Saloner, 1985]. Although, in
an imperfectly competitive market, dominant firms may profit more from harmonization
which increases production costs [Salop and Scheffman, 1983: 287], it has been demon-
strated that ‘both in traditional and in monopolistic international trade models ... the
positive gains of an international harmonization process of technical regulations’ seem
assured for the countries involved [Lunati, 1992: 24]. For countries which do not
participate, it may reduce both their domestic consumers’ welfare and their international
competitiveness.
Although there still are those who view harmonization and standardization ‘as a potential
threat to their market position or a cause of unwanted adaptation costs’, in reality quality
and standardisation are closely related, since ‘standards can have a market-creating effect’
[Pelkmans, 1987: 260] and they can also contribute to an increase in productivity. In other
words, technical standards, if they cover a wide enough market, are a powerful way of
improving quality and reducing production costs. But technical standards which serve as
barriers to trade do increase the costs of production and marketing of the products
concerned. Hence the elimination of national differences with respect to technical
standards make both static and dynamic economies of scale possible. Costs decline, thus
facilitating exports and the restructuring of the sector in the countries that have harmo-
nised their technical standards. The process works with both homogeneous and differen-
tiated products, particularly for those which are vertically differentiated.34 Furthermore,
the harmonization of technical standards may affect rather differently, according to the
modalities of its implementation, countries characterised by asymmetrical economic
development (see contributions by G. Hansson and S. Lutz in [Lunati, 1994: 79]).
If harmonization enhances global efficiency, then DCs should be willing to compensate
LDCs for the negative impact such a measure may have on their economies. Furthermore,
it should be possible to provide some trade benefits to the technology-buying countries
in order to compensate them for opening up their technology markets formally [Evenson,
1990: 354]. Much the same arguments have been applied to the harmonization (i.e.,
strengthening) of IP protection [Chin and Grossman, 1990: 106].
As for the role of the state in the process of standard setting and harmonization, it has
been demonstrated that while such a role should be minimal in a market characterized by
static conditions, in a market dominated by dynamic forces it becomes essential in order
to check the natural tendency of market competition to lock the system into ‘wrong’
standards [David, 1987: 227-8]. The same is probably also valid for international markets
which tend to present more dynamic characteristics than domestic markets. However,
there is no international state, and international agencies such as GATT are not keen to
take on such a task, while national states are not willing to relinquish the little authority
they still posses.

22
6. HARMONIZATION AT THE GLOBAL LEVEL: THE ROLE OF
GATT AND THE URUGUAY ROUND

In general the need to harmonise regulations and treatments arises from the need to
simplify comparisons, reduce costs and facilitate transactions. The need is first felt within
national boundaries, then it tends to interest ever wider regional areas, ultimately reaching
the world level as international trade and other transnational activities increase to the
point at which we can speak of the globalization of economic life.
The current drive toward harmonization of IP protection derives from both the ongoing
process of globalization and the direction taken by technological innovation. A global
marketplace has been created through improved international communications and a
wider opening of most economies, together with the substantially increased quantity of
goods embodying IP being traded internationally. As this type of trade has expanded, the
absence of international instruments to effectively deal with abuses, particularly to curtail
counterfeit goods and pirated services, has caused trade disputes to mount rapidly and
has encouraged governments to resort to unilateral measures in order to satisfy domestic
pressures against such practices. Policies that had always been considered as purely
domestic are now being questioned by trading partners because they have a trade effect.
In some cases they are being redefined as non-border trade barriers. Government
measures regarding services, investment and IP, ‘although generally not imposed at the
border, have clear trade implications’ [Greenaway and Sapir, 1992: 510-1].
IP constitutes a significant part of the trade in this global marketplace. In 1986 over 27%
of the United States’ exports were thought to contain an IP component and the trade is
‘increasing dramatically’ [Gadbaw and Richards, 1988: 3-4]. The value of world-wide
technology transactions, i.e. royalties, fees and technical services, reached $21.8 billion
by the mid-1980s and an estimated $28 billion by 1988. The value rose to $33 billion by
1990, 98,7 per cent of it flowing among OECD countries [Hoekman, 1993: 1529].35 On
the other hand, Third World payments have actually declined, from around $2.0 to $2.5
billion annually during 1981-83, to less than $2 billion since 1985 [UN, 1988]. This has
been accompanied by falling FDI and the very limited transfer of new technologies,
although the flows of both appear to be very unevenly distributed among groups of LDCs,
with the NICs receiving the most. Since most of today’s more valuable innovations flow
from incremental improvements in applied industrial know-how, they become embodied
in products that are widely distributed all over the world [Reichman, 1989: 136]. The
difficulty of keeping this know-how and the new technologies secret, and the ease with
which they can be appropriated by those who have not shared in the enormous investment
in R&D, is demonstrated by the estimate that counterfeit products made up more than
6% of total world trade in the mid-1980s [Slaughter, 1990: 418].

23
Innovation, particularly new technologies, is blurring the distinction between product and
process technologies36 as well as rendering much more pronounced their ‘copiability’,
and it is proceeding at a pace which represents a challenge to the legal structure that
governs IPRs.37 The diffusion and assimilation of new technologies are strongly affecting
the patterns of competition, growth and trade shaping the world economy, since (a)
knowledge has become much more important as a productive input, (b) imitation has
become relatively easier and more widespread as the number and competence of potential
imitators increases, and (c) with product cycles becoming shorter, firms have come to
consider it important to search for new ways of protecting their IP, including resorting to
alliances to share technology [Mody, 1990: 212].38
The conflict over IPs concerns mainly these highly copiable technologies, some of which
were mentioned in section 4 above. For these technologies ‘the co-operation of the creator
is unnecessary in developing the product as indigenous producers can imitate it cheaply’
[Subramanian, 1990: 517]. Not only have the technologies for duplicating become more
advanced, and the reproduction of IP easier and cheaper, but a product of the new
technologies, such as a computer programme or an integrated circuit design, or even a
biogenetically altered organism,39 tends to ‘bear its know-how on its face, a condition
that renders it as vulnerable to rapid appropriation by second comers as any published
literary or artistic work’ [Reichman, 1989: 136-7]. The growth of trade deficits in the US
and other DCs has made such a practice less acceptable by the innovating countries
[Hartridge and Subramanian, 1989: 895-6].40 The main impetus for the introduction of
IP into the Uruguay Round’s agenda has been provided by US private business interests,
and particularly TNC organisations such as the US Intellectual Property Committee (IPC)
interested in stopping the alleged erosion of their position at the cutting edge of
technological progress by unauthorised copying of their IP abroad [Deardorff, 1990: 497;
Evenson, 1990: 326; and Bradley, 1987]. The main sectors interested in the extension of
IP protection seem to be the high technology ones, the producers of luxury goods and the
entertainment industries. As for the rapid growth of counterfeiting and piracy,41 it ‘seems
to have been greatly facilitated by some of the new technologies themselves, such as the
ease of copying computer software and audio and video recordings, although they are not
limited to the new technologies’ [UNCTC, 1990: 2]. Besides, since in functional works
a writer can write for human audiences but also for machines, the distinction between
inventions, covered by patents, and authorship, covered by copyright, has become
blurred.
The positive side of high copiability is that the failure of the international patent system
to provide effective protection for inventions and innovations in electronics, as well as
in other areas most affected by the new technologies, has also caused their more rapid
imitation and diffusion both nationally and internationally [Soete, 1985: 417].
The Uruguay Round negotiations have focused on the need to establish multilateral
standards for the protection and enforcement of IPRs, since investments in R&D produce
large spillover effects that can no longer be confined within the boundaries of the country
undertaking them. This means that standards for the legal protection of IPRs are seen as
an integral part of trade liberalisation, in addition to their obvious relation to FDI and the
transfer of technology.
Many DCs have suffered a loss of competitiveness as comparative advantage in a wide
range of manufactures, including low-tech products but extending to high-tech sectors

24
such as consumer electronics and semi-conductors, has shifted South. This has convinced
them that inadequate or inefficient protection of IP is depriving them of a competitive
advantage in the high technology sectors [Kostecki, 1991: 271]. Besides, the stiffer
international competition tends to reduce profit margins, making ‘illegal copying of
technologies a more serious problem than it was before when there was little interest in
Third World markets and when copying companies were less export oriented’ [Van Wijk
and Junne, 1993: 69]. Furthermore, because the number of ‘routes’ available for obtain-
ing the same product has increased and because firms do not really know what is easily
copiable and what is not, different productive sectors find themselves allied in requesting
more IP protection.
As DCs are losing their comparative advantage in some traditional sectors, they are
shifting resources into activities with a high intensity of creativity, research, or knowl-
edge, all of them IP-intensive, since these are the fields in which the DCs retain their
comparative advantage. This has not only led to demands for stricter IP protection, it also
increases the temptation to use trade policy as a tool to deal with IP protection issues,
which were beyond the traditional scope of trade negotiations. This is in contrast with an
earlier tendency toward a steadily declining role of patents [McCulloch, 1981: 117] (and,
for a different view [Mansfield, 1986: 178-9]). Their freedom to make effective use of
trade leverage, for example by conditioning trade concessions on the provision of IP
protection, is ‘in fact quite limited if its use cannot somehow be justified under GATT
rules’. Without such justification they risk being accused of unilateralism and becoming
exposed to retaliation. Yet GATT contains only limited references to IPRs [Gadbaw,
1989: 230] and it addresses only states, with the result that private citizens are not entitled
to directly invoke rights or obligations by referring to GATT rules. This is in contrast to
the main IP conventions which are largely self-executing, i.e. they contain rules formu-
lated in such a way as to be appropriate to form generally applicable national laws, with
or without adoption, yet in both cases applicable to the nationals of the member states,
thus allowing individual claimants to invoke the conventions’ rules [Fikentscher, 1989:
109-10]. A GATT IP system therefore places private IPRs in the hand of national
economic policy makers with the likely result that the exploitation of IP ‘will have to
follow the imperatives of the policy they make’. Moreover, by subjecting standards of
national IP protection to a negotiating process, it makes them dependent on ‘a quid pro
quo mechanism whereby private intellectual property rights are traded against commer-
cial advantages’ [Ullrich, 1989: 136-7 and 139]. Since a case can be made that weak
protection of IP does not violate GATT rules,42 LDCs could require concessions in other
areas.
Although the actual negotiation of the terms under which IP has been included in GATT
has no doubt been based largely on national interests and inequalities of power, it will be
worthwhile to give some consideration to the theoretical framework of the harmonization
of IP protection. The motive for harmonization derives from the simple consideration that
‘the potential domain of economically useful innovation transcends the horizon of the
national state, for reasons inherent in the economic nature of knowledge itself’. And since
international economic relations tend to be essentially competitive, how and to what
extent competition leads to the generation, accumulation and dissemination of useful
knowledge remains an important question [Johnson, 1976: 417-8]. In fact, once a patent
has been granted according to the law of either a national state or a regionally integrated
system, the disclosure of the invention which is required for obtaining the patent also

25
makes it internationally available, and thus facilitates its imitation and copying. Hence
the patent holders’ interest in geographically extending their monopoly rights and their
strong support for a system that would secure patent protection in foreign markets, a
system which is opposed both by the domestic advocates of industrialisation in general
[Machlup, 1958: 17] and even more by those involved in the hi-tech field in the NICs.
The latter view IP protection as a barrier to the entry of their new hi-tech products and
processes, a tool to protect DC’s ‘infant hi-tech industry’ [Beath, 1990: 414].43
The infant-industry argument reemerges whenever LDCs possess some R&D capability,
even if it is inferior to prevailing standards abroad. The new strategic trade theory has
been used to justify the protection of this indigenous R&D [Subramanian, 1991: 946].
The argument is based on external economies: ‘the inability of innovative firms to
appropriate fully the knowledge they create’ being ‘empirically the most plausible source
of positive externalities’. Based on perfect competition, traditional international trade
models cannot accommodate ‘externalities resulting from incomplete appropriability’.
Furthermore, the applicability of the perfect competition model is undermined by the fact
that ‘investment in knowledge has a fixed-cost aspect that causes dynamic economies of
scale’, leading to competition ‘over who gets to realize these externalities’ [Krugman,
1987a: 137-38]. Strict IP protection can assist DCs in winning these externalities, but it
could also be favourable to LDCs whose R&D capability is not too weak.
Since most DCs, and especially the US, have realised that their competitive advantage
rests on the technology and innovatory prowess of their TNCs, harmonization has come
to mean growing stress on IP protection, the so-called global ‘minimum standards’, as
against the ‘national treatment’ principle. In fact, the TNCs need IP protection in more
countries than they did previously because they either plan to become active there, or
want to prevent competitors from being active there, or even because they need the
protection as a bargaining asset to negotiate a favourable agreement with a local company
[Van Wijk and Junne, 1993: 4-5].
For the DCs, their innovation policy and ‘fair’ trade goals, based on the strategic trade
theory, seem to have become more important than the strengthening of GATT’s multi-
lateral trading order. This must raise the issue of whether they are considering IPRs as
an instrument for facilitating the transfer of technology to LDCs, or as a means to slow
down or avoid this transfer, which may erode the North’s technological edge and
consequently its monopoly rents. In fact a global TRIPs agreement cannot but raise the
costs of infringement, since refusing to protect foreign rights, de facto implies encourag-
ing local infringement [Maskus, 1990: 388]. Because marginal returns from licensing
were not considered important, the US tended in the past to license its technologies on
rather generous terms. Only when it become apparent how quickly some countries,
notably Japan, were able to assimilate those technologies did US firms start not only to
tighten licensing terms in order to better protect their rents, but also to pressure the
government to push for a global harmonization of norms and standards. ‘This pressure
has led to the essentially political ... process of setting domestic and international
technology standards’, a process to which private firms and government agencies
contribute intensively [David, 1987: 211].
No general consensus has emerged on whether the harmonization of IP protection should
aim at the comprehensive and fundamental restructuring of the IP system, or on whether
it should include trade secrets as in the US proposal [Braga, 1990: 86]. Although GATT

26
expressly exempts patents,44 copyrights and other IPRs from its discipline, the US has
been pressing for the development of a set of standards for IPRs protection and the
adoption of a system of full harmonization extending to cover patents, trade marks,
copyrights, trade secrets and semi-conductor chips. An Anti-Counterfeiting Code jointly
sponsored by the US and EC was presented as early as 1978 at the Tokyo Round, yet no
single international agreement has explicitly dealt with counterfeiting before the matter
is taken up in the Uruguay Round.45 Other DCs have proposed the convergence method,
and the EC has concentrated on the streamlining approach, simplify the national rules
that favour domestic activities by discriminating against imports. In the GATT negotia-
tions the EC is not much interested in seeking the harmonization of national laws, but
would like to see an agreement on a set of principles for substantive standards to be
respected by all [Raghavan, 1990: 121].
Estimates of the losses caused by piracy and lack of protection of US IPRs incurred by
US firms in 1986 amounted to almost 24 billion dollars, or 2.7% of sales affected by IP.
Other estimates of US losses, although considered much too high by some, range from
43 to 103 billion dollars, and similar figures are expected for Western Europe and also
Japan. As for LDCs as a whole, the patent protection adopted by GATT may entail
additional royalty charges of between 43 and 102 billion dollars per year to be paid to
DCs [Almeida, 1990: 83].46 The ‘aggressive unilateralism’ applied by the US,47 with the
approval of several other DCs, has transformed GATT’s reciprocity principle into what
has been called ‘status quo reciprocity’ [Subramanian, 1990: 510] according to which,
despite the principle of national treatment incorporated in both the Paris and Berne
Conventions and in the Universal Copyright Convention, other countries must improve
their IP standards in order to maintain their current access to DCs’ markets. This amounts
to the rejection of the mutual multilateral process with its traditional negotiations for
increased market access. The apparent effectiveness of the approach should not hide the
risk that it can undermine the credibility of the multilateral rules-based trading system
painfully built up after the Second World War.
In the preparation for and during the Uruguay Round, DCs have maintained that GATT
is the only forum entitled to deal with a topic like IP, while the LDCs insisted that GATT
was meant to deal only with goods, and so has no jurisdiction on IP matters, which are
better left to existing international bodies such as the World Intellectual Property
Organization (WIPO)48 and UNESCO (which sponsored the Geneva ‘Universal Copy-
right Convention’ (UCC) of 1952). Not only are these bodies directly related to IP, they
are already policing and administering international agreements in this field.49 Thus ‘the
challenging task of the TRIPs negotiations is to achieve a modicum of constructive
interaction between two separate sets of rules which have evolved independently: the
rules governing trade embodied in GATT and several GATT Codes and the rules
governing IPRs which are embodied in a number of international agreements adminis-
tered by or in co-operation with WIPO’ [Weiss, 1990: 102].
This has been characterised as an attempt to pursue international trade liberalisation
‘through the growing global monopolization of one of the most important factors of
production, that is knowledge, a process facilitated by the absence of international agreed
antitrust rules’ [Bifani, 1990: 177]. It would mean for GATT ‘a rather dramatic shift in
orientation’ [Benko, 1988: 223]. Although the proponents of this shift try to distinguish
IP protection from trade protection, arguing that the former is necessary to allow IP
owners to export the products embodying it, so that this protection in fact fosters

27
international trade, there is no doubt that GATT is now ‘being called upon to extend
protection, not restrict it’ [Deardorff, 1990: 498]. In fact, the attempt to ensure adequate
protection of IPRs without increasing barriers to trade ‘has proven to be an excessively
hard if not impossible task’ [Kostecki, 1991: 271] and the establishment of a uniform
approach to IP protection has generated a ‘curious paradox’. On the one hand, DCs ‘that
nominally subscribe to a regime of free trade competition want the rest of the world to
strengthen their domestic intellectual property laws and to accept international minimum
standards that could significantly restrict opportunities to copy cultural and technological
products originating in the industrialized countries’. On the other hand, LDCs, ‘whose
domestic economic policies restrict free-market principles, appear to support free com-
petition for products of human ingenuity in the international market place’ [Reichman,
1989a: 795]. Or, in the words of an Indian economist, ‘on the same platform, [the DCs]
plead for freedom for their traders and protection for their manufacturers’ [Patel, 1989:
985].
Apparently, ‘to rely on the pure forces of the market has become increasingly difficult
and perhaps irrelevant, even for those who profess most respect for them. As the
‘Hobbesian’ market makes its way in the international economy, some participants of the
Uruguay Round start to adopt a hard stance regarding the liberal belief’ in a free market
[Almeida, 1990: 78].
Since in the most literal sense, intellectual property laws are NTBs, and GATT expressly
recognizes them as exempt from GATT’s proscription of NTBs, it is evident that national
IP laws, or the failure to have them, ‘are NTBs cognizable under GATT’ and therefore
fall under its jurisdiction. The question becomes then ‘whether a particular national law
is an intellectual property law, in the meaning of the GATT exemption’. If national IP
laws ‘act like NTBs only when there is disharmony in the law of nations’, not all IP
regulations have to fall automatically under GATT jurisdiction [Stern, 1987: 202-5], but
higher standards of harmonization become even more important. DCs’ insistence on a
GATT-based international regime for IP rests on the contention that inadequate, excessive
and discriminatory protection of IPRs impedes and distorts trade.50 There is, however,
the risk that ‘combined with existing distortions in the foreign trade regime, strengthened
intellectual property protection could also lead to potentially inefficient R&D invest-
ments’ [Nogues, 1990a].
Most LDCs have slowly come to accept that GATT deals with IP, in part because, under
present circumstances, with an unstable world situation, GATT may help to protect them
from the most aggressive DCs. Furthermore, GATT’s principle of ‘positive reciprocity’
makes it possible to reach trade-offs in negotiated packages that involve different sectors.
Most LDCs have nothing to gain from upgrading their IP protection systems, which, as
they stand, do not constitute a violation of their trade obligations. For them, entering new
agreements for the harmonization of IP treatment represents a policy concession which
DCs should reciprocate by providing better market access for LDCs’ textile exports and
more open markets for their agricultural products [Maskus, 1990: 408].51 If one believes
that protection of IP does indeed enhance global efficiency, there should be room for
additional reciprocity and even for some compensation to LDCs.
Another way of modelling this reciprocity is Stern’s suggestion that inadequate IP
protection should be seen as a tax on the returns from IP. This tax, however, does not
produce revenues for the state, but instead represents a subsidy to the nonpaying users of

28
the technology. If all relevant IP was owned by foreign companies, the tax would amount
to a tariff. It is thus analogous to the tariffs on labour-intensive imports imposed by DCs,
so the reduction of both tariffs could be jointly agreed in bilateral or multilateral
negotiations [Stern, 1987: 206].
While the DCs’ agenda is based on the assumption that adequate levels of IP protection
are essential for trade liberalisation and the encouragement of FDI and technology flows,
the LDCs’ main interest is to obtain more access to, and improved terms for, technology
transfer, including the most recent technologies. They perceive IPRs as raising barriers
to technology acquisition and as increasing the cost, at a time when it is being increasingly
recognised that the acquisition of foreign technology is the first ingredient for successful
technological accumulation [Bell and Pavitt, 1993]. An IP regime intended to protect
DCs’ strategic industries from copying and reverse engineering52 may in fact deprive
LDCs of the most advanced technologies and so exclude them from the learning process
which is essential for reducing the technological gap. In fact, for Third World countries
the Uruguay Round means both accepting IP protection and harmonizing their standards
upwards to the level of protection prevailing in the DCs, which is not only above the
standards applicable under the IP laws of most LDCs but also higher than the minimum
rights guaranteed under the Paris Convention.
This again raises the doubts mentioned earlier concerning the motivation of the DCs: is
the harmonization, or rather universalisation, of patent laws intended ‘to reward export
monopolies in the industrial centres which would slow down industrialisation and spread
of technology in the Third World’ [Raghavan, 1990: 116], or are they, as they themselves
maintain, trying only to reward innovation and inventiveness, without which there would
be no progress and no technology transfer? If the latter is true, are there grounds to give
a positive answer to the basic theoretical question of whether or not the patent system per
se significantly promotes innovation?53
If the justification for granting patents rests on their providing incentives for the
development of industries in the patent-giving country, what is the value to that country
of a patent which is not locally exploited? It was only with the growth in international
trade that ‘it was realized that enterprises could benefit from a patent grant without having
to exploit the patented invention in the country granting it, but by importing from abroad’.
During the 19th century and the first part of the 20th century it was common for patent
laws to require patent holders to exploit their patents and to prohibit patents being used
to secure exclusive rights over export markets [Bercovitz-Rodriguez, 1990: 3-4 and 9].
The requirement that patents be locally exploited rests on an artificial distinction between
the processes of innovation and diffusion. LDCs need to concentrate on diffusion, but
this ‘involves more than the acquisition of machinery or product designs and related
know-how’. It involves ‘a continuous accumulation of knowledge and skills in the
technology-adopting firms and countries’ which makes possible the introduction of more
substantial technical changes and even proper innovations [Bell and Pavitt, 1993:
259-60]. This dynamic interactive process generates technological capability, defined as
‘the ability to scan, assess, select, use, assimilate, adapt, improve, and develop technology
that is appropriate to changing circumstances’, accumulated in people and institutions
[Dahlman and Nelson, 1993: 6; Rosenberg and Steinmueller, 1988]. This modelling of
the process allows considerable scope for variations in the gains to be obtained from
adopting internationally transferred technology as a means to also foster domestic

29
technological learning [Bell and Pavitt, 1993: 260-61]. Since ‘the skills needed for
imitation are essentially a sub-set of those needed for innovation’, so ‘the capabilities
which are built through successful imitation become the basis from which innovative
capabilities finally emerge’ [Cooper, 1991: 12]. Thus, no country should adopt an IP
regime that does not facilitate the creation of technological capability and technological
learning.
This conclusion is strengthened by considering that ‘contrary to a widely-held assump-
tion, technology does not spread among the industrial countries mainly through ... [FDI
and licensing] but rather through reverse engineering and imitative research and devel-
opment’ [Bell and Pavitt, 1993: 269]. Therefore, the acquisition of technology, whether
or not FDI is involved, relies on a learning process for the development of an appropriate
domestic technological capability, and possibly on the existence of a suitable technology
policy. Also evidence from the international semi-conductor industry suggests that the
advantages of FDI over licensing are less to do with informational secrecy than the early
establishment of long-term contacts with overseas consumers, both for ‘learning by
using’ feedback and to deter entry by local producers [Flaherty, 1984: 69-70]. Therefore,
a technology policy dimension is particularly important since failures of the learning
process tend to be more common in LDCs than in industrial countries [Cooper, 1991:
15] and the absorption of new technologies, particularly informatics, may be a slow and
gradual process for most LDCs [Marton and Singh, 1991: 206; Lall, 1990].
It must be stressed that (a) ‘the ongoing debates about proposals for global harmonization
of intellectual property protection are, in large measure, about the desirability of achieving
such uniformity at a strong, rather than a weak standard of property rights enforcement’
[David, 1993: 3], and (b) that the establishment of minimum standards for IP protection
is a rather complex task. GATT has not been ‘a standard-setting institution’ having relied
instead on national treatment and the most-favoured-nation principle,54 although it is clear
that ‘national treatment achieves nothing in the absence of standards’ [Benko, 1988: 223]
i.e. without the specification of minimum conditions against which a firm’s or country’s
behaviour can be measured, and (c) to achieve such an harmonization at world-wide level
implies resolving any conflicts with regional schemes of IP protection as well as
co-operating with already existing international institutions responsible in this area.
The issues involved in the harmonization of IP protection can be tackled by answering
the following questions: (a) do the benefits exceed the costs of extending IP protection,
i.e. is it efficient?; and (b) is the geographical distribution of these costs and benefits fair,
i.e. is it equitable? Those that answer both questions negatively, or are unable to answer
them positively, must then be prepared to accept ‘an optimal geographical extent of patent
protection that need not be the whole world’ [Deardorff, 1990: 500-5]. If one then also
strongly doubts whether higher IP protection would contribute to global welfare, then the
‘presumption of global welfare deterioration’ becomes rather strong. Even assuming
global welfare gains, there remains the high probability that bilateralism and its ‘status
quo’ reciprocity will prevail over the multilaterality required if national welfare losses
are to be compensated for [Subramanian, 1990: 518 and 521].
Yet the conclusion of the Uruguay Round on December 1993 marks the acceptance by
LDCs of a new IP standard markedly different from LDCs’ original position. The
agreement presents the following main characteristics:

30
(i) patents are protected for 20 years from time of filing. Inventions which may
be excluded from patenting are those affecting public order or morality,
therapeutical methods, and plans and animals which are not micro-organ-
isms.55 Also biotechnological inventions are to be protected under patent law,
while plant varieties can be protected either by patents or by sui generis
systems, to be revised after 4 years, such as the breeders’ rights of the UPOV
Convention. With the exception of pharmaceutical products, compulsory
licensing of patents (allowed by Article 5A of the Paris Convention) is
forbidden. The protection of a patented process extends to the products
directly obtained by that process. The burden of proof in case of alleged
infringement of process patents is also reversed;
(ii) copyrights and related rights such as computer programmes, original compi-
lations of data and cinematographic works, are protected for the life of the
author plus 50 years. Protection for 20 years is accorded to broadcasting
organisations. Computer programmes are protected as literary works under
the Berne Convention (of 1886, as revised in 1928, 1948 and 197156), there
are important additions to existing provisions on rental rights, and performers
and producers of sound recordings are also protected;
(iii) industrial designs, including the lay-out of integrated circuits, are protected
for at least 10 years on the basis of the WIPO ‘Treaty for the Protection of
Intellectual Property in Respect of Integrated Circuits’ (IPIC) of 1989. The
protection extends to equipment containing a protected chip and infringe-
ment involves compensation;
(iv) trademarks are protected for 7 years. The protection can be renewed indefi-
nitely and compulsory licensing is forbidden;
(v) protection is extended to geographical indications, particularly for wines and
spirits;
(vi) trade secrets and know-how which have commercial value are also protected.
Rules and procedures are established for dealing with counterfeited and
pirated goods. In cases of ‘wilful trademark counterfeiting or copy right
piracy on a commercial scale’ the punishment includes ‘imprisonment and/or
monetary fines sufficient to provide a deterrent’;
(vii) the effective IPR enforcement mechanism is available to both foreign right-
holders and nationals. Dispute settlements take place under GATT/WTO,57
while the operation of the TRIP agreement and governments’ compliance
with it is to be monitored by a Council for Trade Related Aspects of
Intellectual Property Rights, which is to be created;
(viii) the agreement is to be implemented, and national legislation brought into
line, after a one year transitional period for DCs, 5 years for LDCs and Eastern
European countries, and 11 years for the least developed countries. LDCs
which currently do not provide product protection have up to 10 years to
introduce such protection.
Clearly, most of these elements go far beyond minimum standards. In fact, as a result of
this first-time introduction of the most-favoured-nation clause in an international IP
agreement, foreign nationals, to whom any advantageous treatment must be extended

31
immediately and unconditionally, may enjoy a more favourable treatment than nationals;
the 20 year term for patents constitutes a world-wide maximum as does the requirement
of protection for chemical processes and substances and the inventive step requirement
[Ullrich, 1989: 157 fn. 85]; compulsory licensing is even more restricted than the ‘Model
Law for Developing Countries on Invention’ proposed by BIRPI (the secretariat for the
International Bureaux of Intellectual Property, replaced in 1970 by WIPO) in 1965
[Penrose, 1973: 779-83]; and, finally, rental rights and protection against unauthorised
recording of life performances go beyond the Berne Convention. Furthermore, article
27.3 requires every country to introduce some form of IPR system for seeds and plants,
although it can choose the kind of monopoly to apply, which basically means either
patents or breeders’ rights. Yet, not only are there countries like India which forbid IPRs
for ‘a method of agriculture or horticulture’ (art. 3(i) of the 1970 ‘Indian Patent Act’),
but by requiring an ‘effective’ IP protection (as in the American Section 301) the
agreement implies that such a system will not be determined by individual countries but
by the GATT [Shiva, 1993: 556].
Finally, since bilateralism tends to set standards and modes of IP protection that ‘have
not been established as either the most effective or the most desirable methods of
protection’, their incorporation into a multilateral accord will only perpetuate the ineffi-
ciency of these standards. Therefore, the US view that some form of protection is more
desirable than none seems very short-sighted: ‘it is not necessarily good for everyone and
is perhaps counterproductive for the US in the long-run’ [Mody, 1990: 225-6].

32
7. HARMONIZATION AT THE REGIONAL LEVEL WITH
PARTICULAR REFERENCE TO THE EC’S SINGLE MARKET

The previous section contained a suggestion that the optimal geographical extent of patent
protection need not be the whole world. The EC offers an instructive example of the
difficulties of the international harmonization of both standards and IP protection, and
how these difficulties may be tackled. It can also serve as a model for a specifically
regional harmonization process. Naturally the EC is also interested in stronger IP
protection outside the Community, particularly in LDCs.
The Treaty of Rome, which established the EC, decrees that no member state can refuse
to import goods produced by other member countries, but exempts restrictions protecting
the quality of life (art. 36) i.e., standards of safety, health, etc. The Treaty also states that
national norms directed at protecting quality of life should be made similar in order to
permit the free movement of goods within the Community (art. 100). The same applies
to IPRs, since a ‘Europe without frontiers’ cannot materialise if these vary widely from
member state to member state.
The Treaty allows two routes for the harmonization of IP protection within the commu-
nity. The first is the principle of mutual or reciprocal recognition, which can be construed
from Articles 30 and 36, and the second is harmonization, or the bringing closer together
of national norms. The second approach derives from Article 100 and was followed until
the beginning of the 1980s. The problem has been its political impracticability: states
with higher standards resisted accepting the lower standards that emerged from the
bargaining process which was inevitable under the rule of unanimity established by
Article 100. Furthermore, the process interferes with each country’s autonomous right to
find an equilibrium between state intervention and the market’s self-regulating power
[Good, 1991: 399].
Therefore, by the middle of the 1980s the EC’s approach shifted towards mutual
recognition. Under this so-called ‘new approach’, the EC has confined itself to a total
harmonization of objectives in the fields of health, safety, etc., while the standardisation
of the means for their implementation was left to national public authorities and the
private sector. Furthermore, a qualified majority is now sufficient to determine the
objectives for technical harmonization (art. 100A of the Single European Act (SEA)).
When technical harmonization concerns protecting the quality of life, however, it is
stipulated that the process should ‘take as a base a high level of protection’ (art. 100A of
the SEA). The conditions which producers must meet to be able to sell their products
represent a minimum for them, but a maximum for the controlling authorities. This ‘new
approach’ represents an attempt not only ‘to accelerate both harmonization processes at
the Council level and European standardisation processes at industry level’, but also to

33
provide ‘more flexibility for innovation and easier market access’ for producers from
member countries [Pelkmans, 1987: 249-53 and 260].
In 1990 a ‘Green Paper on the Development of European Standardization’ proposed the
establishment of the ‘European Standardisation System’ and a redefinition of the tasks
of the European and national standardisation bodies. The previous year the Council of
Ministers had approved the guiding principles underlying a Commission Memorandum
on ‘A Global Approach to Certification and Testing’, since the assessment of a product’s
conformity to essential requirements constitutes a rather central element to the elimina-
tion of technical barriers to trade [Walle et al., 1990: 1566].
With respect to the quality of the product, the ‘new approach’ enacted by the resolution
of 7/5/1985 [Previdi, 1990; Walle et al., 1990] aims at guaranteeing a minimum level
which competition can only improve.58 This minimum level is obtained by establishing
(a) simple general clauses for the protection of collective interests such as safety, health,
and environment, rather than precise technical specifications, (b) a consultative process
among the various parties involved in what is officially referred to as ‘normalization’ or
‘the organization of consensus’, (c) a system for confirming the observance of technical
specifications, and (d) a system of inspection and testing of marketed goods. To prevent
the different national practices and capabilities, with respect particularly to (c) and (d),
hampering the circulation of goods among member countries, there is the principle of
reciprocal recognition, already adopted in 1969. To this principle has been added, first in
1984 and then again in the ‘new approach’ of 1985, the objective of harmonising the rules
on control or certification activities. The result has been the provision of a single EC mark
(see [Gielen, 1992]). However, if quality marks and national marks certifying conformity
to national standards are allowed to co-exist with the EC mark, they may once again
become de facto, technical barriers [Walle et al., 1990: 1562]. It seems, therefore, that
the EC Commission has not abandoned its intention to replace national standards with
European standards.
The creation of an EC-wide organisation for industrial quality (including the European
Organisation for Testing and Certification, and the EC mark) is certainly crucial to the
Single Market, but it may also constitute a serious obstacle for extra-EC goods. In other
words, there is a danger that European technical specifications will be developed so as
to frustrate extra-EC imports. The danger is even more real for LDCs, whose exports
cannot always achieve these standards, given their limited technical capabilities and the
high costs involved in the required quality control.59
None of the EC Treaties contain measures specifically focused on IPRs, except for a
mention in Article 36 of the EC Treaty, so that IPRs are created and protected only by
national law. Nevertheless their regulation has proceeded on the basis of the four
freedoms and the anti-competition principles. Following the 1985 White Paper and the
SEA, the EC’s drive toward IP harmonization has been based on the Article 100A of the
SEA. It has been recognized that reliance on national laws and national courts is not
entirely satisfactory. ‘Harmonization of the laws of the member states would eliminate
many problems’ [Jones, 1992: 686-7] particularly the inconsistencies between EC laws
and the IP laws of individual member states. Since the unification or reconciliation of
different IP laws is crucial for the creation of a smoothly-operating internal market, a
series of measures have been adopted or are being discussed.

34
(i) The Commission issued the ‘Green Paper on Copyright’ in 1988 (with a
follow-up in 1991) followed by draft directives on terms, rental rights,
broadcasting, personal data privacy and data bases. A directive (Council
Directive 91/250) on computer software was adopted in 1991. This directive
‘presents an innovative synthesis of various approaches to the principal
problems in software protection’. The harmonization of the copyright laws
of member states requires substantial changes in these laws and implies a
moderation of the essentially territorial principle of copyright protection,60 a
principle which also clashes with EC freedoms aiming at the elimination of
all barriers among member states. The directive also ‘seemingly accepts the
practice of reverse engineering’ and ‘effectively ends the discussion over sui
generis protection for programs’ [Raskind, 1992: 729-32]. All these meas-
ures, after a long period of inactivity in the field of copyrights, demonstrate
the Commission’s choice of a global approach to achieve a comprehensive
minimum protection in all member states as a basis for the further and more
specific harmonization of protection of authors’ rights and similar rights. The
Green Paper also makes a brief reference to the conflict between IPRs and
standards, since whereas standards give manufacturers open access to tech-
nical specifications, IPRs create a monopoly. This conflict is part of a wider
issue: the conflict between IPRs and the free movement of goods and freedom
of competition pursued under the Treaty of Rome. The Green Paper recog-
nises that IPRs have become a serious issue for standardisation and suggests
that ‘if specifications covered by an intellectual property right are proposed
for a standard, serious consideration should be given as to whether such
specifications should be adopted. This should be envisaged only if licences
will be granted on fair and reasonable conditions’. However, when the Green
Paper stresses that the process must ‘reconcile the need to adopt effective
standards, the legitimate interest of IPR as patent owners, and the need to
maintain the transparency of procedures and compliance with competition
policy’, this seems to verge on accepting compulsory licensing when a
patentee is not prepared to licence specifications which are indispensable for
the setting of a standard [Good, 1991: 401-2].
(ii) Harmonization directives have been issued governing patent-related areas,
such as biotechnical inventions, breeders’ rights, semi-conductor chips, and
computer programmes. Yet the EC has been unable to develop a single set
of patent rules that are applicable Community-wide, even though the various
national laws are more uniform than those covering other IPRs because all
EC countries are members of the Paris Convention and many are signatories
to the 1973 European Patent Convention (EPC) which has created the best
known and, in economic terms, largest regional patent system. The EPC came
into force in 1978 when the European Patent Organisation was established
with its executive arm: the European Patent Office (EPO). Both function
under international law. EPO is an intergovernmental body which presently
groups 17 countries (12 from the EC, 4 from EFTA and Monaco).
The ‘European patent’ which it issues provides protection in all state
members simultaneously since its duration, scope, and legal status are
governed by uniform and binding rules. Hence the patentees’ rights are
equally guaranteed, i.e. enforced, throughout the territories covered by the

35
 EPC. The EPC also contains the conditions which must be met before a patent
can be granted. Although the European Patent Organisation is legally sepa-
rate from the EC, it will be empowered to grant the ‘Community patent’ as
soon as the EC decides to put into effect the system agreed upon under the
Luxembourg Convention of 1975 and the Community Patent Convention
(CPC) of December 1989. The European patent will have equal validity in
the countries which have ratified the Community Patent Convention. Since
the two patents co-exist, the applicants can ‘take out exactly the level of
protection they think appropriate’ [Braendli, 1993: 4] and although infringe-
ment actions will remain in national courts, they will have Community-wide
effects.
As a result, national patent legislation has necessarily been largely harmo-
nised, since each country acceding to the EPC must ensure that its IP
protection and its patent law conform to the binding provisions of the
Convention. National patents are still available, although ultimately they
should be replaced by the European one. Yet, such regional harmonization
generates its own problems, as demonstrated by the different treatment of
parallel imports (see note 41) according to whether they originate from an
EC country licensee or from a third-country licensee. In the first case, ‘the
effective ‘protection’ of traders engaged in such traffic’ provided by EC rules
‘can assist sheer piracy’ [Dyekjaer-Hansen, 1992: 35].
The need to expand IP protection not only outside national boundaries, but
also beyond the region has made it necessary for the EPO to interact with the
Japanese and American Patent Offices.61 Since 1983 these three offices have
organised several joint technical co-operation projects aimed at facilitating
access to patent protection [Braendli, 1993: 6].
Policies on licensing are more restrictive in the EC than in the US because
the EC finds it difficult to see vertical restrictions as a response to a market
failure, as does the US anti-trust legislation. In the EC’s perception, these
restrictions are more likely to reduce than enhance competitive efficiency.
Furthermore, ‘the EC policy on licensing reflects the overarching political
goal of promoting intra-community trade and removing barriers to such a
trade’ [Ordover, 1991: 51-52].
(iii) In order to eliminate the need to apply for trademarks in each member state,
the EC has sought to both harmonise the very different existing national
trademark laws62 and to develop a Community Trade Mark with a single
registration valid throughout the Community. The first objective has been
pursued through Council Directive 89/104, which is not however a full-scale
effort at harmonising trademark legislation. It only relates to registered
trademarks, sticking to establishing uniform conditions for obtaining and
maintaining trademarks, providing a definition of signs that can be used as
trademarks, setting rules for the refusal or invalidity, and defining the rights
of trademark owners.
The creation of a Community Trade Mark registration system,63 has
generated several proposals, starting with COM(80)635 of November 1980,
none of which have yet become an agreed directive.

36
8. OTHER IP AGREEMENTS

In addition to steps taken within the EC, the DCs have initiated a number of arrangements
for the protection of specific new technologies [Van Wijk and Junne, 1993: ch.2] which
operate nationally, regionally, or internationally.
For semi-conductor chips the 1984 Protection Act (SCPA) passed by the US is stricter
than the copyright legislation from which its requirements are derived, but less stringent
than patent law.64 This has forced other DCs, including the EC, to emulate it and even
establish the IPIC. Although the 1986 ‘chip pact’ between the US and Japan, and the
IPIC, are both expressly directed at preventing the copying of original chip designs, few
cases have come to the courts in the US. This does not indicate that piracy has been
eliminated, but that the specific objective of these two instruments, namely preventing
piracy, was wrong. US leadership in this sector has continued to decline. It now appears
that piracy does not really exist in this field, because the chip cannot be copied without
duplicating the processes involved in making it, which implies long-term research and
reverse engineering. Hence, the SCPA is ‘a solution in search of a problem’ [Correa,
1990: 96-97].
Section 6 of the TRIPs ‘Review of Draft Final’ of April 1992 may expect the same fate,
since even when dealing with straightforward piracy there is more fuss than substance in
much of the quarrel regarding IP protection. Hence even if an ‘Anti-Counterfeiting Code’
is adopted, as many recommend, ‘IPRs will, no doubt, be one of the main issues in
economic international relations in the twenty-first century’. Contrary to Braga’s view
[Braga, 1989: 313, 309 and 264] IPRs will remain largely, though not exclusively, a
North-South issue [Greenaway and Sapir, 1992: 515; Mody, 1990: 234]. It does not
appear that the main objective of DCs is to protect their markets from imports of
counterfeit goods or from acts of technological piracy. In any case, such protection is
likely to be more effective if enforced at the source of these activities, or by import
controls at the borders, without needing to activate the complex GATT machinery. GATT
is invoked because the alleged acts of piracy ‘relate to rather important markets of third
countries (rather than to the domestic market of a given industrialized country) or to the
domestic market of the country accused of providing only inadequate protection if that
market is large and attractive enough’, such as those of the NICs [Ullrich, 1989: 149-50].
At any rate the protection offered by IPIC and the TRIPs draft agreement, the latter
expressively referring to IPIC, allow independent development and reverse engineering
that are excluded under the patent system. But it may increase the barriers to new potential
entrants, hence reinforcing ‘the tendency of innovative firms not to part with their
technology’. And it may also negatively affect the diffusion of microelectronic innova-
tions through trade, since governments have to stop the importation of infringing chips
or of the goods incorporating them at their borders. The establishment of this new form
of IP protection for the layout design of integrated circuits ‘will, in sum, facilitate the

37
international trade of chips under exclusive rights but will, most likely, promote neither
the innovation nor the diffusion and transfer of the relevant technology to developing
countries’ [Correa, 1990: 98-99].
Computer programmes, for which the major problem has from the beginning been illegal
copying of software for retail sale or internal use, are generally protected under copyright
laws. The EC has taken the same path with its 1991 Directive, which establishes common
standards for the whole Community.
The most important DCs have significantly extended their definition of IP protection for
biotechnological inventions, i.e. the exploitation of biological process to produce new
products, devices and organisms. The objective is to provide patent protection. But while
this has been relative easy with plants, the controversies surrounding the patentability of
higher organisms, such as animals and human material, have kept the issue unresolved
in most countries. While in the US the actual granting of patents on life forms other than
micro-organisms has not settled the controversy, in Europe the industrial sectors inter-
ested are pressing for ways to be found to overcome the exclusion of these life forms
from patentability established by Article 53(b) of the EPC. The broadening of patent
coverage to plants continues to be strongly opposed in Europe. The so co-called breeders’
exemption of the Plant Breeders’ Rights system is an attempt to avoid ‘the privatization
of life’.65 Breeders’ rights, a system of protection distinct from patents, are offered by the
1961 International Convention for the Protection of New Varieties of Plants (UPOV
Convention).66 This was revised in March 1991 under pressure from large R&D-based
companies working in advanced biotechnology. The revision has (a) increased the
monopoly role of breeders’ rights, and (b) removed the ‘farmers’ exemption’ which gave
farmers the right to save their own seeds, so that they now have to pay royalties for doing
so. Twenty states are party to UPOV, which has become the most widely-recognised
system for industrial property protection for plant breeders. The rights have a duration
varying from 18 years to 25 years. Although no LDC is so far party to the UPOV
Convention,67 changes in IPRs in this field are necessary in some LDCs ‘not only to
respond to external demands but also to protect local developments’ [Correa, 1992: 157].
There is also disagreement between the US and Europe on animal patents, allowed in the
US although Europe seems more hesitant about accepting the idea. Actually, although
Article 53(b) of the EPC establishes the non-patentability of essentially biological
processes for the production of plants or animals, its interpretation has been narrowly
construed by the Technical Board of Appeal with the result that ‘it is possible to obtain
patents in the EPO for a wide range of genetically modified organisms’ [Nott, 1992: 83].
Furthermore the recently signed UPOV Convention lacks any ban on protecting plants
by both variety rights and patents rights,68 thus implying the possibility of dual protection.
Meanwhile, the EC Commission is preparing a directive on harmonising the legislation
of member countries, legislation which should also be amended to accommodate the
UPOV Convention. The opposition focuses on ethical questions as to whether or not
animals and plants should be subjected to patent or variety protection, and regarding the
risks of releasing dangerous organisms into the environment.69
As for the LDCs, although they possess most of the genetic resources available in the
world, they ‘lack the financial and technological resources to take full advantage of their
wealth’. The largely informal and collective innovation which they have so far contrib-
uted ‘does not fit into the concepts and requirements of intellectual property rights, which

38
are based on criteria of novelty and inventiveness’. Since no alternative to IP protection
has yet materialised [Correa, 1992: 154],70 rights to, and control over, biological
resources will be determined by IPRs, thus causing ‘the uncompensated free flow of
resources and knowledge from the south to the north’. The ‘Biodiversity Convention’
signed at Rio, in 1992, although not by the US,71 reflects ‘the tensions and contradictions
between farmers’ rights (see note 70) to ensure biodiversity conservation and IPRs for
the seed industry to ensure market expansion for biotechnological commodities’ [Shiva,
1993: 555 and 558].
There are several regional schemes outside the EC, the North American Free Trade Area
(NAFTA) being the latest addition. One of the very important problems it may pose is
the strengthening of the dependence of the Americas on US technology and manufactur-
ing methods. Since these are not necessarily the best for every type of production, their
generalised adoption could seriously affect Latin American countries’ competitiveness
outside of the region. NAFTA will also mean another push for the harmonisation of the
whole region’s IP standards at the level and style of the US. To prepare itself for entering
NAFTA, Mexico has started to strengthen its IP regime in order to reduce disincentives
to investment and technology flows. One revealing example of the effects of NAFTA is
the severe restriction it imposes on Canada’s relatively liberal compulsory licensing
regime for patented pharmaceutical, and the rise in prescription drug prices which is
expected to result.
The Caribbean Basin Initiative launched by the US in 1983 to support that region’s
development is also meant to discourage the governments of recipient Caribbean nations
‘from ‘poaching’ and rebroadcasting copyrighted satellite television transmissions by
conditioning receipt of benefits on an executive branch finding of an absence of such
activity’ [Davis, 1991: 513].
In the Third World, there are two official organisations in Africa, the African Regional
Industrial Property Organization (ARIPO) for the English-speaking countries and the
Organisation Africaine de la Propriété Intellectuelle (OAPI) for the French-speaking part
of the continent. Both organisation also grant utility model protection,72 although in both
areas ‘the level of patent activity appears to be low’ [Lesser, 1990: 13].

39
40
9. ARE THERE ALTERNATIVES TO HIGHER STANDARDS OF
IP PROTECTION?

Among the theories dealing with conflicts of interest in international relations, the ‘new
liberal institutionalism’ maintains that co-operation can develop and be maintained by
sovereign, self-interested states acting with a mix of conflicting and complementary
interests even under anarchical conditions, i.e. where there is no world government and
cheating and deception are endemic. Under these conditions, concern about compliance
is a significant barrier to co-operation, but the theory posits the possibility of incremental
reforms in institutions precisely targeted at further reducing transaction costs. Given the
choice they face, between co-operation and cheating, states’ behaviour can be described
in terms of a prisoner’s dilemma. Applied to GATT negotiations the theory expects
co-operative impulses to prevail. For the closely related TRIPs agreement it appears that
‘the trading environment will not promote efficiency unless it is accompanied by
domestic reform’ to generate the necessary convergence or harmonization. In order to
reach this result the theory assumes that each actor obtains positive payoffs and ‘the more
future payoffs are valued relative to current payoffs, the less incentive to defect today ----
since the other side is likely to retaliate tomorrow’ [Wolfhard, 1991: 122-3]. This
assumption is unfortunately not at all confirmed by the literature reviewed so far, which
instead shows that, whereas DCs are sure to gain now and later, LDCs’ present gains are
smaller or even negative and future gains are rather uncertain. It has also been shown that
the level of IP protection is not very relevant for the rate of acquisition of foreign
technology. The strengthening of IP protection legislation in many LDCs might not result
in an increase in technology transfer, better access to advanced technology or more
domestic innovation: harmonization at higher standards could ‘freeze the existing inter-
national division of labour by way of the control of technology transfer to the Third
World’ that it would give to foreign innovators, particularly TNCs [Braga, 1989: 252].
As for the impact of different levels of IPRs on international trade, no systematic evidence
exists but preliminary results seem to indicate that bilateral trade may be negatively
affected by weak patent regimes [Maskus, 1993: 163].
It is also quite evident that most of the pressure for the harmonization of IP protection at
higher levels comes from the R&D-intensive sectors of DCs and from their complex
strategy to meet market competition. This is particularly evident in the pharmaceutical
industry’s need to meet competition from the generic drug industry. On the issue of
patenting pharmaceuticals, DCs and LDCs could not be more divided. Patents are
‘fundamental instruments ... to sustain very high drugs prices’ and profits which in turn
‘finance R&D whose output provides tomorrow’s competitive edge’. The industry is
highly regulated and ‘over time, this dynamic interaction between industry and govern-
ment knits the web and nature of regulations’, including the pressure for stricter patent
protection. This applies equally in the LDCs, and since the potential markets for patented

41
drugs in LDCs are substantial, LDCs have become ‘worth more to brand-name companies
than the extension of patent protection in industrial countries’ [Nogues, 1990: 101-2].
The only case in which stricter IP protection is a condition for the transfer of technology
is where the fear exists that competitors might take advantage of the situation and
appropriate the technology for themselves. Except in very specific cases, there is,
however, ‘strong evidence that patents do not effectively deter imitation by rivals for very
long’. Whether or not this evidence, gathered in DCs, is also validated in LDCs remains
to be seen [Westphal and Evenson, 1993: 50-1].
This leaves open the possibility that private and public enterprises in DCs may, under
given circumstances and for specific technologies, find it convenient to transfer technolo-
gies irrespective of the level of IP protection in the receiving countries. The probability
of this is increased by subsidies from DC governments with an interest in the transfer as
a means to achieve some other, more general, objective. There are now larger numbers
of actors involved in research activities and research results are now often of significance
outside the sector in which they have been developed. These factors may contribute to
the acquisition of technology by LDCs regardless of the level of their IP protection.
One possible benefit expected from harmonization is that it would reduce the risk of
competitive regulatory environments. But for this purpose harmonization does not need
to take place at a higher level of protection, so long as the treatment of IP is rather uniform.
Harmonization at a higher level, while being beneficial to the more advanced LDCs ready
to move into higher-technology sectors, will only force the weakest countries to compete,
i.e. to pay more, even for more traditional technologies.
A relatively unexplored aspect of harmonisation is the impact it may have on the creation
and diffusion of so-called ‘global public goods’, such as reductions in emissions of
industrial pollutants that contribute to the destruction of the ozone layer or to global
climatic change. This objective is dependent on ‘widespread adoption of advanced
manufacturing technologies and substitution of fuels and materials, which also will rely
on inward transfer of technology by developing economies’. This includes many of those
process technologies that involve a lot of tacit know-how. ‘The extensive internationali-
zation of this industry is contributing to the more rapid international transfer of technolo-
gies essential to this particular global public good’ [Mowery, 1993: 57-8]. This transfer
clearly takes place regardless of the level of IP protection. In fact, once the enterprises
generating the technologies are sufficiently internationalized, the process either compen-
sates for the difficulty of transferring the tacit components or it makes the companies able
and willing to create the necessary capabilities in the receiving countries. In both cases,
however, they make the transfer without jeopardizing their profits, which may be kept at
acceptable levels by any subsidies that DC governments are willing to offer in pursuing
their national goals or even some global public good.
Incidentally, it seems interesting to note that the sectors in DCs that receive most of the
subsidies, which are permitted by GATT but clearly violate anti-trust principles, are also
the proponents or enthusiastic supporters of the TRIP initiative. Besides, the anti-trust
norms that have accompanied the national and international development of intellectual
property rights are ‘custom-tailored to the existing national and international IP protection
system’.73 Since GATT can address only the signatories and not their nationals, GATT
IP protection ‘would not be counter-balanced by a corresponding set of anti-trust rules’.74

42
GATT would therefore have to embark on the difficult task of formulating ‘an additional
antitrust system that addresses the Contracting Parties’ [Fikentscher, 1989: 122-3].
The whole discussion on IP protection, however, becomes less relevant if one considers
that ‘much of the knowledge about how to perform elementary processes and about how
to combine them in efficient systems is tacit, not feasibly embodied and neither codifiable
nor really transferable’ [Westphal and Evenson, 1993: 3]. Thus LDCs’ paramount
objective is to strengthen their limited technological capability, together with the im-
provement of ‘incentives’ and ‘institutions’, as in Lall’s three-pronged approach (see note
22). The three basic blocks of this approach make up a comprehensive framework in a
field of policy-making that ‘is under-researched, at least as far as developing countries
are concerned’ [Lall, 1990: 65]. All three blocks imply a direct role for the public sector
in education and training (capabilities); in establishing sensible and stable macro-eco-
nomic policies (incentives); and in effectively regulating domestic competition and
promoting inter-firms linkages and co-operative technology efforts with national institu-
tions such as universities and research centres (the so-called ‘infratechnology’) [Lall,
1990: 64-7]. At any rate, the high correlation between growth and education variables,
such as primary and secondary school enrolment rates is well established.
Assuming that the strengthening of domestic technological capability is the main objec-
tive, it follows that no single approach to IP protection exists for each and every LDC.
Individual countries should be left free to choose the most appropriate system according
to the specific stage of development, the nature of the industry,75 and the development
strategy pursued by each of them.76 The approach chosen should be adapted over time
in line with the progress they make. After all, ‘while the developed countries are seeking
to universalize rules specific to their own patent laws at the current stage of development,
developing countries are trying to maintain the same rules that were in force in the
developed countries at earlier stages’ [Bercovitz-Rodriguez, 1990: 11] when DCs did not
hesitate to use low levels of protection in order to promote their infant industries [UNCTC,
1990: 5]. The US and other DCs appear even to be ‘pushing for provisions substantially
different from those prevailing in the industrialized West’ [Damschroder, 1988: 395].
Therefore, each LDC faces the following tasks:
(a) to identify their particular conditions and needs;
(b) to create or strengthen their technological capability, including both national and
firm-level capacities to absorb technology. The latter are essential for the exploi-
tation of the more advanced technologies transferred from abroad, particularly
their tacit components; and
(c) to design the most appropriate policy for enhancing the transfer of the required
technology.
The discussion about TRIPs relates mainly to the design of policy. All these tasks can be
better performed with continuous technical assistance by specialised international agen-
cies and by the more willing DCs. The emphasis put on (a) challenges the justification
for harmonization, while (c) implies a stricter IP protection in many cases, but not always.
Furthermore, (c) represents only the first element of a technology policy [Dahlman and
Nelson, 1993: 7], while the development of an adequate technical human capital base, as
part of (b), must be linked to trade and economic policies that enhance domestic
competition and economic openness.

43
If the concept of technology is extended to include the organisation and management of
production systems, from research to design, production, distribution, and marketing,
then what is the importance of norms and standards, and even IP protection as currently
understood, and their harmonization for the acquisition of technology by LDCs? The
crucial element for an effective acquisition of technology becomes firstly, to build up an
adequate human capital base, and secondly, to explore more accurately the conditions for
the utilisation of other means of obtaining foreign technology than those generally
employed, namely purchase of new equipment, FDI, and technology licensing. Other
recognised means to obtaining foreign technology are the use of non-proprietary tech-
nology, acquisition of knowledge from returning skilled nationals, R&D, reverse engi-
neering, copying, foreign publications, trade fairs, data bases, foreign experts, informal
linkages with nationals abroad, local education, and training [Dahlman, 1993: 313].
In fact, ‘effective science and technology policies are not separable from economic
policies that have the effect of raising the payoff to investments in the improvement of
scientific and technological capabilities’77 [Rosenberg, 1990: 149]. As such they ought
to be integrated into overall development strategies resting on the essential promotion of
an adequate technological infrastructure, which is also needed for the effective absorption
and adaptation of imported technologies. Although this technological infrastructure
requires the establishment and expansion of local productive facilities, the development
of human resources is more crucial. Training facilities of various types and levels are
therefore necessary, together with increased institutional capacities to provide techno-
logical support services. These support services include applied research capability and
close links between R&D and production sectors; information systems, including alter-
native technology sources and the prescription and maintenance of standards; metrology,
and the development of subcontracting and support facilities for small and medium
enterprises [Marton and Singh, 1991: 209]. The economic variables involved have been
conveniently grouped under three headings: incentives, capabilities and institutions. A
country’s industrial development is largely the result of the complex interactions taking
place among these three sets [Lall, 1990: 11].
Naturally, the development of the technological infrastructure is essential for the transfer
of tacit knowledge from abroad. Such a development must be accompanied by measures
aiming at identifying and exploiting the tacit knowledge available inside LDCs, which
in turn requires that close links be established between learning institutions and produc-
tion sectors and activities. Since technology ‘is specific to applications and accumulates
in firms along paths that reflect a technological logic’, firms and countries run along those
paths at a pace determined by factor intensities and by the levels and patterns of public
and private investment, particularly investment devoted to R&D and training [Pavitt,
1985: 19]. None of the various capabilities imparted by technology transfers, whether
operational, duplicative, or innovative capabilities,78 ‘will accrue as a matter of course to
passive recipients of technology: each requires an increasing level of technological effort’
[Baranson and Roark, 1985: 27]. This points to the need for proper and diversified
training of the domestic labour force. It is the availability of an indigenous technological
capability that enables a country to respond to opportunities, but also to create them
according to its own development strategy. Unfortunately, even though the building of
indigenous technological capabilities has been advocated by many, ‘there is as yet no
clear statement of what this really means at different stages of development and different
sectors of the economy’ [James and Watanabe, 1985: 11].79

44
The technological gap between DCs and LDCs is mostly a difference in available
know-how, i.e. a difference in the practical and conceptual skills embodied in their labour
forces. In a time of growing questioning and re-evaluation of development assistance,
this need for training suggests that the so-called international community might eschew
pharaonic projects, and many other types of intervention which have rarely enhanced
developmental goals, in favour of concrete and long-term support for technological
capability building.
The transfer of know-how technology is largely a question of training and teaching, and
it can be accomplished through formal educational programmes and international ex-
changes, but even more through informal learning-by-doing and on-the-job-training.
Hence the creation of a scientific and production labour force is a function of strength-
ening education at all levels, including vocational training, in-service training, appren-
ticeship and training abroad80 and by exposing the largest possible number of people to
technical and technological environments.
Since ‘tacitness implies the need for a stream of investments over time to acquire mastery
... and tacit knowledge can only be acquired through investments in learning’ [Westphal
and Evenson, 1993: 4], part of the investments needed to give LDCs’ educational systems
such a boost must come through international co-operation. This type of involvement
should also ease DCs’ worries for the respect for human rights and democratic rule in the
countries with which they co-operate.81
The recent experience of Japan and the Asian NICs amply demonstrates that the
contribution of training is of most importance during the early stages of economic
development [Kim and Dahlman, 1992: 451; OECD, 1988: 71 and 81] and that invest-
ments are better concentrated at the secondary and post-secondary levels to create a large,
skilled workforce in science and engineering [Mowery and Rosenberg, 1989: 109-13 and
295]. However, rather than favouring public-sector research facilities, the aim should be
to maximise the investment in training mid-level technical workers, such as skilled
technicians, BS-level engineers and scientists [Mowery, 1993: 46-7].
Although it has been shown that ‘there are advantages to backwardness that almost
certainly include the opportunity to borrow technologies developed elsewhere’ it is also
true that ‘the exploitation of [these] potential advantages in practice requires supporting
institutions, notably a strong education system and an open regime for foreign trade and
investment’ [Dollar, 1993: 434]. And in fact the creation of an appropriate institutional
framework has been shown to be crucial to any process of technological accumulation
[Soete, 1990]. This is all the more relevant when considering East Asia’s industrialisation,
the latest interpretation of which is that, since ‘late-industrializers are entirely dependent
on ‘learning’ in order to compete,’ ‘the strategic focus of the firm tends to be on the
shopfloor, because that is where borrowed technology is made to work’ [Amsden, 1991:
283 and 285]. Fortunately, technical capability can be influenced, though not in the short
run, by appropriate government policies. Since licensing has also been shown to be a
function of the availability of technical capabilities [Contractor, 1985], its use may rise
with the diffusion of training in the receiving LDCs.
In fact even copying and piracy require a substantial reverse engineering capacity which
is not only highly productive but also generates adaptive and derivative inventions, the
so-called downstream patenting [Evenson, 1990: 352]. Such a capacity can and must be
created. Yet market failure characterises the creation and diffusion of technology,

45
particularly if the market for the education and training of the workforce appears
inefficient. This further underlines the constructive and critical role that the state must
play in LDCs. In order ‘to overcome the problems of inefficient markets, predatory
suppliers and corrupt officials’ such a state must also be ‘a strong state’ [Vernon, 1990:
267 and 270]. To obtain it, foreign assistance is of little use, but the level of IP protection
is in most cases even less relevant.
During the process of technological accumulation the amount of IP protection that a
country can support will change, tending to rise with the country’s overall development
according to the ‘threshold argument’. The IP legislation and the instruments it employs
(e.g. utility model vs. patent systems) will have to be adjusted accordingly. The approach
depends, however, on DCs’ willingness to allow LDCs to retain national treatment and
move toward the threshold at their own pace, instead of being herded together by
international mandate. This implies that DCs should abandon the search for general high
standards of protection for different categories of IP, which would enable the owners to
effectively enforce their IPRs and would provide the contracting parties with operative
dispute settlement procedures. It also implies that LDCs should concentrate on defining
specific substantive IPRs which could be incorporated in their national legislation. If this
is not as ‘neat’ a solution as the universal harmonization wanted by some DCs, it is a
more realistic and practical one. This has been demonstrated by the wide acceptance of
the UCC, the minimum rights of which are considerably lower than the standards of the
Berne Convention.
The feasibility of this approach depends also on the dispute settlement provisions. The
utilisation of GATT procedures ‘in a substantively uncertain setting of this kind would
run into considerable difficulty ... and the result would be a dispute settlement procedure
that is not taken seriously, and that is used simply as a formality, or legitimation device,
before recourse is had to the real remedy, namely, retaliation’ [Naresh, 1989: 361]. Since
it is difficult, however, to retaliate against pirates, these measures are bound to affect
mainly the offending country’s export-oriented sectors, exactly those sectors that best
understand the importance of IP protection. The actual imposition of sanctions would
undermine their support for reform of the country’s IP legislation or for higher standards
of protection [Braga, 1989: 319]. Moreover, whilst individual acts of infringement can
be stopped by specific import bans, it is difficult if not impossible to determine the
appropriate commercial sanctions in response to trade distortions allegedly due to low
standards of IP protection. In these circumstances, general sanctions will only encourage
protectionism [Ullrich, 1989: 144-5].
At any rate, an agreement signed only by DCs cannot be expected to make much
difference to the current level of international protection, since the gaps which the new
standards are supposed to fill are generally not found in the legislation of developed
countries. The LDCs do not really matter, as firms from DCs do not even bother to seek
patent protection there [Ullrich, 1989: 149-51]. It is therefore plausible to suggest that
the proposals for the GATT IPP code are aimed at the newly industrializing countries, to
force them to adhere to standards of IP protection which fit DCs’ needs. In fact, ‘requiring
high levels of industrial property protection from these countries amounts to no less than
the attempt to bring back and to reserve to industrialized countries what they consider to
be ‘their’ technologies.’ A GATT IP protection system also threatens the role of WIPO
and may even undermine the traditional system of international IP protection. The main
difficulty of including IP, and the other new issues, in GATT derives from the fact that

46
‘they fundamentally involve domestic regulation which, ultimately, relates to national
sovereignty’ [Greenaway and Sapir, 1992: 515]. Given that it is not possible to demon-
strate that a higher degree of IP protection maximizes the national well-being of the
countries that have no capability to conduct R&D and only consume the goods and
services produced by it [Chin and Grossman, 1990: 91], conflicts of interest between
governments are to be expected.
Given therefore the consensus already existing for the draft ‘Anti-Counterfeiting Code’
that was all but signed at the Tokyo Round, and the common interest to avoid the spread
of counterfeits, it should be possible to agree to tighten this code’s enforcement provisions
and introduce more effective dispute settlement procedures. IP protection could then be
gradually extended to other areas, starting with certain types of high technology goods
[Naresh, 1989: 361]. If the result amounts to a ‘GATT à deux vitesses’, this might be
preferable to accepting a single IP protection system that penalises both the NICs and the
remaining LDCs. The co-existence of different regulatory regimes could be accommo-
dated, following the example of the EC in the fields of financial services and cross-border
investment, by adopting the principle of mutual recognition which ‘does not guarantee
eventual harmonization but is a pre-requisite to possible convergence across countries’
[Greenaway and Sapir, 1992: 514].
The agreement reached on TRIPs represents the upgrading of the minimum level of IP
protection to provide a new international IP protection standard. The change reflects both
the growing globalization of economic activities and the adoption by LDCs of export-
oriented strategies as well as developments in technological innovation, yet it seems
debatable to claim that this ‘transition from classical free trade standards of GATT to new
fair trade standards does not conflict with the aims of international development’ which
are so loudly proclaimed by governments as well as private organisations [Ullrich, 1989:
130]. Moreover, it is likely that harmonization may result in less rather than more open
markets [Hoekman, 1993: 1537].
The world economy is fast changing, and if the features that presently characterise the
situation of DCs, such as very low growth rates, large and growing unemployment, and
the emergence of rival and protectionist blocs, continue to prevail [Sideri, 1993] then the
differentiation of LDCs would become even more noticeable. Except for a few NICs,
each absorbed within one or other of the emerging blocs, the rest of the Third World
might have to return to some sort of import substitution strategy, not only because such
a policy makes the need for technological dynamism generally much less pressing
[Cooper, 1992: 8], but also because it ‘will raise long-run rates of growth when
undertaken in a country with comparative disadvantage in R&D’ [Grossman and Help-
man, 1990: 90]. Regardless of the present liberalization drive, the interventionist postur-
ing that these trade and industry policies require, would also heighten the tensions and
conflicts which fill the international economic system. Yet, while ‘the structure of trade
policy is in fact in flux’, ‘the GATT system is clearly crumbling’, apparently unable ‘to
regain its one-time vitality’ [Krugman, 1992: 439-40]. Hence, the drive toward global
harmonization might be halted by the appearance of different harmonization schemes
enacted under the aegis of each bloc’s hegemonic country.
Meanwhile, growing international interaction and technological innovation are making
the technological factor of ever-greater importance as a source of competitive advantage.
IP protection is becoming integral to the design of economic policy in general and trade

47
policy in particular. The struggle for the most ‘appropriate’ international IP system
reaches well beyond GATT and the agreement reached in the tormented course of the
Uruguay Round.

ENDNOTES

1. A survey of executives in the American motion picture and television, publishing and advertising
industries conducted in 1984 found copyright infringement to be the most frequently mentioned barrier
to trade [Benko, 1988: 221].
2. Officially this Negotiating Group deals with ‘Trade Related Aspects of Intellectual Property Rights,
including Trade in Counterfeit Goods’.
3. It has been suggested that the word piracy should be replaced with the more appropriate ‘word "corsairs"
because most pirates in Third World countries have all the legal mandates and abide by local laws to do
what they do’ [Braga, 1989: 313]. Besides, the countries presently insisting on higher IP standards ‘were
the pirates of not even a century ago, and began to find a value in enhanced intellectual property protection
only as their technological capabilities developed and their economic structures changed’ [Naresh, 1989:
358].
4. Strictly speaking, IP covers copyright for literary and artistic works and related rights, while Dcs use the
term IP in an all-embracing manner to include all types of industrial property rights. Furthermore,
trademarks ‘fall more appropriately under the economics of product differentiation and, despite their
categorization as intellectual property, they have an economic rationale which differs significantly from
that of patents and copyrights’ [Benko, 1988: 218].
5. ‘Because industrial design partakes of both art and industry, it sits astride the Berne and Paris
Conventions’ [Reichman, 1989: 8]. For this reason integrated circuits were the object of a particular
‘Treaty for the Protection of Intellectual Property in Respect of Integrated Circuits’ (IPIC), adopted in
Washington on May 1989.
6. Trade secrets, also referred to as know-how, manufacturing data or technical assistance, are probably
one of the most important and least understood forms of IPRs. Trade secret protection supplements the
patent system, but while trade secrets may include business information not related to technology, patents
are limited to technological improvements of products or processes. While patent protection is absolute,
the protection of trade secrets ‘only protects against disclosure by parties who derive the information
from the original developer’ [Keating, 1991: 61]. Furthermore, although the patent system is intended
to discourage duplication of efforts, trade secret protection may very well encourage such duplication.
For trade law, this area is a much ‘neglected orphan in economic analysis’. See also Friedman et al.
[1991: 61-65] .
7. It is also argued that ‘science, as a social organization, views knowledge as a public consumption good,
while technology regards it as a private capital good’. The patent system is then presented as ‘both
interesting and problematic because it represents a conjunction of the distinctive and antithetical mores
of science and technology in regard to the treatment of new information. Looking backward it seeks to
reward additions to knowledge that are disclosed, and does so on the basis of priority. But to finance the
award it looks ahead to a contrived limitation of access to the new knowledge’ [Dasgupta, 1987: 10 and
12].
8. Fixed costs are by definition a source of scale economies in production, while the presence of learning
possibilities connected to the process of using a piece of knowledge (learning-by-doing, learning-by-us-
ing, learning-to-learn) implies ‘not only an intertemporal externality, it implies ---- if powerful enough
---- dynamic scale economies in production activities’ [Dasgupta and Stoneman, 1987: 3-4]. Since fixed
costs act as a barrier to entry and limit competition in R&D, this also tends to reduce wasteful duplication
of R&D spending. In respect of the increase in the number of firms, there is a trade-off between two
types of efficiency: namely static efficiency, which pushes the price closer to marginal cost, and dynamic
efficiency, which limits the actual cost reduction, while raising the total level of R&D spending in the
industry, at the same time as each firm spends less [Dasgupta and Stiglitz, 1980: 279-81].
9. For an interesting analysis of the distinction between science and technology, see Dasgupta and David
[1987].
10. Empirical studies such as Taylor and Silberston [1973] have amply shown that patents rarely confer
perfect appropriability.
11. Romer explains that each research investment generates not only a patentable blueprint, but also a
non-appropriable contribution to the stock of general-knowledge capital [Romer, 1990].

48
12. Hence, one can ‘expect a free-enterprise economy to underinvest in invention and research (as compared
with an ideal) because it is risky, because the product can be appropriated only to a limited extent, and
because of increasing returns in use’. Furthermore, ‘the incentive to invent is less under monopolistic
than under competitive conditions but even in the latter case it will be less than is socially desirable’
[Arrow, 1962: 175-6].
13. Dasgupta had earlier called these the ‘Lindahl market mechanism’, ‘Samuelsonian contrivance’, and
‘Pigovian public finance’, respectively [Dasgupta, 1988: 3].
14. ‘...a patent system is instituted when mechanisms for producing information efficiently are not available
under the price system’ [Nordhaus, 1969: 70].
15. That ‘the market can sustain excessive duplication....is a special kind of market failure’, although ‘the
prescription of an externality tax is incompatible with incentives’. Furthermore, ‘even if technological
competition were very fierce, the resulting industrial structure would be oligopolistic’ [Dasgupta, 1988:
10 and 1]. Moreover, with free entry into the patent race, it is likely that there will be only one actual
entrant who spends so much on R&D that most potential profits are exhausted [Dasgupta and Stiglitz,
1980: 285].
16. ‘Theoretical economics is genuinely divided on this point’ and ‘the ex ante inducement to R&D that ex
post protection is meant to provide is largely an article of faith’ [Subramanian, 1990: 514]. Market
conditions and competitive rivalry often constitute the main determinant of innovation, rendering
monopoly protection unnecessary [Maskus, 1993: 170]. In fact, accumulated evidence shows that while
patents are certainly important for some inventions and industries, such as pharmaceuticals, fine
chemicals, petroleum and machinery, they are much less relevant, or irrelevant, to the remaining sectors
[Mansfield, 1986: 174-5] Empirical evidence collected by Mansfield indicates that information about
new products and processes becomes available to a firm’s competitors fairly rapidly, on average within
about 12 to 18 months [Mansfield, 1985: 219]. Even if it seems that ‘this evidence is outdated... [and] it
is likely that patents have taken on increasing importance as R&D-stimulative devices [such] as
technological competition has become stronger and more globalized... in truth... the important empirical
question of whether greater protection of IPRs would call forth substantially more inventive activity...[re-
mains] unresolved’ [Maskus, 1993: 171-2].
17. The more regulations are involved, the longer the time taken to obtain a patent and consequently the
shorter the length of effective protection. This is very evident in the case of drugs, particularly in the US.
The average time from the moment when research on a new chemical compound starts until the moment
the new drug is allowed onto the market ranged from 13.6 years to 9.5 years between 1966 and 1979,
according to a study by M. Eisman and W. Wardell quoted by Nogues [1990: 100].
18. It is interesting to remember that in Germany the prohibition on patenting inventions of new chemical
and pharmaceutical substances was abolished as late as 1967. The 1877 law had allowed only the
patenting of inventions of chemical and pharmaceutical production processes [Bercovitz-Rodriguez,
1990: 5].
19. This argument is also raised by David, who attributes it to Chin and Grossman without, however, spelling
out any of the qualifications made by these two scholars. Hence, the statement that ‘both regions stand
to gain from an international regime providing strong protection of intellectual property’ cannot be said
to represent their conclusion, a conclusion that David also questions, on the basis of his tacit know-how
proposition [David: 1993a: 243].
20. Standardization of physical units ‘has a dual influence on the progress of scientific knowledge’ with a
resulting fall in the unit costs of performing research tasks. In fact, standardization ‘almost invariably
raises the task productivity of scientific researchers’, while ‘the tendency toward increasing capital
intensity in scientific research activities gives rise to equipment that embodies instrumentation techniques
that are increasingly standardized’. Hence David’s ‘view that standardization more strongly supports the
collective pursuit of public knowledge’ [David, 1993a: 223-5].
21. For the definition and measurement of technological distance see Westphal and Evenson [1993: 35-9].
22. Technological capabilities are classified into three broad categories:
(a) production capabilities pertaining to the operation of productive facilities; these encompass various
activities involved in product design, production management and engineering, repair and mainte-
nance, input sourcing and output marketing;
(b) investment capabilities relating to the expansion of existing capacity and to the establishment of new
production facilities; these involve project selection, design and engineering, execution as well as
extension services, and manpower training; and
(c) inventive capabilities concerning indigenous efforts to adapt, improve, and develop technology
[Westphal and Evenson, 1993: 24-25].
The distinction between firm-level technological capabilities (FTC) and national ones (NTC) elaborated
by Lall [1990: ch.1] is also relevant. The range of capabilities needed by a mature industrial firm is

49
 extremely wide. At the most general level three sorts are distinguished: entrepreneurial, managerial and
technological proper. The latter group, i.e. the sum of the FTCs, can then be classified according to their
degree of complexity (basic, intermediary or advanced) and according to their function (investment,
production, and linkages with the economy), all of which can be expressed in a matrix [Lall, 1990: Table
1, 21]. ‘The development of FTC lies at the heart of industrial success...and is the result of effort and
investment by the firm itself, but is highly sensitive to external influences. Such influences arise from
factor and product markets, and from direct government interventions’. It is largely from product markets
that incentives originate which ‘are then more or less reflected in markets for factor supplies, thereby
determining the efficiency with which capabilities are used. Both incentives and capabilities operate
within an institutional framework; institutions set the rules of the game’. National technological capability
is defined by the interplay of capabilities, incentives and institutions, where capabilities include both
physical and human capital and direct technological effort; incentives ‘emanate from the macro-economic
environment, the competition facing industrial firms, factor markets and direct promotional measures
aimed at industry’; and institutions ‘can include industry associations, training centers, standard institutes,
other technology-support bodies, technology import/diffusion institutions, technical consultants or
extension services, financial intermediaries, legal bodies, and so on’ [Lall, 1990: 30]. Technological
effort includes R&D spending and technology imports, the latter taking place either (a) formally or
informally. Formal technological imports are subject to contract and usually paid for, which can be
embodied in capital goods, either individually or in turnkey packages, or disembodied, which in turn can
either be (1) codified in blueprints, patents, models, instructions, etc. or (2) tacit, needing interpersonal
instruction by consultants, technical assistance, training programmes, etc., Informal technological
imports takes place via publications and communications, the migration of skilled people, and observa-
tion and imitation [Lall, 1990: 53-54].
23. For some this is also a reason for accepting free-riding by LDCs, as explained later.
24. Since ‘patents rarely confer perfect appropriability... many patents can be ‘invented around’. Besides,
‘the effectiveness of patents is highly non-uniform... most effective, absolutely and relatively, in
industries with chemical-based technologies’. Whereas, product patents are seen ‘as moderately effective
in a few industries producing relatively uncomplicated mechanical equipment and devices’ and much
less so in most other industries, patents on new products appear more effective than process patents in
most industries, particularly in the drug industry [Levin, 1986: 199-200]. Furthermore, patents ‘are not
the only nor necessarily the primary barriers that prevent general access to what would otherwise be pure
public goods. Lead time accrues naturally to the innovator, even in the absence of any deliberate effort
to enhance its protective effect. Secrecy, learning advantages, and sales and service efforts can provide
additional protection, though they require the innovator’s deliberate effort [Levin et al., 1987: 816].
25. Compulsory licensing takes place when government authorities or courts can force a patentee to grant a
patent to a third party, mostly in connection with the patent not having been ‘worked’, i.e. not used.
Compulsory licence provisions appear in both the ‘Patents Acts’ and the ‘Plant Varieties and Seeds Acts’
of the US.
26. For a rather different view see Broadly [1990] and Shapiro and Willig [1990].
27. On the other hand, while product life-cycles are becoming shorter, patents are not. Where in the last
century a 10-year patent would often amount to little more than giving the innovator a decent start on his
rivals, the same patent duration in the electronics age can amount to a monopoly power over virtually
the whole of the exploitable life of an innovation.
28. Two other treaties more directly concern agricultural inventions: the International Convention for the
Protection of New Varieties of Plants (1961, coming into force in 1968, amended 1978 and 1984) and
the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the purpose
of Patent Procedure (1977). No LDC have signed the first, and only Argentina has passed a law to protect
new varieties; while Senegal, South Korea and the Philippines have ratified the Budapest Treaty. For
more on the international treaties concerning IP, see Blakeney [1989: 14-21].
29. i.e. ‘networks of public and private institutions within an economy that fund and perform R&D, translate
the results of R&D into commercial innovations, and affect the diffusion of new technologies’ [Mowery,
1993: 5].
30. For an extensive analysis of the primary channels for international technology transfer after WWII,
namely FDI, including joint ventures and strategic alliances, licensing, and trade in goods, mainly capital
goods, see Mowery [1993: 19-42].
31. Network externalities group several positive effects which make the existence of a large set of compatible
users desirable. One of these effects is consumption externalities, which is typical of communication
technologies [Farrell and Saloner, 1985]. As for the reduction of variety caused by harmonisation, a
note of caution must be introduced in order to avoid confusion with the emerging notion that the ‘new
technologies’, particularly microelectronics and information technologies, have ‘fundamentally changed

50
 the economics of manufacturing from scale to scope’, so that product variety, i.e. flexibility, and
innovation ‘will no longer have to be traded off against productivity, and will become instead the only
way to compete in the evolving global marketplace for both consumer and industrial products’ [Goldhar
and Schlie, 1991: 19-20]. Clearly the discussion in the text does not refer mainly to these latest
technological changes, yet it is interesting to note that these ‘economies of scope’, as compared to the
traditional economies of scale, are reputed to increase the efficiency of small-scale production in LDCs
and, ‘in so far as scale is a barrier to entry, lead to more entry and competition’. Moreover, the adoption
of the new technologies may require more learning-by-doing and learning-by-using than the traditional
technologies [Alcorta, 1993: 1 and 36].
32. Standards have been classified according either to the manner in which they have come to be set up or
to the nature of the information conveyed.
33. In static terms ‘the existence of significant increasing returns in system scale can give the result that one
variant will drive out all the others and so emerge as the de facto standard for the industry’, regardless
of whether it is also the most efficient. Also in a more dynamic process of ‘systems rivalry’ with ‘activities
conducted under conditions of incomplete information and dominated by unappropriable increasing
returns due to the learning phenomena, habituation, and network externalities, public agencies may have
to intervene to mitigate the tendency of market competition relentlessly to lock the system into ‘wrong’
standards [David, 1987: 220 and 227-8]. This is illustrated by the case of the keyboard layout know
today as ‘QWERTY’, where ‘competition in the absence of perfect futures markets drove the industry
prematurely into standardization on the wrong system’ [David, 1985: 336]. As for network technologies
they refer to ‘distributed, multicomponent systems within which there are strong technical complemen-
tarities’ [David, 1993a: 236]. For the ‘path dependence’ created by increasing returns and cumulative
processes, see the case of the rise and persistence of the US manufacturing belt as presented by Krugman
[1991].
34. In the case of differentiation where quality improvements affect only fixed costs, and variable costs react
slowly to quality change, ‘natural oligopolies’ are generated which are little affected by market
enlargement [Shaked and Sutton, 1984].
35. The share of services in total world trade is substantial. During the 1980s it varied between 20% and 27%
[Secchi, 1990: 89]. For more data on IP-intensive goods traded internationally, see Maskus [1993: Table
77, 160-1].
36. Increasingly, and particularly in the food, chemical and pharmaceutical sectors, manufacturers in DCs
seek the protection of products, rather than processes. Since the production of these goods can generally
take place in various manners, it would be difficult to patent all the alternatives. LDCs on the other hand
maintain that product patents confer a more extensive monopoly privilege because, in this case, all other
possible processes for its production could be protected only through dependent patents, which require
the authorization of the holder of the principal patent. This situation discourages investment in R&D on
the processes for producing existing products, making it difficult, if not impossible, to develop processes
more appropriate to the licensees’ resource endowment and in particular their socio-economic conditions
[Bifani, 1990: 168-9].
37. In fact, because ‘a few of the most important new technologies do not fit clearly into any of the existing
categories of intellectual property... their eligibility for legal protection is consequently uncertain ...[and]
it is questionable whether any of the traditional intellectual property laws would in fact be adequate or
appropriate’ [Benko, 1988: 228, see also Gadbaw 1989: 227 fn.10]. The ‘extraordinary rapid technologi-
cal change in the 1970s and 1980s...has thrust upon us new and as yet unresolved problems of governance
in the national and international spheres’. While the technology ‘evolves much more rapidly than the
body politic can absorb’, this ‘revolutionary change is occurring in a much more interdependent world’
[Blumenthal, 1988: 531-2].
38. Based on a problem of market failure, i.e. the absence of complete appropriability of returns, co-operative
agreements in R&D represent ‘an alternative to either pure market transactions or integration’ into a
single firm, but they also tend to cause ‘a harmful reduction of competition’. Until now, however, they
have not been very frequent [Jacquemin, 1988: 552-3]. However, the ‘increasing complexity and
multi-disciplinarity of resources required for innovation and of the stock of knowledge itself tend to make
technological innovations the outcome of interactions and cooperation among fundamentally autono-
mous organizations commanding complementarity resources. As a result... the locus of innovation could
well be a ‘network’ of various types of organizations’. This seems to be happening particularly in
biotechnology where ‘the large firms are no longer the sole locus of innovative activity’, which instead
‘should be thought of as a ‘network’ of inter-organizational relations’ [Arora and Gambardella, 1990:
362 and 374].
39. Biotechnological inventions can easily be duplicated as these inventions are embodied in self-replicating
living material [DGIS, 1991: 14].

51
40. Particularly in the US, the pressure for tighter IP protection has emerged from the ‘twin perception that
the erosion of the competitive position of the U.S. technology leadership in certain sectors, in particular
in pharmaceuticals, chemicals, computer software and semiconductors, is due to copying in foreign
countries and to unfair practices of certain countries, including inadequate protection of intellectual
property’ [Weiss, 1990: 89].
41. Estimates of trade losses due to counterfeiting and piracy range up to $60 billion annually [Financial
Times, 17 October 1989: 7]. In 1986, the value of lost sales resulting from unauthorized copying of US
patented, copyrighted, or trademarked materials has been estimated by the US International Trade
Commission (USITC) at between $43 to $61 billion. Also according to USITC, the world-wide loss to
US industry of domestic and export sales attributable to foreign product counterfeiting, passing off, and
copyright and patent infringement of similar products is estimated to amount to between $6 and $8 billion
in 1982 [Davis, 1991: 508, fn.8] [Weiss, 1990: 89, fn.5]. Estimated losses to American book publishers
due to piracy reach $700 million a year [Benko, 1988: 222]. According to a pressure group based in the
US, International Intellectual Property Alliance, in 1992 American business lost around $2 billion in
potential trade in the ten worst-offending Asian countries [The Economist, 1st May, 1993: 67]. The US
Pharmaceutical Manufacturers Association estimates that the sale of copied drugs amounts to $1.4 billion
per year [Nogues, 1990: 86]. For a more detailed analysis of seven main LDCs engaged in piracy and
the affected sectors, see MacLaughlin, Richards and Kenny [1988].
Strangely enough, however, the practice of counterfeiting has attracted little attention from economists.
One of the few economic analyses of this wide-spread phenomenon demonstrates that if supplies of
counterfeits are assumed to be perfectly elastic, stricter enforcement is not at all welfare-improving
[Grossman and Shapiro, 1988: 79-80].
The so-called parallel imports, i.e. imports into a country of products protected by patent or trade mark
and already offered by the local subsidiary or the appointed distributor, present a related problem. These
imports may be counterfeits, in which case they can be dealt with accordingly, or genuine products made
somewhere else. In this second case, if the importing country is a member of the EC the matter becomes
very complex indeed.
The problem of parallel imports is connected to the ‘principle of exhaustion’, according to which legally
acquired IP-protected goods can be disposed of irrespective of the seller’s wishes. The principle
represents an attempt to reconcile the free movements of goods with the exclusive rights arising from IP
protection, its objective being to open up sources of cheap supply to the domestic consumer. In fact the
EC has opted for the principle of community-wide exhaustion. Yet, ‘territorial exhaustion is inherently
discriminatory because, in respect of international trade, it allows the title-holder who benefits from
parallel protection in another country to oppose the importation of a product he first marketed in that
country, while such a title-holder is not entitled to control the subsequent distribution of a product after
its first sale in the domestic market. Thus, in the case of imported products, the title-holder would be
allowed to exercise the rights twice, i.e. in the country where the product was first marketed as well as
in the country of importation, whereas in the domestic market the title-holder is allowed to exercise his
rights only once’ [Yusuf and Moncayo, 1992: 128]. Therefore, the establishment of world-wide uniform
standards of IP protection is bound to raise questions on the continued admissibility of a territorial
exhaustion regime in view of the restrictions to international trade which it may cause. In fact, ‘territorial
exhaustion may undermine export-based economic development strategies of developing countries and
countries undergoing transition to market economy. Since under territorial exhaustion, title-holders
would be entitled to invoke their exclusive rights to protect their home markets from parallel imports,
this would mean that whenever a developing country or a country in transition relies on foreign
technology for its domestic development, it would be restricted in its choice of export markets since
quantitative restrictions ---- proscribed by the general Agreement ---- may be replaced by protective
intellectual property measures having an equivalent effect’. The shift to a world-wide exhaustion of IPRs
could prevent IPR-holders ‘from control[ling] the entire distribution process of goods and services after
they have received reasonable returns for the products marketed by themselves’ [Yusuf and Moncayo,
1992: 130]. The adoption of a principle of world-wide exhaustion of IPRs ‘would be perfectly in the
logic of internationally harmonized standards of intellectual property and free trade’, whereas an
exception in favour of LDCs, or some subgroup of LDCs, may offer them some compensation for
accepting the TRIPs agreement [Ullrich, 1989: 155].
42. ‘There is nothing in the GATT per se, however, which requires any country to have any laws that protect
intellectual property in any particular specific manner at any particular level’ [Richardson, 1989: 368].
And ‘neither the GATT nor WIPO conventions contain express provisions against too little or no
enforcement of IPR’ [Meng, 1990: 72].
43. The infant industry argument is also supported by learning-by-doing economies, as in the case of a mature
industry that in DCs no longer shows learning economies, although these are substantial in a particular

52
 LDC. If in the latter the demand is also relevant, then some protection may make it profitable for the
LDC’s firms to enter production. Since the price of the protected good should not rise, the terms of trade
of DCs are not affected. The infant industry argument is further supported by the ‘strategic trade policy’
literature which also shows the eventual positive impact of protection on domestic expected demand and
R&D. This approach underlines the tendency for DCs’ technological progress to concentrate in export
industries, while that of LDCs centres on import competing industries. Hence technological progress in
DCs widens the productivity differential and so the basis for trade, but that in LDCs narrows it.
44. IPRs are dealt with under articles IX(6) and XX(d) of GATT. The first simply stresses cooperation among
the parties in order to avoid misrepresenting marks of origin in international trade. The second ‘allows
Contracting Parties to take measures for the enforcement of intellectual property rights that normally
would be inconsistent with the General Agreement’ [Hartridge and Subramanian, 1989: 900]. Articles
I and III are also indirectly related to IPRs. These refer to the most favoured nation and national treatment
principles, respectively [Meng, 1990: 70-2].
45. The 1978 American proposal was further elaborated, with the participation of the EC, Japan, Canada and
some other DCs, into the draft ‘Agreement to Discourage the Importation of Counterfeit Goods’ and then
abandoned, since for the countries concerned ‘the code was clearly inadequate. It dealt only with
counterfeiting of trademarked goods and then only as a border measure’ [Benko, 1988: 222-4].
46. But see note 42 above.
47. To protect its IP, the US has lately introduced several major, and often fundamentally new, national legal
and institutional measures such as (a) the 1980 amendment to the 1975 ‘Copyright Act’, explicitly
granting protection to software; (b) the 1984 ‘Semiconductor Chip Protection Act’ which, in contrast
with the national treatment clause, contains a reciprocity clause; (c) the 1985 ‘International Software
Protection Act’, which also includes a reciprocity clause [Vaitsos, 1990: 85]; (d) the 1988 ‘Omnibus
Trade and Competitiveness Act’, particularly its Section 301 which authorises threatening countries with
commercial retaliation if they do not conform to US requirements on IPRs; and (e) the 1988 amendment
of the ‘Tariff Act’ of 1930, particularly its Section 337. These measures are largely based on the ‘Trade
and Tariff Act’ and the ‘National Productivity and Innovation Act’, both of 1984. It is, however,
particularly in relation to the Third World that ‘the technology issue is dominated by the role of the United
States’, so much so that it ‘might almost be termed an area of U.S.-South conflict’ [McCulloch, 1981:
111-2]. The US is leading a war on piracy and by combining Section 301 with Special 301 Action, can
effectively use trade measures for ‘securing concessions from foreign states with insufficient protection
of IPRs’ [Davis, 1991: 532]. Interesting enough it has been remarked that the list of pirating nations
prepared by the US Department of Commerce ‘is almost exactly the list of countries that most economists
would regard as having made significant progress in economic development over the past thirty or forty
years’ [Evenson, 1990: 325]. Finally, trade secrets in the US are protected by state, rather than federal
law. Although all are based on section 757, comment b, of the ‘Restatement of Torts’ of 1939, state trade
secret laws differ widely. Thus the growing interest in establishing federal trade secret legislation.
48. WIPO, a specialized agency of the UN, is mandated to ensure multinational administrative co-operation
in ‘the protection of intellectual property throughout the world’. It is responsible for promoting creative
intellectual activity and for facilitating the transfer of technology to LDCs in order to accelerate their
economic, social and cultural development. WIPO provides only for national treatment, i.e. country
members can set their own patent conditions and duration, but cannot discriminate between local and
foreign inventions (article 2 of the Paris Convention), and it has no enforcement power or dispute-set-
tlement mechanisms. Since 1984 WIPO has been working on a ‘Treaty on the Harmonization of Certain
Provisions in Laws for the Protection of Inventions’.
49. LDCs ‘feared that under GATT their powers would be diminished relative to the industrialised countries,
which of course was exactly the reason the United States and other industrialised countries wanted to
move the issue into GATT’ [Deardorff, 1990: 498]. According to the critics, WIPO has not been able to
meet all expectations and needs because, in line with the UN system, negotiations proceed on the basis
of group co-ordination and voting, which has resulted in a rather sterile North-South confrontation.
Another reasons is the lack of a workable mechanism to ensure compliance with obligations [Reinbothe
and Howard, 1991: 157].
50. Lengthy negotiations at Punta del Este resulted in the following compromise mandate for the Uruguay
Round: ‘in order to reduce the distortions and impediments to international trade and taking into account
the need to promote effective and adequate protection of intellectual property rights, and to ensure that
measures and procedures to enforce intellectual property rights do not themselves become barriers to
legitimate trade, the negotiations shall aim to clarify GATT provisions and elaborate as appropriate new
rules and disciplines’. The draft proposed by LDCs emphasised instead that (a) ‘lack of adequate and
effective protection’ of IPRs is the cause of trade distortions and an impediment to international trade;
(b) the Round’s aim was to promote a more effective and generalised application of existing international

53
 standards and ensure that the enforcement of IPRs does not itself create barriers to legitimate trade; and
therefore the Round had only (c) ‘to clarify and elaborate rules and disciplines with respect to these
matters’.
51. Others see the acceptance of the main objectives of the TRIPs as ‘the price developing countries must
pay for a settlement in agriculture and clothing’ [Page et al., 1991: 47].
52. For the problems posed by reverse engineering see also Friedman et al. [1991: 70-71]. It has been shown
that reverse engineering capacities are much stronger in the NICs than in the other LDCs [Evenson, 1990:
352].
53. The answer given, among others, by Taylor and Silberston [1973] for the UK is negative. See also Kitch
[1986].
54. The national treatment principle requires that the nationals of foreign countries should be treated in the
same way as the country’s own nationals [Blakeney, 1989: 121]. See also UNCTAD [1975: 47-48].
Given the absence of a common set of rules and the wide variety of measures and terms of protection
among countries, national treatment provides insufficient guarantees of international protection. Because
of its inability ‘to equalize an unequal level of protection in different countries’, it is often called ‘a
phantom’. Besides, foreign nationals are granted protection, at least for copyright, subject to the condition
of reciprocity [Katzenberger, 1989: 45]. However is has been maintained that, since countries which are
members of GATT must ensure their national laws conform to the minimum standard of protection, and
must respect the limitations placed upon national legislation by the GATT Treaty, ‘where national
treatment results in less than is required by the minimum standard, the Treaty, rather than the national
law, must be applied to the foreigner’ [Weiss, 1990: 103-4].
Unlike national treatment, the most-favoured-nation principle is alien to existing IP treaties, hence the
list of exemptions accorded by article 4 in the ‘Draft Final Act’. It is in principle applicable to IPRs, but
its application becomes difficult when the countries concerned have different socio-economic structures,
different levels of development, or when the ‘most favoured’ nations are members or third parties
vis-à-vis a customs union [Weiss, 1990: 105-6].
55. The problems of patentability concern mainly food, pharmaceutical and chemical products, since LDCs
and many scholars feel that these products satisfy basic needs, so they should be either non-patentable
or be made widely available at prices that render them accessible to all.
56. With the last revision, the Convention incorporated preferential provisions, on a non-reciprocal basis, in
favour of LDCs [UNCTAD, 1975: 48] and offers protection similar to, but less comprehensive than, the
Universal Copyright Convention (UCC) of 1971.
57. Although it is accepted that WIPO’s enforcement is more limited than GATT’s, it cannot be denied that
in the latter’s dispute settlement system, as usual in international economic organisations, ‘emphasis is
placed... on the accommodation of interests rather than on vindication of rights on a "victory versus
defeat" pattern’ [Weiss, 1990: 107-8].
58. ‘An examination of Community competition policy with respect to intellectual property law reveals that
there are no inconsistencies between the two bodies of law and that the intellectual property law must be
considered an integrated part of competition law’ [Vandebeek, 1990: 1609].
59. In fact the EC has a special programme (PRISMA) for assisting (a) the lesser developed regions of the
member countries to reinforce their national technical infrastructures; and (b) particularly small and
medium-sized enterprises to get access to quality tools.
60. In fact, ‘contrary to conventional wisdom, there is no international patent, international trademark or
international copyright’, but ‘each country retains control over the issuance and enforcement of intellec-
tual property rights that it grants’ [Keating, 1991: 54].
61. David rightly underlines the need ‘to reflect upon the power of recent accelerating advances in the whole
complex of telecommunications and information technology to further diminish the economic meaning
of historically defined national boundaries, but for the arbitrary constraints which the exercise of political
sovereignty continues to impose’ [David, 1987: 237].
62. ‘Trademark laws have been the most territorial of all intellectual property rights’ and those ‘of the EC
countries have differed significantly from country to country’ [Celedonia, 1992: 751]
63. The international register system of ‘The Madrid Agreement’ of 1891, now administered by WIPO,
already exists but, aside from the fact that four EC countries plus the US and Japan are not members of
it, there are many problems with this system which have never been adequately solved by the more recent,
so-called ‘Madrid Protocol’ which, in any case, has not yet come into effect. The system remains based
on individual, national registrations, so that it is basically a filing cabinet [Celedonia, 1992: 756-7].
64. Yet, protection for mask works originating abroad is granted only to nationals of a state which has filed
the appropriate request at the US Patents and Trademarks Office [Dreier, 1989: 71].

54
65. The patentability of a process for the production of plants has been admitted not only when such a process
has been altered in its constituent parts, but also when the alternative lies in the special sequence of the
process steps [Correa, 1992: 155].
66. Although plant breeders’ rights could be a viable alternative to patent protection for plant varieties, they
are not included in the TRIPs’ negotiations. However, if patent protection is extended to plant material,
breeders and farmers in LDCs using patented plant material in their export crops will have to buy licences
and pay licence fees [DGIS, 1991: 31 and 34].
67. In 1991 five Latin American countries ---- Argentina, Brazil, Chile, Paraguay and Uruguay ---- decided
to establish a harmonised system of breeder’s rights in their countries.
68. For an extensive discussion of this distinction see Nott [1992: 84-5].
69. Incidentally, it has been noted that ‘the idea of using patent law to achieve particular social goals, such
as environmental protection, has received little attention in the literature’, probably because such a
proposal stands in direct opposition to the main objective of patent law, namely ‘the universal pursuit of
progress and the development of technology’ [Atkinson and Sherman, 1991: 169].
70. An alternative to IPRs could, however, be the farmers’ rights introduced by FAO in 1987. These are
‘rights arising from the past, present and future contributions of farmers in conserving, improving and
making available plants’ genetic resources, particularly those in the centers of origin/diversity’, and
observed through the creation of an international gene fund to reward farmers with programmes beneficial
to all. However, these rights do not accrue to the individual farmer, but are vested in the international
community, entitling governments to receive assistance in the maintenance of genetic resources,
assuming always that there are funds available since the contributions to the fund are voluntary, unlike
royalty payments under IPRs [Shiva, 1993: 559].
71. But the US drug, seed and biotechnology companies that opposed the Rio Convention have recently
started urging the Senate to quickly ratify the same agreement.
72. Invented in Germany and introduced there for the first time in 1891, the utility model is an industrial
property right for ‘minor inventions’ until now adopted only by a small number of countries. Compared
to the patent, the utility model requires less inventiveness and can be obtained by a simpler and cheaper
procedure. International conventions do not generally consider the utility model, so their stricter criteria
and more complex regulations do not apply to it. Its several advantages have made it rather popular to
users of industrial property systems: since its introduction almost 4 million applications have been filed
and about 2.2 million utility models have been registered in Germany, against 1.7 million patents granted
since 1877. Even more interestingly, while domestic applicants account for more than 80% of the
applications for the utility model, they account for only about 50% of those for patents. The number of
domestic applicants for patents started to predominate only from the mid-1950s. A similar trend has
characterised the Japanese experience and it is being noted in the case of China. Although IP protection
has entered into force only since 1985, utility certificates have met with an enormous success [Häusser,
1987; Ullrich, 1989a: 111, fn. 64]. South Korea has a utility model system, and since 1970 Brazil also
has operated one which ‘appears to be working effectively as an inducement to innovation and does not
seem to be hampered by major legal or administrative barriers’ [Frischtak, 1990: 69-70].
Utilised mainly by small and medium-sized enterprises and independent inventors, it apparently ‘assumes
particular importance for the domestic economy at the beginning of a country’s industrialization’
[Häusser, 1987: 319]. Besides the countries mentioned above, the utility model has been adopted also
by the members of the African Intellectual Property Organization (OAPI in French) and the WIPO Model
Law for English Speaking African Countries on patents also provides for the introduction of utility
certificates [Ullrich, 1989a: 111, fn.63].
73. In contrast to the US tradition, article 85 of the Treaty of Rome contains a broad prohibition of explicit
and tacit collusion where it is likely to affect trade between member states. Its para. 3 exempts ‘some
collusive behaviour restricting competition’ when sufficient beneficial effects are assumed. Thus there
is a ‘delicate appreciation of complex trade-offs’. One way of implementing such a system has been by
granting group (or block) exemptions’, an example of which is the Regulation on R&D agreements,
which came into force in March 1985, and which accepts that ‘cooperation in R&D, in many cases,
cannot be limited to the sole level of pure R&D, and that it will generally lead to joint exploitation of the
results in order to stabilize the agreements and to solve the appropriability problem’ [Jacquemin, 1988:
557-9].
74. The establishment of world-wide competition rules has been proposed by some, see Jacquemin and Sapir
[1991], particularly ‘to offset unwarranted abuses of stronger intellectual property rights’. Although, ‘the
link between competition policy and IPRs is complicated..., as technological rivalry intensifies and firms
turn more frequently toward joint ventures, patent-pooling arrangements and cross-licensing agreements,
the potential for abuse of IPRs may be growing’ [Maskus, 1993: 157 and 178-9].

55
75. A very useful classification of industrial technologies by categories, based on Pavitt, has been elaborated
by Vernon [1990: 263-67].
76. As for the automatic approval system adopted by South Korea at the end of the 1970s, the fact that
technology agreements were to be evaluated, approved and registered by the ministry dealing with the
usage of the proposed technology, made approval and registration of most technologies a ‘one stop’
process. Although this so-called ‘utility model protection’ has been praised by many [Westphal and
Evenson, 1993: 65] it has also meant repetitive acquisition of foreign technologies; acquisition of
outdated technologies; higher royalty rates for fairly standardised technologies and also lump-sum
payments; and more unfavourable terms and conditions for Korean licensees than in the prior period
[Marton, 1986: 421-2].
77. India represents the case of ‘low payoff from a relatively well developed and extensive scientific and
technological infrastructure’ and its ‘distinctly disappointing’ industrial research [Rosenberg, 1990: 149]
is due to this rather than to the weak protection provided to IP.
78. ‘Implantation of operational (turnkey) technology theoretically permits the recipient to make a product
equivalent to that produced by the technology supplier, though in practice the production efficiencies
and quality levels achieved vary widely. Duplication technology transfer implies design and engineering
know-how sufficient to reproduce an entire plant or discrete components. Technology transfers that
engender innovative capability allow the recipient to go beyond duplication to alter transferred products,
processes and equipment designs in response to changing resources, requirements, and market demands’
[Baranson and Roark, 1985: 27].
79. H. Bruton’s article in the same volume is a substantial contribution to the definition of a policy for building
such an indigenous technological capacity.
80. According to a recently published study by the Washington-based National Science Foundation, Asian
enrolments at all levels of US higher education rose from 20,000 in 1985 to 200,000 in 1985, science
and engineering attracting most of these students. Presently more than half the Ph.D.s awarded in the US
in engineering and mathematics are to foreign students, with Asians predominating. Furthermore, R&D
spending is fast increasing in Asia. The combined spending of six Asian countries ---- China, India, Japan,
Singapore, South Korea and Taiwan ---- in 1987 was only about 25% less than the spending of the US
for the same year. Yet, while the latter’s spending is showing signs of decline, that of Asia is clearly
rising, further strengthening their self-sufficiency [Greenberg, 1993: 6].
81. Avoiding brain drain and reversing it when it has taken place are also measures that can greatly contribute
to capability building.

56
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