China slips over TRIPS

This week the US filed a complaint with the World Trade Organization (WTO) against China over widespread piracy of copyrighted DVDs and CDs. It is the first time a copyright piracy complaint against China has been filed with the WTO. Japan and the EU have joined in the action in a crackdown against China’s lax regulations on DVD and CD piracy. The US is invoking the WTO's agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which stipulates that member countries are obliged to impose criminal charges against producers and dealers of counterfeit goods.

TRIPS has been around since 1994. It was one of the lesser known clauses of the GATT agreement which embodied the Uruguay Round of multi-lateral trade negotiations. TRIPS had profound consequences on the global flow of information but was rarely discussed while impact on agricultural subsidies hogged the limelight.

The TRIPS agreement requires signatory countries to properties information for the first time. These included plant variety protection which has proved a controversial item for developing countries. TRIPS also increases the duration of protection for intellectual property (IP) rights which in turn raises the price of information. Finally it requires states to enforce these rights; as China is now finding out to its cost.

Prior to 1994, property rights were the domain of an international organisation called World Intellectual Property Organisation (WIPO). Its replacement, TRIPS, was almost entirely the work of one nation; the US. Many US multi-national companies such as IBM and Microsoft had large IP portfolios whose profits were being eroded by piracy. These companies brought their message to Congress. Their lobbyists told the politicians stronger property rights were needed to protect American industries and ideas.

In the 1980s, most developing nations were not sympathetic to IP issues. Many countries saw IP as a form of re-colonisation or economic imperialism. The US quickly realised it would need to tie IP rights in with trade if they were to get the rest of the world to treat it seriously. They knew that banning Brazilian software would have little effect – but if they banned Brazilian coffee, that was a different story.

The Americans set up what was called the Advisory Committee for Trade Negotiation (ACTN). ACTN was the conduit between business and the Government on trade policy. ACTN was chaired by Ed Pratt CEO of Pfizer, a company which was directly threatened by illegal copying of its products. ACTN established a task force on IP which recommended the US develop a holistic IP strategy. That strategy required the US have a goal of placing IP into the GATT.

The strategy had a carrot and stick approach. The carrot was to spread the message in developing countries of the benefit of IP. The stick was to make favourable trading status with the US dependent on IP protection. The IMF and the World Bank were also instructed to tie aid programs to IP. The ACTN built relationships with like-minded groups in Europe and Japan to spread their message.

The US changed its own trade laws in 1974 to demonstrate its seriousness. These laws contain what is called “Special 301 process”. The Special 301 process defines priority foreign countries, the watch list and the priority watch list. Countries on the watch list are being told that its IP practices are unsatisfactory and the US is watching. Serious offenders can be moved to the priority watch list. Examples on this list include Saudi Arabia which was so defined because it had not signed the Berne Convention on copyright, had an ill-defined copyright act and had little or no enforcement.

The Special 301 process is supported by surveillance. This is done by US companies through their overseas agencies. These companies are members of the International Intellectual Property Alliance (IIPA) and they provide the IIPA with copyright issues across the world. The IIPA then recommend action to the US Government. As well as targeting rogue states, the IIPA also target pirates by passing on relevant information to state enforcement agencies.

The IIPA kept up the pressure on Washington by providing reports which showed how much money its members were losing each year due to IP infringements. It also raised public awareness with an advertising campaign which including whistle-blower hotlines, well publicised criminal prosecutions and seminars on copyright issues.

Despite all their progress in the US, there was little support for the inclusion of IP in GATT in other nations. It simply wasn’t a priority. A new committee of US business heavyweights was set up called the Intellectual Property Committee (IPC). Their job was to form an international consensus in the business community. They produced a 1985 paper which provided a possible model for an IP code within GATT and discussed the issues it needed to overcome.

Their pressure was brought to bear in 1986 when GATT agreed to include an agenda item to discuss rules of IP protection. This discussion was dominated by the US. It was the only country in the discussion with negotiators trained in IP. Its own trade people became familiar with the subject matter which assisted in the bargaining. No other country had thought about the issue to the same extent and few had any goals on the subject.

But while the rest of the world had misgivings, there was too much at stake to sacrifice it all on IP. A few countries resisted, but they were marginalised by the Special 301 Process. By agreeing to TRIPS, some countries could negotiate their way off the US Watch Lists. But the main reason it passed was there was a lot on the agenda. A loss on IP could be turned into a concession that was a win on other matters. IP rights were entrenched in the Uruguay Round.

In the end, it was US technical expertise that got them over the line. India and Brazil formulated counter-proposals but neither had the knowledge to counter the US’s complex objections. Few countries could match the quality of US legal thinking on copyright and its expertise in IP law. Once victory was assured, adherence to IP law became a condition of entry to WTO and US bilateral trade agreements. TRIPS is now a key ingredient to continued US hegemony. Patent rights to DNA and control rights over software are abstract rights that delivers power to its owners over the propagation of those objects. These will increasingly become the capital of the 21st century.