TRIMs are regarded by developed countries as obstacles to trade and investment because they cause distortions in the market forces. Developing countries, however, have traditionally regarded them as useful policy tool to promote development objectives and strengthen trade balances.
TRIMs basically consist of investment incentives, such as subsidies, investment grants and allowances, priority access to credit, tax relief and exemptions, tariff protection and other forms of fiscal, financial and commercial inducements for investments, and performance requirements, such as local content, trade balancing export requirements.
TRIMs exist in both developed and developing countries, but are more often found in developing countries. TRIMs in developed countries may be found in rules of origin, indicating a requirement for domestic content.
Though in theory it can be shown that TRIMs clearly distort patterns of trade and development, in particular under assumptions of perfect competition, in practice the evidence is not particularly strong.
Studies have demonstrated the low priority of TRIMs in investment considerations.
Their presence does not seem to affect significantly the outcomes of an investment decision. In many cases, TRIMs require transnational corporations to undertake operations they planned to do any way.
Research at micro level has produced divergent outcomes. The general conclusion is that TRIMs, like other public sector interventions in imperfect markets, enhance resource allocation if they help all potentially comparable locals utilise foreign investment to penetrate global markets but detract if they merely insulate high-cost operations from competition.
There is general agreement that trade liberalisation is one of the most effective methods of stimulating competitions, and that competition in turn stimulates efficient allocation of resources, protects quality and innovations, and as such promotes industrial and technological development and restructuring.
To the extent that TRIMs contribute to trade protection, and in essence they do, their elimination will contribute to competition and to industrial and technological development.
The agreement on TRIMs, a separate agreement that is part of the agreement on trade in goods, only confirms the legal situation under the General Agreement on Trade and Tariff (GATT) regarding the inconsistency of certain TRIMs.
It prohibits those measures, which are prohibited by GATT articles III (On national treatment, prohibiting local content and trade balancing requirements) and XI (On prohibition of quantitative restrictions).
Though the agreement provides for certain flexibilities, in essence it does not add any new restrictions and obligations.
Following the logic of the Agreement on TRIMs, developing countries to which the balance of payments provisions of GATT article XVIII, B apply are permitted to deviate from their obligations under the agreement on TRIMs to the extent that the article permits them to deviate from the GATT articles concerned.
Differential and more favourable treatment is provided in terms of the phase out period, which is five years for developing countries and seven years for least developed countries (as opposed to two years for developed countries).
In the light of the above, the agreement on TRIMs may not have major implications and benefits to Asian and Pacific developing countries, especially in the short run.
Governments remain free to regulate foreign direct investment in their respective economies. To the extent that TRIMs play a role in investment decisions of transnational corporations emanating from some more developed Asian economies, these economies may reap some benefits. But as foreign direct investment from these economies is concentrated in labour intensive industries, the effect on industrial restructuring are minimal, although the relocation of support industries which would supply parts and components to affiliate may be expected as local content requirements become impermissible.
The agreement prohibits more explicitly import-substituting measure of many developing countries. But as Asian economies have by and large adopted an export-oriented strategy, the agreement does not render any additional benefits.
In fact, the absence of provisions on restrictive business practices is a major weakness of the agreement. In the long run, however, the agreement may spur foreign direct investment and competition, benefiting both industrial and technological development and restructuring.
Implications of the agreement on trade-related aspects of intellectual property rights (TRIP's):
With the increasing globalisation of business activities, competition, technological capabilities and the appropriation and diffusion of technology, intellectual property has emerged as a new basis of comparative advantage. The lack of, or weak protection of intellectual property in several countries, including those in Asia, has led to trade tensions and, in certain cases, retaliation. In particular, counterfeiting was widely considered to damage original producers, while it was practised in most Asian economies with impunity.
The agreement on TRIPs establishes international standards of intellectual property protection, including standards on patents, copyrights, trademarks, industrial designs; geographical indications, integrated circuits and undisclosed information.
A major new feature is the introduction of the Most Favoured Nation (MFN) clause in intellectual property protection. As a result, the essential provisions of international conventions governing intellectual property rights protection, administered under the auspices of the World Intellectual Property Organisation, have been made universally applicable on a most favoured nation bases, given a binding character, and incorporated as inherent rights in the multilateral trading system through the WTO agreement, with its common dispute settlement mechanism.
Industrialised countries must implement the standards agreed upon within 1 year, 5 years by developing countries (10 years if they do not currently provide product patenting) and 11 years by least developed countries.
Though the agreement provided certain commitments to encourage technology transfer to the least developed countries, there are no special provisions to facilitate the transfer of technology to developing countries.
The basic argument is that the agreement on TRIPs will automatically lead to increased levels of foreign direct investment and technology transfer to the benefit of all countries, including developing countries, the new regime, it is argued, will influence competition in the world economy as well as the generation and diffusion of technological innovations, and, ultimately, the technological development prospects of developing countries. The evidence for this argument, however, is not clear-cut.
Within any given economy, the development of new products, processes and technologies, in short, innovation, has become an absolute necessity to sustain or improve competitiveness of individual companies in a certain industry. Innovation has even been demonstrated to play a fundamental role in the competitiveness of nations. Resources and efforts channelled into innovation are quite substantial and should be rewarded. Any new idea or technology that can be deployed successfully in commercial activities and is basically a free good available to all undermines effort to innovate and, as a result, undermines competitiveness.
The recent literature tends to support the assumption that, without any appropriate legal protection, there will be no incentive to invest in activities related to invention and innovation.
The agreement, therefore, seems to be most pertinent not only to developed countries but also to those developing countries that have developed a certain level of technological advancement.
Protection of intellectual property will induce industries in the newly industrialising developing economies to upgrade and innovate, which in the short run will entail costs, but in the long run will boost the competitiveness of these industries.
The benefits of the protection of intellectual property rights to ASEAN economies, South Asian and other developing countries in the region, including economies in transition, are less clear-cut.
These economies will continue to depend to a large extent on inflows of foreign direct investment with concomitant inflows of technology to foster industrial and technological restructuring.
For these economies it seems that the agreement will curb inflows of technology and fail to boost foreign direct investment. Studies have shown that intellectual property rights were not found to be a major determinant of such investment, especially in least developed countries where it is typically of low technology intensive nature.
Data for various developing countries that only conferred limited or weak intellectual property protection also indicate the uncertain relationship between protection and the volume and composition of foreign direct investment.
Thus, economies such as the Republic of Korea, Singapore, Taiwan and China, which have been major targets of the actions of industrialised countries against failure to protect intellectual property, have also been among the major destinations of foreign direct investment from these industrialised countries.
The effects of the agreement on TRIPs on technology transfer are also not very positive in the case of the least developed counties.
First, as shown above, there is no substantial link between foreign direct investment and intellectual property rights, while the investment is a major mechanism for technology transfer.
Second, stronger protection may be used by foreign intellectual property holders, especially in developing countries, to preserve import rights rather than to use the technology locally or to license it to other firms.
The result will be higher costs for developing countries to attract technology. On the other hand, technology transfer may be hampered exactly because of the lack of effective protection.
Whatever the impacts of the agreement on TRIPs, in general it is believed that the benefits are few in the short run and are probably outweighed by the costs.
In the long run, however, more effective protection will lead to higher levels of innovation, will encourage the relocation of knowledge-intensive elements of the production process and even research and development establishments to developing countries, and will lead to increase competition among technology suppliers, increasing levels of knowledge and improved access by developing countries to technology as the benefits will eventually spread to all countries.
The greatest benefit for developing countries in the short run is probably the absence and elimination of trade sanctions imposed by industrialised countries as a result of ineffective protection of intellectual property rights.
From the foregoing analysis, it appears that short-term implications for developing countries include few benefits but considerable costs, while in the long run all countries, including developing countries, will benefit, though some more than others.
There seems to be however global political consensus that trade liberalisation and a global trade regime will increase trade and, through trade as the engine of growth, industrial and technological development will be further accelerated.
However, the actual long-term benefits to developing countries depend not only on full implementation of the agreements but also on further liberalisation of national trade and investment regimes.
In respect of Pakistan, the success of our efforts to draw maximum advantage and benefits accruing from the WTO agreements would depend how intelligently we set our house in order backed by consistent R&D activities.
The entrepreneurs now have to manage and organise themselves while inter-acting with the indigenous and international market forces deriving strength from product quality and competitiveness these being the determining factors in terms of their international presence.
We also need to cement our institutional strengths by inducting professionals in all those organisations/institutions those are directly or indirectly involved in the promotion of international trade.
It is needless to emphasise, ultimately our economic might will determine our viability as a respectable nation thereby leading to invincible defence eliminating the element of vulnerability to external pressures.
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