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This essay was written as an application to the Model WTO organized by OIKOS St. Gallen on the issue of Intellectual Property Rights, especially regarding the TRIPS-scheme of the WTO seen from a Chinese perspective. I am aware that it needs to be very much enlarged and revised, but as a first draft it should provide some interesting insights.

I skim the issue of culture and international law and discuss some features of the Trips-Agreement. Then I argue for a new understanding of Intellectual Property.

The following essay wants to develop a ‘Chinese’ position on Intellectual Property Rights and the amendment of Article 27.3 (b) of the TRIPS agreement. Yet with the brief space provided, I can only skim some aspects on this issue and outline some general problems related to the TRIPS agreement. Even more, understanding Chinese culture and economics is already a demanding task, it is even more demanding to develop guidelines for Chinese politics due to the complex historical, geo-political and economical situation of the People’s Republic. Therefore this essay can only be the starting point for a debate.

The role of property Rights as a foundation for the prosperity of society have been stressed from Western political philosophers since antiquity. From Socrates and Aristotle in Greek society to modern philosophers like Smith, Hume or Rosseau or today’s philosophers like Rawls, Schumpeter, von Hayek or Nozick, Western Political Philosophy has stressed that the individual’s right to access, utilize and trade property is at the core of any effort to create welfare.
Property rights are (in most general terms) one-to-one correspondences between physical or virtual objects and physical or virtual entities, which allow assigning responsibilities and privileges in the handling (specifically the access, use and trading) of these objects. The development of a property rights catalogue avoids the fallacies of collective goods and the ambiguity of informal norms. Property rights determine the rights of the owner, competitor, stakeholder or society as whole in accessing resources, they balance the short-term interest of exploitation (both by owners and non-owners) and the long-term interest of future generations to preserve these resources, and they define terms of trade in the exchange of property rights.
From an economist or mathematical point-of-view, property rights can be seen as a function from the set of objects to the set of entities – yet clearly such a relation is neither meant to be fixed nor predetermined to relate to individuals entities. In Chinese philosophy, such a strong one-to-one correspondence between individual entities and objects is not contained. Due to the incentive of individuals to exploit their property for egoistic purposes, the political philosophy in Confucian and Buddhist cultures relies on the ability of several entities (groups and collectives) to facilitate and manage property. This has to be kept in mind when discussing Intellectual Property Rights from a Chinese perspective.

The modern societies (of both East and West) are increasingly interconnected. A nation’s welfare is not as in previous times determined by the ability to gain resources by means of military or economic power, but by intellectual strength, by research and technology, by the abilities of entrepreneurs and employees to feasibly use existing resources. Knowledge has become the most vital resource in a nation’s economy. This has been understood and put into political practice by Chinese leaders for millennia – yet again while Western leaders since Renaissance and Enlightenment have stressed the importance of an individual to generate knowledge, Eastern leaders have emphasized the importance of collectives to generate knowledge. This as well has to be kept in mind when discussing Intellectual Property Rights from a Chinese perspective.

The importance of knowledge in modern societies made the implementation of a global scheme of intellectual property rights more than a necessary. Yet with the TRIPS agreement in the Uruguay negotiation round, never-seen-before and far-reaching principles for the national legislation were created. TRIPS sets minimum standards for intellectual property rights, guidelines for the implementation of these rights and binds the settlement of disputes between the member states on these issues to the dispute settlement mechanisms of WTO.

The agreement is shaped by two principles which to some extent contradict the other pillars of the WTO:
First, intellectual property – unlike physical property – can be reproduced with little trans-action costs by non-owners. This is due to the specific immaterialness of intellectual property: the value of intellectual property does not lie in its form of transmission but in its potential of application. The value of a software system, for example, is not determined by the value of CDs on which it is saved – which can be copied at little costs – but on its range of applications. In order to give entities incentives to invest in intellectual property (for example through research or investments in infrastructure), mechanisms to either prohibit reproduction or pay fees for using intellectual property had to be implemented. These mechanisms created a system of monopolies for exploitation – in fact any patent or license can be regarded as monopoly. However, monopolies go against any system of free market and discourage competition – principles behind the global trade system of WTO.
Secondly, the intellectual property rights scheme is based on the principle of territoriality. Unlike material goods, where ownership does not cease if the good is transported to another country, intellectual property is only protected in the country where it is registered. In other words, any owner who wants to exploit a patent in another country needs also to register the patent in that country. This goes against the principle of mutual recognition of legal procedures enforced in the other pillars of the world trade scheme.

TRIPS made huge improvements concerning the second problem: the regulations for equal treatment of foreign applicants for patents, minimum standards, or possibility of exhaustion of intellectual property rights are laid down in detail. The next round of negotiation need to adapt these regulations to new technology, but this is not very uncontroversial.

The first problem though, the developments arising from the creation of these monopolies are still in fierce debate. New reproduction technology (in all scientific fields but especially in biotechnology and software technology), unwillingness of some transition countries to implement the standards on intellectual property (such as China) or the failure of most developing countries to establish at least an administrative legal structure in which to deal with violation of property rights, are constant attacks on the TRIPS agreement. Furthermore, the TRIPS regulation in the fields of biotechnology allegedly is biased towards those owning or registering intellectual property rights – thus disregarding the specific economic situation of both transition and developing countries.

Article 27.3 allows exemptions of medical procedures and biological life-forms from the TRIPS agreement, yet these exemptions do not imply for micro-organisms. Thus most parts of biotechnology are covered by the TRIPS agreement and legal exemptions are difficult to obtain. This is the most vulnerable aspect of the Article 27.3: monopolies in the developing field of biotechnology are disastrous to promote growth, research and investments in the sector. A global trade scheme that allows creating monopolies in the fields of biotechnology by emphasizing a strong set of intellectual property rights will not be successful.

For the Chinese government, there is a strong incentive to establish their own biotechnology industry through ignoring large portions of the agreements on intellectual property rights in biotechnology. Neither the other members of WTO nor the foreign investors from the biotechnology have an edge (for instance by withdrawing biotechnology-FDI) towards forcing the Chinese government to follow these agreements. The foreign investments in China in the field of biotechnology are not only pre-determined for a certain number of years (which makes withdrawal unlikely), but also the costs of developing biotechnology in China are so low that they play a vital role in the cost saving plans of biotechnology companies (which makes withdrawal impossible). The Chinese government from a Machiavellian point of view should (!) moderately ignore the implementation of these agreements.

A solution lies in learning from Chinese philosophy by linking objects to principles. A global scheme of intellectual property rights avoiding the creation monopolies in intellectual property rights – but actually allowing access to intellectual property under carefully specified conditions – could be established if intellectual property is not only a correspondence between objects and entities, but also objects and principles (such as biodiversity, sustainable development). The challenge then will be to allow for ‘holes’ in the intellectual property rights scheme but allowing countries and companies to slip through those holes when their activities adhere to some principles that ensures Pareto-optimal results, or in other words welfare for the global community as a whole. This however would imply to move the negotiations on these issues from the administrative to the political level – where such negotiations on principles ought to take place anyway.

This entry was posted on Montag, Mai 1st, 2006 at 02:03 and is filed under kasinomics. Tags: Article 27.3 (b), China, Culture, Intellectual Property Rights, Oikos, Papers of Karsten Wenzlaff, St. Gallen, Trade Related Intellectual Property Rights, Trips, WTO, Youthconference. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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