Further Protection of Intellectual Property Rights in the Wto : Linking Transfer of Technology with Foreign Direct Investment

Further Protection of Intellectual Property Rights in the WTO

Linking Transfer of Technology with Foreign Direct Investment

Yong Jian W A N G *

I. INTRODUCTION

An ever-important need for the protection and enforcement of intellectual property rights (IPRS) in the world trading system was implemented by the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) in the WTO framework after the Uruguay Round of multilateral trade negotiations. However, the TRIPS Agreement only imposes the minimum standards for the protection of IPRS with which WTO Members are obliged to comply and leaves countries to decide for themselves whether to provide higher levels of IPR protection.‘ In this context, the TRIPS Agreement can be the maximum concession of some WTO Members if they are not willing to provide a higher level of IPR protection. Moreover, the TRIPS Agreement explicitly allows WTO Members to afford the implementation of national needs and objectives precedence over the protection of IPRS. For example, in conformity with the TRIPS Agreement, a WTO Member’s national legislation may take into account certain national needs such as public health and social and technological development.2

Under certain circumstances, a WTO Member’s national legislation is allowed to determine the domestic establishment of compulsory licensing and “adequate remuneration” without the consent of the IPR holder.3 As evidenced by South Afn’ca Competition Commission v . GlaxoSmithKline,4 WTO Members can take over a patented product and distribute it dbmestically at a low price through compulsory licensing and with limited remuneration. However, this may usually cause some degree of financial loss for the IPR holder because the royalty cannot be fully compensated.

Therefore, as IPRS are increasingly involved in international trade and investment, a higher level of IPR protection within the WTO framework needs to be implemented to balance the interests of IPR holders with development needs. As will be discussed in

* College of Business Administration, Univenity of Texas-Pan Amencan, Edinburg, Texas.

1 TRIPS Article 1.1. 2 Ibid., Article 8.1. See also [he Declaration on the TRIPS Agreement and Public Health, WTO

3 TAWS Article 31.

He may be contacted at: <[email protected],.

Doc. WT/MIN(OI)/DEC/~, 20 November 2001.

See CPTech, Health Care and 1P: Compulsory Licensing in Ajica; available at: twww.cptech.org/ip/ health/cl/cl-africa.html, (last visited 27 January 2005).

798 THE JOURNAL OF WORLD INTELLECTUAL PROPERTY

Section II of this article, the protection of IPRS within the WTO needs to be better understood in conjunction with the issues of foreign direct investment (FDI) and transfer of technology and in light of achieving the institutional objectives of development.5 Section 111 will analyze the potential of the WTO framework for the protection of IPRS on the basis of the ongoing discussion held in the WTO Working Group on the Relationship between Trade and Investment.

11. IPK PROTECTION IN THE CONTEXT OF FDI AND TRANSFER OF TECHNOLOGY

The protection of IPRS within the WTO framework is not merely a means to specify the rights and obligations of WTO Members. It is also a means to actualize a variety of social and development needs.6 The understanding of IPR protection needs to be connected with a broader comprehension of the relationships between FDI, transfer of technology and development objectives.

A. THE CONTRIBUTIOX OF FDI AND TRANSFER OF TECHNOLOGY TO DEVELOPME.VT

Diffusion of technology has been considered the key factor in the economic development of developing countries.7 Diffusion of technology in a developing country can be in the form of the importation of certain technologies from abroad. Furthermore, technology spillover effects of FDI can facilitate technology diffusion in the host country in various contexts.8 In the WTO, the contribution of FDI to the development of host countries, particularly developing countries, has been extensively examined.9 The effects of FDI on development are significant in regard to “capital formation, technologcal and managerial know-how, access to export markets, domestic entrepreneurship and forward and backward linkages, competition, employment, balance-of-payments and macroeconomic stability”.’0 Therefore, since the majority of WTO Members are developing countries, the adequate promotion of FDI flow and transfer of technology in the WTO trading framework creates opportunities for

5 See WTO Doha Ministen’af Declaration, WT/MIN(O~)/DEC/I , 20 November 2001, paras. 4 and 6. 6 See, for example, TKIPS Articles 7 and 8. 7 Akio Okochi and Hoshinii Uchida, Development and D@Dirsioti .f Technolocqy, University of Tokyo Prers,

Tokyo, Japan, 1980. See Magnus Bloiiutrom and An Kokko, Forciyn Direct Invesfnient and Spillovers qf Technohigy, International

Journal of Technology Management, Vol. 22, No. 5/6, 2001, pp, 435-454; Zhiqiang Liu, Foreigti Dirert Investnirrit and Techndqcy Spiilover: Evidence f.im Chirra, Journal of Comparative Economics, Vol. 30, No. 3, 2002, pp. 579-602; Evis Sinani and Klaus E. Meyer, Spillovers of Technology T r a n s f r j m FDI:Thr Case qf Estonia, Journal of Comparative Economics, Vol. 32, No. 3, 2004, pp. 445-466.

9 See Working Group on the Relationship between Trade and Investnient, Report (1998) .f the Workin2 Group on tlw Relatioriship between Trade and Invesfment to the General Coiincil, WTO Doc. WT/WGTl/2, 8 December 1998, paras. 28-44; idem, Report (1999) q f t h e Working Group on the Relationship between Trade and Investment to the General Coiincil, WTO Doc. WT/Wc;Tl/3, 22 November 1999, paras. 19-32; idem, Report (2000) qf the Working Group on the Relationship betweeii Trade and Invesfment to fhr General Council, WTO Doc. W T / W m / 4 , 27 November 2000, paras. 9-23; idem, Report (2001) q f t h e Working Group on the Relationship between Trade and Investment to the General Coiincil, WTO Doc. WT/WGTl/5/Add.l. 8 October 2001, paras. 23-25; and ideni, Report (2002) ($the Working Group on fire Relationshb between Trade and Investment to the General Corincil, WTO Doc. WT/WcT1/6, 9 December 2002, paras. 15-18.

1” WTO Doc. WT/WGTr/2, supra, footnote 9, para. 19.

LINKING TRANSFER OF TECHNOLOGY WITH FDI 799

implementing the development needs reaffirmed by the Doha Ministerial Declaration. The need to expand FDI and transfer of technology to developing countries in the WTO framework was emphasized in the Doha mandate."

B. THE RELATIONSHIP BETWEEN FDI A N D TRANSFER OF TECHNOLOGY

Transfer of technology, including know-how and advanced management methods, may take place via a number of WTO channels, such as trade in goods, trade in services, technology licensing, technical assistance, government procurement, trade-related FDI, etc.I2 According to research conducted by the United Nations Conference on Trade and Development (UNCTAD), the major generators, transferors and diffusers of technology to developing countries are multinational corporations (MNcs). l 3 MNCS transfer technology to host countries either through internal channels by internalizing the technologies to afiliates under their ownership and control in the host countries or through external channels by externalizing the technologies to other firms in the form of franchising, licensing, technical service or subcontracting.14 Due to the anti-competitive nature of MNCS, a substantial part of technology transfer occurs through the internal channel.15 In the WTO, the spillover effects of FDI have been considered the most significant channel for the dissemination of advanced technology.16 Hence, FDI flows may be deemed to be the main carrier of technology in its international diffusion and the engine that can impel the transfer of technology to the local economy of host countries.

On the other hand, the degree and extent to which technologies are transferred usually determine the level of the technological content of FDI. For example, FDI with a low level of technology transfer is usually labour-intensive and, thus, does not require a high level of technology involvement in the operation of local affiliates or joint ventures. It is argued that labour-intensive FDI cannot effectively benefit the structural improvement of the local economy.17 In the W T O , although the importance of technology transfer has been addressed, the balance between technology transfer and FDI has not yet been emphasized. In spite of the overall positive effects of FDI, it was found that some developing countries encountered negative effects of FDI. Such negative effects include the risk encountered by some developing countries of becoming locations for simple assembly operations and the impact of foreign affiliates

1 I WI o Doha Miriisrerial Derlaration, supra, footnote 5, paras. 20-22 (Relationhsip between Trade and

I2 Working Group on Trade and Transfer of Technology, Communicahnfiom the European Communities, WTO

13 UNCTAU, Tranifer of Technology, UNCTAD Series on Issues in International Investment Agreements, United

' 4 Ibid. Ibid.

l 6 WTO Doc. WT/WGT1/3, supra, footnote 9, para. 21. 1' Yasheng Huang, W y More is Actirnlly Less: N e w Interpretations o f China's Labor-Intensive Fix; available at:

Investment) and pxa. 37 (Trade and Transfer of Technology).

Doc. WT/WGTTT/~ , 10 June 2002, paras. ( 2 4 .

Nations Publications, New York, 2001, Section I.A.

~eres.bus.umch.edu/docs/workpap-dav/wp375.pdf, (last visited 2 February 2005).


on domestically available financing and competition in the domestic market.18 Therefore, in light of development objectives, it is important to call for appropriate trade policies to expand the transfer of technology by enhancing the technological content of FDI in order to reduce such negative effects of FDI on the economy of the developing countries.

C. THE ROLE OF IPR PROTECTION IN PROMOTING FDI FLOW AND TRANSFER OF

TECHNOLOGY

On the basis of the analysis above, it could be argued that there is a positive correlation between FDI and transfer of technology to the benefit of development because FDI and transfer of technology have enormous impacts on each other in the process of operationahzing maximum development benefits. However, the experience of some WTO Members has indcated that more FDI does not necessanly lead to more technology transfer.19 A major reason for this may be that the volume and effectiveness of technology transfer from abroad depends on the economic conhtions of the host country, such as its legal regime, entrepreneurial environment, education level of the work force, etc.20

The role of IPR protection in the context of technology transfer is salient. Economic research based on U.S., Japanese, and German outward investments found that, in certain high-technology industries being investigated, a country’s regime for the protection of IPRs has a significant effect on the volume and type of technology transfer and F D I . ~ ~ Although economists have not reached a consensus on the relationship between the extent of protection of IPRS and transfer of technology, WTO Members have generally agreed that a country’s regime of IPR protection has a direct impact on the mode and the effectiveness of technology transfer.22

Therefore, at the institutional level of the WTO, “a transparent, stable, and predictable regulatory framework for trade and investment”23 (which includes the multilateral rules regulating the protection of IPRS) facilitates FDI flow and transfer of technology, particularly f rop the perspective of a developing country. Although the issue of IPR protection at the national legislation level has been frequently discussed,24 how to implement the protection of IPRS at the multilateral level beyond the TRIPS Agreement has been neglected in the WTO’s ongoing discussions. As observed in the discussions in the Workmg Group on the Relationship between Trade and Investment,

18 Workmg Group on the Relationship between Trade and Investment, Report on the Meeting of 30 and

l9 Working Group on Trade and Transfer of Technology, Trade and Transfer of Technology, Background Note

2o Ibid., para. 74. 2‘ Edwin Mansfield, Intellecfual Property Protection, Direct Investment and Technology Transfer: Germany,]apan and

22 Working Group on Trade and Transfer of Technology, A Taxonomy on Countty Experiences on International

23 WTo Doha Ministerial Declaration, supra, footnote 5 , para. 20. 24 For example, WTO Doc. WT/WGTTT/~, supra, footnote 12, para. 10.

31 March 1998, Note by the Secretariat, WTO Doc. WT/WGTI/M/~, 5 June 1998, para. 20.

b y the Secretariat, WTO Doc. WT/WGTTT/W/~, 2 A p d 2002, paras. 77-89.

the United States, International Journal of Technology Management, Vol. 19, No. 1/2, 2000, pp. 3-21.

Technology Transfers, Note by the Secretariat, WTO Doc. WT/WGTTT/W/3, 11 November 2002, para. 42.

LINKING TRANSFER OF TECHNOLOGY WITH FDI 80 1

further improvement of multilateral IPR protection rules in the world trading system has not been considered for FDI and technology transfer issues. This article suggests that, at the institutional level of the WTO, multilateral trade policies regarding the protection of IPRS can be crucial for a sound interaction between FDI and transfer of technology.

111. KEY ISSUES REGARDING FDI, TRANSFER OF TECHNOLOGY AND PROTECTION OF

IPRS DISCUSSED IN THE WORKING GROUP O N THE RELATIONSHIP BETWEEN

TRADE AND INVESTMENT

For the purpose of analyzing the investment-related issues in the multilateral trading framework, the Worlung Group on the Relationship between Trade and Investment was formed in 1996 by the WTO Ministerial Conference in Singapore. The issue of IPR protection in the context of FDI and transfer of technology is covered in the Checklist of Issues Suggested for Study designated for the Working It was proposed that the Working Group should examine in depth the relationship between transfer of technology and effective protection of IPRs in the context of FDI flow as part of the research on the relationship between FDI and transfer of technology.26

A. TECHNOLOGY TRANSFER REQUIREMENTS V E R S U S FDI LIBERALIZATION

With respect to the discussions in the Worlung Group over technology transfer requirements related to the Agreement on Trade-Related Investment Measures (the TRIMS Agreement), there has been an ideological argument between the developing countries and the developed countries. The TRIMS Agreement, which is also a result of the Uruguay Round negotiations, prohibits WTO Members from deploying certain trade-related investment measures that infringe either the national treatment principle set up by the General Agreement on Tariffs and Trade (GATT) Article 111 or the provisions of GATT Article XI against quantitative restrictions on imports and exp0rts,~7 including local content requirements, trade-balancing requirements, foreign exchange-balancing requirements, exchange restrictions and domestic sales requirements.28 However, as a compromise between the d.eveloping countries and the developed countries in the Uruguay Round negotiations,*9 the TRIMS Agreement stdl allows WTO Members to impose other trade-related investment measures as conditions for foreign investment, such as export-performance requirements, product-mandating requirements and technology-transfer requirements.30

25 Working Group on the Relationship between Trade and Investment, Report on the Meeting of2 and 3&ne

26 Working Group on the Relationship between Trade and Investment, Reporl on the Meeting of 6 and

27 Article 2 of the TRIMS Agreement. 28 Illustrative list of TRIMS, Annex of the TRIPS Agreement. 29 Juris International, Trade-Related Investment Mensures; available at: ~ jur i s in t .o rg /pub/06/en /doc /C 13.pd6

1997, Note by the Secretariat, WTO Doc. WT/WGTI/M/~, 2 July 1997, Annex 2.

7 October 1997, Note by the Secretariat, WTO Doc. WT/WGTl/M/2, 10 November 1997, para. 16.

(last visited 19 February 2005). 3" General Council, Prepararions for the 1999 Ministerial Conference-General Council Discussion on Mandated

Nepofiationr and the Built-In Apenda, Conintunication from the United States, WTO Doc. WT/GC/W/l l5 , 19'November 1998, para. II.C. -


Along with the attempt of the Multilateral Agreement on Investment (MAI) by the Organisation for Economic Co-operation and Development ( O E ~ D ) , which would have explicitly prevented contracting parties from imposing technology-transfer requirements in order to achieve multilateral FDI liberalization,31 it was suggested by several developed countries that the Working Group on the Relationship between Trade and Investment make a further investigation, in light of Article 9 of the TRIMS Agreement, on whether technology-transfer requirements should be added to the illustrative list of the prohibited trade-related investment measures annexed to the TRIMS Agreement.32 According to I t m i III of the Checklist of Issues Suggested for Study,33 the Working Group studied the proposals by WTO Members in the late 1990s that addressed the issue of technology-transfer requirements versus FDI liberalization.

It was argued by developed countries, represented by the European Communities34 and the United State~,3~ that FDI liberalization, together with sound economic infrastructure, advanced technology capabilities and a stable regulatory framework, would create optimal conditions for the contribution of FDI to technology transfer and technological development. Foreign investors would transfer technology in a higher degree to the host economy when higher levels of infrastructure and a legal system for IPR protection were built. Government intervention, such as technology- transfer requirements, would create obstacles for the flow of FDI because such requirements could not assure foreign investors that technology transfer would be useful and profitable for their own business development. Because of the risk of the takeover of IPKS, foreign investors would withdraw the investment plan or bring in only less-advanced technology if a local government were to compel them to transfer technology to the host country.

However, developing countries, represented by India,36 Pakistan37 and Egypt,3* did not believe that FDI liberalization would automatically cause technology transfer on a large scale. They insisted that, unlike the establishment of manufacturing and service facilities in developing countries, foreign investors would not voluntarily and unconditionally transfer their technology because technology is the key competitive advantage of the firms from developed countries. Confidentiality and assignability issues

3' Article l (Q of Pcrfonnance Rcquirernents, Multilateral Agrcement on Investmcnt, Organisation for

32 Working Group on the Relationship between Trade and Investment, Report on the Meeting oj' 22 and

33 WTO Doc. WT/WGTI/M/I, supra, footnote 25, Annex 2 , Item 111. 34 WTO Doc. W T / W G T I / M / ~ , rirpra, footnote 32, para. 17; Working Group on the Relationship between

Trade and Investment, Report on the Meeting 4.3 June 1999, Note by the Secretariat, WTO Doc. WT/WGTI/M/~, I9 July 1999, para. 5; idem, Report on the Meetin2 oj' 16 h'ouembrr 2000, Note b y the Secretariat, WTO Doc. WT/WGTl/M/13, 7 March 2001, para. 6.

35 WTO Doc. WT/WcTI/M/8, sirpra, footnote 32, para. 22; WTO Doc. WT/WGTI/M/9, ibid., para. 6; WTo Doc. WT/WGTr/M/13, ibid., para. 3.

36 WTO Doc. WT/Wcrl/M/8, supra, footnote 32, para. 24; WTO Doc. WT/WGTl/M/9, ibid., para. 7. See also Working Group on the Relationship between Trade and Investment, FDr Flows and Technolqy Transfer, ComrnunicalionJrom India, WTO Doc. WT/WGTl/W/105, 26 June 2001

37 WTO Doc. WT/Wcn/M/9, ibid., para. 14. 38 WTO Doc. WT/WGTI/M/~, supra, footnote 32, para. 56.

Economic Co-operation and Developrncnt (Negotiating Text as of 24 April 1998).

23 March 1999, Note by the Secretariaf, WTO Doc. WT/Wcm/M/8, 11 May 1999, para. 52.


set up by the technology holders restrict the actual transfer to host countries if the technology transfer is completely subject to market forces. Moreover, empirical evidence of a negative effect of technology-transfer requirements on FDI has not been found. In contrast, some developing countries in Africa, absolutely in favour of FDI liberalization, have received only labour-intensive FDI but not advanced technology. Therefore, developing countries maintained that the role of technology-transfer requirements is effective in promoting the transfer of technology to host countries.

It can be seen that, while WTO Members held different opinions about which approach was better for the interaction between FDI and transfer of technology, there was no disagreement between developed countries and developing countries on whether FDI and technology should be transferred to developing countries. They both recognized that the role of FDI in the process of technology transfer is prominent. Due to the essential needs to control the FDI environment to optimize their business operations and to protect IPRS to maintain their competitiveness, developed countries tend to support a “market-based development approach”39 which relies on market mechanisms with a system of complete protection of IPRS for FDI flow and technology transfer. However, because of the under-development of their economic, technological and market infrastructures, developing countries prefer a “regulatory approach”40 in addition to the market mechanism. The feature of this approach is the use of trade policy intervention to promote the transfer of technology by setting up the preconditions for FIX, such as technology-transfer requirements.

The need for FDI liberalization in developed countries and the need for technology transfer to developing countries seem to be in conflict for achieving development objectives. O n the one hand, a completely unrestrained FDI regime would favour investors from developed countries but would not facilitate the transfer of expected technology to developing countries with an imperfect infrastructure. O n the other hand, the technology transfer requirements set up by some developing countries would force technology transfer to take place but, in the meantime, create an unpredictable market condition for investors from developed countries. The Working Group’s relevant Secretariat failed to provide any evidence of the dichotomy between FDI liberalization and technology-transfer requirements on the basis of the submissions in the late 1990s and the early 2000s. Because of this divergence, no relevant decision was made by the last Ministerial Conference in Cancun in 2003.

Is there a third approach that offers a better way for the balanced expansion of FDI and technology transfer?

The answer is yes. Certain improvements in the current WTO investment framework can be made to promote technology transfer associated with FDI. It has been admitted by developing countries that the transfer of technology and FDI flow would be

39 UNCTAD, supra, footnote 13, Section 11 B . I . 4’’ Ibid., Section II.B.Z.


best achieved under market forces, but for a long time developing countries have been experiencing difficulties by relying entirely on market forces to achieve the technology transfer associated with FDL41 What developing countries should focus on is how to deploy any feasible mechanism to maximize technology transfer. If developing countries can offer a higher level of IPR protection to the transferred technology than to the untransferred, a market-friendly mechanism would be created in favour of technology transfer. Meanwhile, what the developed countries expect is the maximization of benefits, including the maximization of options under trade liberalization. If the transfer of technology creates larger perceived benefits for the investors than not to transfer, investors would be more likely to transfer technology. Such benefits may be a variety of incentives offered by a host country, such as tax advantages.42

At the WTO institutional level, whether certain incentives can be offered is worth further deliberation. Thus, the key issue for the WTO should be the design of optimal multilateral frameworks for technology transfer in order for developed countries to realize the benefits of technology transfer through FDI. In this context, a stronger multilateral IPR regime for the protection of transferred IPRs, as compared with that for the untransferred, which provides a market-oriented incentive for technology transfer can be one of the potential solutions that meets the interests of both developed and developing countries. From the perspective of a multilateral trading system, the establishment of a stable and predictable regulatory framework for IPR protection in terms of transferred technology associated with FDI can be implemented through clarification work on the “scope and definition” of investment to be carried out by the Working Group on the Relationship between Trade and Investment.

B. IPRS I N S C O P E AND DEFINITION O F INVESTMENT

As mentioned in the introduction of this article, the TRIPS Agreement offers only the minimum standards for the protection of IPRs. WTO Members, particularly developing countries, have been concerned that the benefits of IPR holders and development objectives have not been properly balanced in the TRIPS Agreement and, thus, the transfer of technology would be negatively influenced.43 Actually, no matter whether the IPR holders transfer technology to a host country or not, they would face a potential threat that some countries could arbitrarily take over their IPRS by compulsory licensing which is explicitly allowed by the TRIPS Agreement.

However, if the IPRS can be treated as one sort of FDI, the rules of expropriation imposed by a particular international investment agreement might prevent host countries from using certain measures, such as compulsory licensing to take over IPRS. In fact, IPRs are included in the scope of foreign investment in most of the international

WTO Doc. WT/WGT[/M/9, supra, footnote 34, paras. 7, 12 and 13. WTO Doc. WT/WGTt/M/8, supra, footnote 32, para. 56.

43 Working Group on Trade and Transfer of Technology, Communicationfrom Cuba, India, Indonesia, Kenya, Pakistan, Tanzania and Zimbabwe, WTO Doc. WT/WGTTT/W/6, 7 May 2003, para. 3(11).


investment agreements that established standards for the protection of foreign investment.44 With respect to around 2,000 bilateral investment agreements that have been signed between developed and developing countries, it has been noted that IPRS are usually included in an dustrative list of investments defined in these agreements as an item subject to pr0tectior-1.~~ IPRS can also qualify for the scope of investment contained in the major plunlateral and multilateral agreements regarding foreign investment, such as the Association of South-East Asian Nations (ASEAN) ,46 the North American Free Trade Agreement (NAFTA)47 and the OECD version of the M A I . ~ ~ Standard bilateral or multilateral investment agreements lay down clear rules for expropriation of covered investments, including IPRs .~~

Therefore, the issue of definition and scope of investment can play an important role in shaping the framework of IPR protection. Although a consensus on the establishment of an investment agreement under the WTO was not achieved at the Singapore (1996), Geneva (1998), Seattle (1999), Doha (2001) or Cancun (2003) Ministerial Conferences, ongoing discussions and arguments on the topic of investment are still furious. Among all the further works listed for clarification by the Working Group on the Relationship between Trade and Investment, the “scope and definition” of investment within the WTO framework is the first item on which a consensus must be reached between developed and developing countries.50 Indeed, the definition of foreign investment forms the basis for subsequent issues such as expropriation and most- favoured-nation treatment. The Doha Mandate also emphasized that, in implementing the clarification work, “account should be taken, as appropriate, of existing bilateral and regional arrangements on in~es tmen t” .~~ Thus, as in bilateral and multilateral investment frameworks, if IPRS associated with FDI can be chstinctly understood as one sort of foreign investment in the WTO multilateral framework, the abuse of compulsory licensing of transferred technology can be effectively prohibited by the rule of expropriation. If this consideration can be carried out, there may exist a solution to compensate for the defects of the TRIPS Agreement to realize the benefits of technology transfer. Once a technology becomes FDI and is transferred to a host country, higher protection of IPRS would be offered because a host country can no longer arbitrarily take over the IPR for the purpose of national needs.

44 UNCTAD, Scope and Definition, UNCTAD Series on Issues in International Investment Agreements, United Nations Publications, New York, 1999, Section IIA.

45 Working Group on the Relationship between Trade and Investment, Bifateral, Regional, Philateral and Multilateral Agreements, Note b y the Secretariat, WTO Doc. wT/WGrr/W/22, 26 January 1998, para. VI.

46 Article 11 of the Agreement among the Governments of Brunei Danissalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore and the Kingdom of Thailand for the Promotion and Protection of Investments (amended in 1996).

47 Article 1139 (Definitions) ofthe North Amencan Free Trade Agreement (1992). 48 Article 2 of Definitions, the OECD Multilateral Agreement on Investment (Negotiating Text as of 24 April

49 WTO Doc. WT/WGTl/W/22, supra, footnote 45, paras. Ix and Lx.

5* Ibid., last sentence.

1998).

WTO Doha Ministerial Declaration, supra, footnote 5, para. 22.


The definition and scope of investment in the WTO framework has been extensively discussed in the Working Group on the Relationship between Trade and Investment since the late 1990~.~* The argument is principally between two main approaches: the broad approach of an asset-based definition and the narrow approach of an enterprise-based definition.53 An asset-based definition covers both FDI and portfolio investment, including equities, debts, contractual interests and other tangible or intangible properties. Such a definition was deemed preferable for developed countries in order to provide high standards of treatment for all sorts of investments and to maximize the benefits from all sorts of investments.54 Developing countries tend to adopt an enterprise-based definition that only focuses on FDI in order to eliminate the risk of short-term investment flows on economic and technological development.55

Based on existing discussions, IPRS meet the criteria laid down by both sides with regard to the definition of investment in the WTO framework. From the developing countries' perspective, IPRS can be evaluated from an enterprise-based approach for the control of capital flow and market access. At the same time, from the developed countries' perspective, IPRS can be covered by provisions on investment protection to ensure their security. Therefore, it is practically in compliance with the interests of both developed and developing countries to include IPRS in the definition and scope of investment in the WTO framework.

C. HIGHER PROTECTION OF IPRS AS AN INCENTIVE FOR FDI FLOW AND TRANSFER OF TECHNOLOCY

For developed countries, the inclusion of IPRS in the definition of investment within the WTO framework will not only reassure the uniform standards of treatment for FDI suggested by the principles of the international investment agreements but also confirm a better protection of the IPRS compared with the provisions laid down by the TRIPS Agreement. As a multilateral framework, it w d contribute to ensuring the stability of host countries' trade policies regarding IPR protection. When IPRS, in most circumstances through the transfer of technology, become investment in host countries, distorting trade policiessuch as compulsory licensing under the TRIPS Agreement- will not be arbitrarily exerted by the host country. This creates a market-fnendly

52 See WTO Doc. WT/WGTl/6, supra, footnote 9, paras. 14-28; and Working Group on the Relationship between Trade and InveFtment, Reporf (2003) Dfthe Working Croup on the Relationship between Trade and Inveslnient to the General Council, WTO Doc. WT/WGTI/~, 11 July 2003, paras. 13-21. See also Communications from WTO Members on Scope and Definition of investment to the Working Group on the Relationship between Trade and Investment: Communicationfrom/an, WTO Doc. W T / W G T I / W / ~ 11, 12 April 2002; Communication

from Canada, WTO Doc. W T / W G T I / W / ~ ~ ~ , 12 April 2002; Communicationfrom the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, WTO Doc.WT/WGTI/W/128, 1 July 2002; and Communicationfrom China, WTO Doc. WT/WGTI/w/r/l59, 15 April 2003.

53 WTO Doc. WT/Wclr/6, supra, footnote 9, paras. 18-28. A third, hybrid approach suggests FDI for the pre-establishment stage and a wide range of assets for the post-establishment stage of investment.

54 Working Group on the Relationship between Trade and Investment, Report on the Meetin2 .f 16 and l7June 1998, Note by the Secretariat, WTO Doc. WT/WcTI/M/5, 29 July 1998, para. 54.

55 Ibid., para. 56.


incentive for foreign investors to transfer technology to developing countries rather than to leave the technology in their home countries in order to pursue stable protection of IPRS and maximize the benefits from them.

The inclusion of IPRS in the definition of investment within the WTO framework also benefits developing countries significantly. As previously discussed in this article, the regulatory system of a country for the protection of foreign investment is an important factor for foreign investors in considering their investment options. For foreign firms involved with high technology, the regime for IPR protection is of particular importance. Since a number of developing countries have an IPR protection standard that only meets the lowest requirement of the TRIPS Agreement, the lack of stability for IPR protection may bring uncertainty and high costs to foreign investors carrying out long-term business plans in any technology-related sector, even though the countries impose the technology-transfer requirement.

The chance of technology takeover for “national needs” may be higher when foreign investors present the IPRS in a developing country because of the exposure of information. Accordingly, the inclusion of IPRS in the WTO definition of investment will help to ensure that technologies, once transferred to a host country in association with FDI, are under clear rules of takeover. The uncertainty in terms of technology takeover can be eliminated. A developing country may still pursue its own trade policies involving technology-transfer requirements for the promotion of certain technology transfer but, since potential takeover can be controlled by the rules, such as expropriation, the use of technology-transfer requirements is no longer market-distorting. A stable rule for IPR protection does not conflict with market- friendly technology-transfer requirements, since both have the same objective in promoting technology transfer to a developing country. In addition, as a uniform multilateral rule of protection, the inclusion of IPRS in the definition of investment does not require developing countries to expend extra efforts to improve their domestic regulatory framework.

IV. CONCLUSION

In terms of IPR protection, the current WTO framework is subject to improvement because the TRIPS Agreement is limited by its standards. In fact, in achieving the development and growth of developing countries as an objective set up by the WTO, the need to balance FDI flow with transfer of technology has not been emphasized. The dichotomy between a short-term objective of protecting IPRS in the interest of developed countries and a long-term objective of development needs in the interest of developing countries needs to be bridged. At the institutional level of the WTO, a higher level of multilateral protection of IPRS is worth further deliberation in order to give a solution to this dilemma.


The inclusion of IPRS in the definition of investment within the WTO framework will highlight the value of IPRS both for investors and for FDI recipient countries and w d benefit both developed and developing countries. Compared with the standard laid down by the TRIPS Agreement, the treatment of IPRS as FDI will contribute to the establishment of a stable, transparent and predictable multilateral framework for FDI and transfer of technology. As a result, the treatment of IPRS as FDI will provide higher multilateral protection for IPRS, guarantee security to foreign investors, promote FDI flow and transfer of technology and eventually facilitate the development of the developing countries.

In the forthcoming Sixth WTO Ministerial Conference that will be held in Hong Kong in December 2005, WTO Members need to take into consideration these suggestions on the further protection of IPRs in the WTO. If a consensus can be reached to include IPRS in the definition and scope of investment, FDI and transfer of technology will bring larger benefits for both developed and developing countries.

Documents

Further Protection of Intellectual Property Rights in the Wto : Linking Transfer of Technology with Foreign Direct Investment