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ABSTRACT

The aim of this dissertation is mainly to analyse the impact that the TRIPS (Trade-Related Agreement on Intellectual Property Rights) agreement has had on developing countries with regards to foreign direct investment,

and the transfer of technology from developed to developing countries. This paper will also look at the reasons behind the idea of implementing this agreement and why developed countries thought it was imperative that this agreement be enforced. Subsequently, The impact of trips agreement on foreign investment the salient features of this agreement will also be analysed, and the amendments made to it which attempted to improve it and make it more effective in achieving its purpose.

The proposal under review will give the reasons for choosing this particular subject for the dissertation. Perhaps the most important problem faced by innovators in developed countries such as the United States, Britain and France is prices. The prices of their innovation reflected a fair reward for them in their own countries, however, they believed that they were not receiving a fair reward in developing countries where their innovations and inventions were sold at a significantly lower price. The impact of trips agreement on foreign investment The most pertinent example exhibiting this situation was the pharmaceutical industry where scientific and medical progress and innovation in the developed world was far ahead of the developing world.

This resulted in a multitude of new inventions and medicines for treating various diseases. Mainly due to a significantly lower purchasing power, The impact of trips agreement on foreign investment the prices of these medicines were hardly a fraction of what they were in developed countries where expensive insurance packages were used to pay for them by the ordinary public.

In contrast, consumers in the developing countries had to pay meagre rates for purchasing medicines in normal pharmacies or retail shops. The developed countries wanted to create a system whereby consumers in developing countries would need to pay comparable, if not equal amounts for product innovations as paid by consumers in developed countries.

This paper will trace the development of consensus regarding the proposals that would seek some sort of uniformity in the prices of innovations around the world. The dissertation will be divided into sub-headings and distinct parts, each dealing with a different area of the TRIPS agreement. The impact of trips agreement on foreign investment The abstract will be followed by an introduction which will try to give a background of the whole situation and why the various developed countries attempted to make sure this agreement went ahead. The introduction will outline the structure of the dissertation in brief and then provide a brief outline of the current scenario that exists regarding the TRIPS Agreement.

The dissertation basically aims to examine the effects of the TRIPS agreement on the world economy, particularly with relation to foreign direct investment from developed countries to developing countries. The impact of trips agreement on foreign investment The TRIPS Agreement, according to this dissertation had both negative and positive impacts, but it was perhaps inevitable that something like the TRIPS agreement would emerge because there was a disequilibrium that prevailed between the priorities and expectations of the developed countries and those of the developing countries.

The dissertation explains why the TRIPS agreement was necessary and perhaps even good for the world at large in the long-run despite appearing to be unfair to developing countries. This will be explained in light of scholarly articles and careful analysis of the facts.

INTRODUCTION
Intellectual property has always been a contentious issue for inventors, researchers, authors, and scientists around the world. The definition of intellectual property according to the World Intellectual Property Organization (WIPO) elaborates upon the terminology as “creations of the mind, such as inventions; The impact of trips agreement on foreign investment literary and artistic works; designs; and symbols, names and images used in commerce.” The definition is deliberately worded in this way to be as inclusive as possible because a disagreement on intellectual property can arise on a variety of subjects and innovations.

Perhaps in recent times, the most important initiative taken with regards to intellectual property was the Paris Convention for the Protection of Industrial Property (henceforth simply known as the Paris of Convention) of 1983. The Paris Convention first and foremost proposed that all signatories to the Convention be treated as a single ‘Union’ so that there is coherence in all the subsequent decision-making, The impact of trips agreement on foreign investment particularly regarding issues that there is broad consensus on. Article 4 of this Convention then distinguishes between the periods of priority for utility models and patents, and for industrial design and trademarks.

The period of priority for patents is six months and for industrial design and trademarks is twelve months. This is basically applicable to a person who has filed for a patent in his home country, and by this clause, he is given a priority to file that same patent in other countries while having priority over other innovators.

Other clauses in the Paris Convention also seemed to lay a foundation upon which to build for developing countries to adjust to the demands of the developed countries. Therefore, the basic purpose of the Paris Convention was to create a basis to initiate change in the way business was done between developed and developing countries with regards to intellectual property rights. Previously, intellectual property and its implications were largely ignored when developed countries invested in developing countries or an innovation from the developed world found its way to the developing world. As mentioned earlier,

this contributed to an air of frustration among the inventors and innovators of the developed countries. Despite protests from the developing countries who believed that this would cause a steep increase in prices of goods in their countries, the intellectual property debate gained strength in the West because of its potential (and certain) advantages to the West and its innovators. This intention was repeated by the Berne Convention for the Protection of Literary and Artistic Works (usually known as the Berne Convention) in 1986. These agreements showed that the world was now ready to adopt a different approach to intellectual property rights.

The question that arises is: why are intellectual property rights so important? Why do inventors and innovators from around the world and across generations stress their importance? The impact of trips agreement on foreign investment Three major reasons have been identified. Firstly, innovation is necessary for the progress of mankind. If these innovations are not encouraged, the growth of the human race will stagnate. Secondly, if innovations and inventions are not protected by the law, there would be no allocation of additional resources and money to further endeavours.

Lastly and perhaps most importantly, the legal protection of innovations leads to faster economic growth resulting in a drastic improvement in the standard of living. Even though several leaders and consumer-representing groups of the developing world may disagree with the developed world’s stance of stressing the implementation of intellectual property laws worldwide, The impact of trips agreement on foreign investment it is imperative to note that if innovators are not given their due rewards, the incentive to create and research new ideas and perspectives may reduce, leading to less proliferation of technology and subsequently a lower standard of living for the majority of the people. This paper will also explain why the Doha Declaration was necessary. For that, a little background is required on the timeline of this issue.

The Paris Convention was declared to be insufficient by the developed countries who wanted more compensation for their innovations. Throughout this process, The impact of trips agreement on foreign investment the major negotiators or representatives on part of the developing world were Brazil and India, both countries which have a large number of poor and low-income groups residing in them and who feared a rise in economic hardships for them if the intellectual property clauses were implemented solely according to the wishes of the developed world.

These two countries believed that Intellectual Property rights could only be rigidly applied on trade in counterfeit goods. However, they were mistaken because they underestimated the willingness of the developed countries to drive forward their agendas. The United States pursued an aggressive policy whereby it convinced many developing countries to go away from the stance proposed by Brazil and India, and it also managed to obtain the support of wealthy countries such as Japan to further its program. The TRIPS Agreement was formally signed in 1994, but the Doha Declaration was not signed until 2001.

The purpose of the Doha Declaration was to allay fears and apprehensions of the developing countries who believed that essential goods such as medicines would get increasingly expensive for local consumers. This and subsequent events will explained later in the dissertation.

Most of the primary research conducted for this dissertation was done by studying original agreements and documents that talked about the TRIPS, scholarly papers have been quoted ahead for opinions on the impacts that TRIPS has had on the world. Secondary research includes newspaper articles which help to give a new perspective and dimension, and form the supplementary backbone of the research. It will then be followed by the first chapter which will seek to explain the situation in the 1980’s and 1990’s and the events that led to the Doha Declaration signed in 2001.

The second chapter will talk about the main features of the Doha Declaration and which points were an area of contention between developed and developing countries. The third chapter will analyze the impacts of the Doha Declaration on developing countries as far as special cases such as medicinal goods are concerned.

In the fourth chapter, the impact of the TRIPS will be studied on foreign investment and the transfer of technology from the developed to the developing world. This will be followed by a conclusion which will summarize the existing situation and propose changes and reforms for the future. The first chapter, as evident above outlined the direction this dissertation will take and the perspectives explained in it.

CHAPTER ONE: INITIAL DEVELOPMENTS
Examining the clauses of the Paris Convention, The impact of trips agreement on foreign investment it is clear that the first thing it desired to accomplish was create what it called a ‘Union’ that made it attractive for countries from around the world to sign the declaration. By signing it the countries had ensured that uniform laws were applied to it regarding intellectual property.

The uniformity ensured that the level of economic development in a country was made irrelevant and the same laws were applied to every country around the world. For example Article 4 A(1), states that “Any person who has duly filed an application for a patent, or for the registration of a utility model, or of an industrial design, or of a trademark, in one of the countries of the Union, or his successor in title, shall enjoy, for the purpose of filing in the other countries, a right of priority during the periods hereinafter fixed.”

This clause is an apt summary of how the Paris Convention sought to attract developing countries to its manifesto and made them realize the advantages of joining a larger union of countries which would help them with all their problems related to intellectual property. However, the developed countries failed to recognize that the major apprehensions of all developing countries were related to high prices that would invariably result from the implementation of the ideas proposed by the Paris Convention.

This uniformity of the Paris Convention was known as the ‘Anti-discriminatory’ clause and it underlines the fundamental objective of those pursuing more stringent protection of intellectual property. The impact of trips agreement on foreign investment A simple example of this can be a French national applying for a patent in Brazil possessing the same rights as a Brazilian national in Brazil.

Another aspect of the Paris Convention is the framework of priority that tries to explain further the rights of the innovators and inventors. The most prominent website for the news regarding patents ‘PatentLens’ explains this aspect in the following words: “Under the Paris Convention, an invention can be protected from the same point in time in a variety of countries. The impact of trips agreement on foreign investment It is also a means of access into national patent systems for foreign applicants. An inventor is able to claim the filing date of his first patent application in a Convention country as an effective filing date for further subsequent applications (for the same invention) in any other member country.”

These words once again signify the importance of the non-discrimination clauses in the Paris Convention. The writers of this declaration attempted to make borders irrelevant when it came to protection of intellectual rights and patents. The impact of trips agreement on foreign investment They believed that this was the only way to achieve uniform prices and rights for the innovators.

The Paris Convention was opposed by developing countries grew who believed that the uniformity of laws that existed as a result of the Paris Convention gave the developing countries a harsh deal which led to them being increasingly dissatisfied with the status-quo. The impact of trips agreement on foreign investment They demanded that the developed countries change the provisions and amend them in such a way so as to suit the existing situations on ground in the developing countries.

That obviously involved charging different prices for the same innovations in member countries. Even though the developed countries were ready to discuss these issues, their determination to persist with their basic proposals was always apparent in all of the following discussions with developing countries. As Peter Yu says in his paper ‘THE OBJECTIVES AND PRINCIPLES OF THE TRIPS,’ that by the year 1990, most developing countries too were convinced that they would eventually have to give in to the demands of the developed countries or risk being completely excluded from further trade agreements with the WTO. At the first round of negotiations,

the two sides proposed very different ideas. The US, Japan and other countries of Europe proposed clauses that were extremely broad in nature and included everything possible that could be defined as Intellectual Property. The impact of trips agreement on foreign investment The developing countries in turn wanted more flexibility in these clauses as they knew that the ideas proposed by the developed countries will lead a dramatic rise in prices in medicines in the local market of less developed countries.

Finally, GATT’s Director General Arthur Dunkel proposed a final offer to the developing countries in the form of a draft commonly known as the Dunkel Draft which made it clear to these countries that this was their final chance and it was up to them whether to remain a part of the international trading community regarding this issue. Sensing that the price of isolation would be too high to pay, The impact of trips agreement on foreign investment the less developed countries unwillingly agreed to the proposals and the TRIPs Agreement was signed. The developed countries knew that the laws in their own countries were very stringent compared to developing countries which gave them a comparative disadvantage, and made them lose out on possible revenue.

It was seen that business enjoying enhanced investments in research and development were having a lot of their work pirated and copied by other smaller countries and sold at much cheaper prices. The impact of trips agreement on foreign investment An example of an industry hurt most by this trend was the information technology industry. Therefore, the developed countries claimed that innovation, research and their overall economy was being hurt due to the presence of this black economy prevalent in developing countries.

The developing countries never denied the presence of this market for pirated goods and services, but claimed that for their countries to move to a market as sophisticated and developed as that of the wealthier countries; they would need time and reform. They said that imposing the clauses put forward by the TRIPS would be detrimental to their economies and societies. An important proposal put forward by developing countries’ representatives was that these clauses needed some flexibility. This showed that they were not against the idea of reform in principle, but recognized that the dangers faced by their economies would be very significant. The World Trade Organization describes the initial and preliminary clauses of the TRIPs Agreement (Articles 3,4,5) in the following words: “Articles 3, 4 and 5 include the fundamental rules on national and most-favoured nation treatment of foreign nationals,

which are common to all categories of intellectual property covered by the Agreement. These obligations cover not only the substantive standards of protection but also matters affecting the availability, acquisition, scope, maintenance and enforcement of intellectual property rights as well as those matters affecting the use of intellectual property rights specifically addressed in the Agreement.” Articles 7 and 8 were important bones of contention among the two rival groups and they contributed to an environment where long hours of negotiations needed to be carried out to come to an agreement that was mutually agreeable to all parties. And even then,

the proposals were more of a forced compromise instead of a situation where all parties were equally satisfied with the clauses. To examine why Articles 7 and 8 were important and featured prominently in these negotiations, we need to see what they said. “The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology.” This showed that the developed countries were interested in benefitting from the enforcement of intellectual property rights. The second part of this article is more interesting since it says that this improvement in technology must occur so as to mutually benefit both the users and producers of these technologies.

This may sound idealistic and perfect for innovative development, but the countries responsible for enforcing the TRIPS failed to give a proper interpretation of this article. There were long debates on what these articles really mean but to no avail. The less developed countries feared that since their interpretation was unclear, it could mean that the developed countries were expecting them to make effective use of the technologies they were using or risk not obtaining those technologies at all. Article 8 was more direct and was perhaps a bigger worry than Article 7 for the developing countries.

It said that whatever steps interpreted as necessary will be taken against countries which are found guilty of not being able to effectively curb the abuse of intellectual property rights. Once again, the developing countries were irked by the ambiguity of this clause. They knew that despite their best efforts, some form of abuse of intellectual property rights will occur in their markets, but they were not prepared to risk a lot over it. Therefore, ambiguity, fundamental and technical disagreements, and a general unwillingness of the industrialized as well as developing nations to not compromise forced the negotiations to be contested and stalled at every level.

Despite all the opposition, in 1995 the TRIPs became effective and established a binding and permanent relationship between the World Trade Organization (WTO) and World Intellectual Property Organization (WITO). The WTO administers the agreement and so plays the role of a justice committee or a “court” to oversee and resolve differences and disputes arising due to intellectual property rights. Daniel Gervais, director of Vanderbilt’s Intellectual Property Program and the FedEx Research Professor of Law says

The TRIPS Agreement established minimum standards for the treatment of intellectual property internationally, and it remains the most comprehensive multilateral agreement on intellectual property to date. The interpretation of the TRIPS Agreement is crucial to all cases involving international intellectual property rights.” This opinion by Gervais, who is considered an authority on the TRIPs Agreement, underscores the importance of this agreement despite many commentators and academics criticizing the impacts it has had.

This is mainly because of the amount of attention to detail given by the authors and proponents of this agreement who were careful to include every possible point of contention that could arise between developed and developing countries. Gervais wrote extensively on the drafting, formulation, implementation, and impacts of the TRIPs Agreement on all stakeholders, and on the world economy in general. The first edition of Gervais’ book was released in 1998 and contained an outline of the events and compromises made by various countries.

The fourth and last (to date) edition basically shows the expectations that each country had from the Agreement and what the final agreement contained for these countries. In the fourth chapter, Gervais’ ideas from his books will be put forward to facilitate us further in understanding this complex issue. The next chapter will examine the Doha Declaration which is a significant part of the intellectual property rights story. Without studying the events in Doha and their impact in detail, it would not be possible to put everything into perspective without mentioning and analyzing the fine points of the Doha Declaration.

CHAPTER TWO: DOHA DECLARATION AND IT’S IMPACT
Despite the TRIPs being a comprehensive and detailed document which seemed to cover every possible angle and problem related to intellectual rights protection, there was a general dissatisfaction within the developing countries. For example, one of the major problems that continued to persist with the TRIPs Agreement and the discussion on intellectual property protection, in general, was the prices of medicinal goods.

They believed that intellectual property while important must be tailored in such a way so as to not disturb the socio-economic conditions prevailing in the developing societies. The developed countries believed that once these regulations regarding intellectual property rights were enforced, it would eventually lead to a gradual change in developing countries with respect to these laws and their implementation.

This chapter will attempt to first give an overview of the Doha Declaration, followed by an analysis of its most important points, and finally the impacts of the declaration on the general situation regarding intellectual property rights will be analysed.

The Doha Declaration was signed in 2001 in Doha, Qatar. Representatives of almost all countries were present there. Despite continued assurances from the developed countries, there was sufficient acrimony present between them and developing countries, both of whom wanted to influence the process in a way that would benefit them.

At Doha in 2001, two agreements were reached. First was the Doha Ministerial Declaration and the second and more important one, the Doha Declaration. Both these documents reaffirmed their commitment to following Articles 7 and 8 of the TRIPS. They reiterated that Intellectual Property will be used for the development of the global economy, and that intellectual property theft must be stopped at all costs. The Doha Ministerial was a broad document that was mainly used as a stepping stone for future negotiations and proposals. According to the WTO,

it provided a mandate for discussion and reform in major sectors such as agriculture, services and an intellectual property topic. Basically, the Doha Ministerial was important because it outlined a framework for the development of future talks and proposals. Documents like the Doha Ministerial are not usually the subject of a lot of debate and argument between countries. The question then arises as to the purpose of making this document.

An interesting reason according to Carmen OTERO GARCIA-CASTRILLON from Spain was the attempt of developing countries to lay the grounds for their concerns regarding the freedom to adopt measures related to public health keeping in mind the ground situation in their own respective countries. In the paper titled ‘An Approach To The WTO Ministerial Declaration On the TRIPs Agreement and Public Health,’ Carmen says “The Declaration reveals the agreement that TRIPs does not and should not prevent Members to take measures to protect public health; and that it can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and, in particular, to promote access to medicines for all.

Therefore Members have the right to use, to the full, the provisions in the Agreement which provide flexibility for this purpose.” The main document of the ‘Doha Round’ was the Doha Declaration. The Doha Declaration was not a broad document. It was, however, significant because it brought to the centre many of the concerns put forward earlier by developing countries with regards to intellectual property. It talked about the relationship between intellectual property and public health, an issue which had been a worry for developing countries who believed that following the TRIPS, medicines in their markets would become expensive and out of reach for the general populace which was financially much less stable than that of developed countries. Basically, it said that the TRIPS agreement does not in any way prevent any of the members from taking actions to counter major public health issues.

This means that in a case of a crisis of public health, such as spread of HIV-AIDS, the TRIPS would not bind any member state from taking action to counter that threat. It also recognized that some of the clauses of the TRIPS could be flexible to accommodate the concerns put forward by the developing countries. Two major opinions and reactions emerged to the Doha Declaration. The first one saw it as nothing more than a restatement of the TRIPS. It says that the fine print of the Doha Declaration must not be over-estimated in its impact on public health crises in the developing world. The Doha Declaration has not had a big impact in solving the health crises in different countries; it has merely stated what the TRIPS meant. The other viewpoint is that the Doha Declaration is a big step forward because it has clearly identified with the concerns of the developing countries and diminished their fears about the language used in the TRIPS.

Countries such as Brazil, which have the universal right to health-care enshrined in their constitution, provided free medical care to a lot of its population affected by HIV-AIDS. They distributed medicines called antiretroviral (ARV) to help their people counter the effects of this disease. Now this is what the TRIPS wanted to prevent. The wealthy countries did not want their innovations being used in such a way. However, they were also mindful of the fact that their reputations could be hurt if they tried to stop countries like Brazil from countering such problems in this way. Hence, they did not want to stop this directly.

The Doha Declaration once again repeated that whatever innovation is made, the innovator must be honoured with full credits and compensation for his work. Goal 6 of the Millennium Development Goals (MDG) aims for the elimination of HIV-AIDS by the year 2015. The UNDP said in its discussion paper titled “The Doha Declaration Ten Years On” that due to the limited achievement of this goal, it is necessary that the flexibilities mentioned in the Doha Declaration be allowed. Partly due to this flexibility in the deliverance of public health in problematic areas, 6 million adults and children are now receiving APR’s compared to 30,000 in 2003. That is an amazing 200-fold increase. In that paper the UNDP has also explained that patented medicines will always be more expensive than their generic versions. Therefore, the discussions regarding the Doha Declaration revealed that the most important problem that persisted between developed and developing countries was related to the provision of medicines, particularly essential medicines to combat diseases such as HIV-AIDS. Moreover, Article 27.1 of the TRIPS was especially problematic for the developing countries because it said that there should not be any discrimination relating to the field of technology. This effectively disallows developing countries to produce,

export and import cheaper generic versions of medicines. This was why the Doha Declaration was necessary. The UNDP, keeping in mind the ambitious Millennium Development Goals favours the stance of the less developed countries. Even though Articles 7 and 8 were the major talking points in the initial stages of talks, there were other clauses too that were significant. For instance, sub paragraph 5(b) deals with an issue that is central to the concerns of the developing countries. Article 31 of the TRIPS sets a number of conditions for the granting of compulsory licenses but does not limit the grounds on which these licenses can be granted, thus giving a lot of leeway to developing countries’ governments. However, when the Doha Declaration uses the term ‘compulsory’

it conveys to the governments of less developed countries the possible use of this license for issues pertaining to public health. Paragraph 5(c) is also seen as beneficial for developing countries. It clarifies what a national emergency is and includes epidemics such as AIDS, malaria and tuberculosis. This, according to Carlos M Correa achieves three things. Firstly, it clarifies what national emergency is and allows the government to tackle it effectively by granting compulsory licenses. Secondly, it recognizes that a national emergency may also be a long-term problem and that it could persist for a few years, thereby granting the permission to less developed countries to pursue policies that can last for as long as the problem persists. Lastly, it says that if there is a disagreement among member countries as to what constitutes a national emergency,

it will fall on the complaining member to prove how the crisis at hand is not a national emergency. Paragraph 7 is also an option for less developed countries to opt for an extension to the transitional period. This will allow them to better prepare for higher prices and solve the current issues.

It is a clause purely for pharmaceutical products and was placed once again keeping in mind the needs of less developed countries to counter diseases effectively. There were other clauses too in the Doha Declaration, but the above mentioned ones were a major factor in determining how less developed countries will benefit from the revision of TRIPS.

They provided these countries with the hope that they would still be a part of the international system and have a say in how things are run. ‘Implementation’ was an important question in the Doha Declaration, and all the preceding agreements related to the protection of intellectual property. According to the WTO, the question of implementation was handled in a unique manner. The WTO website explains this process in the following manner: “First, ministers agreed to adopt around 50 decisions clarifying the obligations of developing country member governments with respect to issues including agriculture, subsidies, textiles and clothing,

technical barriers to trade, trade-related investment measures and rules of origin. In paragraph 12 of the Ministerial Declaration, ministers underscored that they had taken a decision on the 50 or so measures in a separate ministerial document (the 14th November 2001 decision on Implementation-Related Issues and Concerns) and pointed out that “negotiations on outstanding implementation issues shall be an integral part of the Work Programme” in the coming years. The ministers established a two-track approach. Those issues for which there was an agreed negotiating mandate in the declaration would be dealt with under the terms of that mandate.”

The analysis shows that the Doha Declaration was indeed a sincere attempt on part of all the parties to arrive at a conclusion that is acceptable and convenient to all parties involved. One thing that has been repeatedly stressed by developed countries is that TRIPS and Doha Declaration are stepping stones and foundations for further improvements in Intellectual Property Rights. They believe that until an innovator or inventor is given his due share completely, their objectives will not be fulfilled. Thus,

it is highly unlikely that the flexibilities offered in the Doha Declaration are permanent. The developed countries will seek to improve them and further their cause of achieving full Intellectual Property Rights for all innovators in the future.
Correa has discussed many proposals put forward by various developed and developing countries that offer a critique on the clauses of the TRIPS and the Doha Declaration.

He says that Japan has supported the TRIPS agreement and expressed its desire to have further protection of intellectual property rights. Japan has also said that a further uniformity is needed in the area of intellectual property since the prevalent non-uniformity leads to difficulties in trading and other areas of interaction. Some countries such as Egypt, Cuba and Honduras have found it difficult to reform and restructure their administrative infrastructure despite the extension they have been granted. This has led to a tricky situation for them as they need to raise the prices of pharmaceutical products in their markets but do not possess the necessary expertise to handle this change.

They have asked for an extension in their transitional period, but it is doubtful whether this extension will be enough for them to make the necessary changes required by the TRIPS. An interesting observation is regarding Article 24.2 which says that there will be additional protection for geographical indications for wines and spirits. Developing countries such as India and Egypt have argued that rather than wines and spirits, this additional protection must be offered for products that have more use too such as rice and tea which are grown indigenously in India.

They argue that if additional protection can be offered for a product such as wine, it must also be offered for more essential products that would enable less developed countries to earn revenue as well. Similar stances have emerged from Turkey and Czech Republic who want additional protection for foodstuff that they grow. If proposals by these developing countries are adopted, it could turn out to be beneficial for their foreign reserves and overall economy.

India has been very vocal in criticizing the barriers to technology that have emerged ever since the signing of the TRIPS. The denial of dual-use technology to developing countries has further contributed to this deprivation. This has occurred despite Article 66.2 which makes it binding on developed countries to provide incentives in their own countries for the transfer of technology to less developed countries. Another important aspect of TRIPS, especially in today’s context, is the issue of Environmentally Sound Technologies (EST).

Once again, ESTs possess greater protection by law and this has contributed to poorer countries being unable to use ESTs in their countries. Since these technologies have greater protection, only private firms have access to them and budding entrepreneurs and innovators cannot use them. An instance of this being put to use was the issue of CFCs in India which can be replaced by HFCs. Since the technology of HFCs was protected by patents and secrets, the firms possessing them were unwilling to share them until they got a majority stake in those Indian companies needing them.

This was a classic case of a misuse of the TRIPS agreement. Therefore, it cannot be stressed enough how important it is to prevent the manipulation of the clauses of the TRIPs Agreement and the Doha Declaration. Unfortunately, due to the constant disagreements on the clauses themselves, none of the member countries proposed any significant method to encounter difficulties arising from the misuse of these documents.

CHAPTER THREE: FOREIGN DIRECT INVESTMENT AND TRANSFER OF TECHNOLOGY

Foreign Direct Investment
Foreign direct investment (FDI) plays an extremely important role in the fast-growing international business. This kind of investment can help us to penetrate new markets, launch new marketing channels to acquire cheaper equipment, given the opportunity to buy new technology, product, and labour and finance a company.

For the country where the investment will come, or for the company in this country, this means new technology, more capital, increase in production, the quantities of goods, the acquisition of new technologies or improving organizational management, and as such investment can give a strong impetus to economic reform. Foreign direct investment, in its classic definition, is as follows: “the investment of money in a foreign operation, so that the latter was able to build a new plant in the country.” Thus, direct investment for the purchase of buildings or equipment differs from indirect called “portfolio.” Over the past years, when various types of investments around the world have increased significantly and have lost their clarity, the definition of “foreign direct investment” has been extended until the following interpretation: FDI began to be called any kind of purchase a controlling stake in the business of a foreign company. That is why FDI began to have many forms, for example, the direct purchase of foreign companies, the acquisition of plant or equipment, investment in a joint venture or strategic alliance of companies in which a foreign company receives from a partner new technology licensed intellectual property. Over the last decade,

FDI began to play a dominant role in the internationalization of business. As a response to the emergence of new technologies, the growing liberalization of the country’s legislation regarding investments, as well as the change of capital markets, FDI also changed significantly: changed their size, dimensions, proportions and methods of work with them. New information technologies, cheaper international communications organization did FDI incomparably easier than it was in the past. Enormous changes in international commerce and investment policies, including trade policy and tariff liberalization, easing of restrictions on foreign investment and the acquisition of property abroad and privatization in many areas of industry, over the last decade has given new impetus and the role of foreign direct investment on Worldwide.

Attracting foreign direct investment is one of the main methods of technology transfer at the state level. Most often, a foreign company invests in developing countries in order to create a new market, to circumvent export barriers, access to cheap labour. In this case, the country gets all the benefits of technology transfer, in particular the development of its own research activities. In addition, the country is a way of creating new jobs; receive dividends and other taxes, not directly related to the technology itself. However, in most cases, to attract large investors, the state has to make some concessions in its policy.

Practice shows that without providing the required conditions, large international corporations do not agree to substantial investments in developing countries. Procurement contract on the inverse is one of the forms of agreements between developing countries and large foreign companies. In this case, the foreign company supplies industrial equipment in exchange for profits from the sale of raw materials or goods produced by this equipment. This type of transfer is often used in the construction of new plants, or mining in developing countries. The state is included in the capital of this company or becomes the owner. This type of cooperation enables developing countries to high-tech equipment without direct investment in it. Responsibility for the result of the introduction of technology and the efficiency of the subsequent production of the company lies with the supplier. Potential disadvantages include the motivation of a foreign company to

start production at the lowest cost, which certainly will affect the quality of execution.
The most profound changes have taken place in developing countries over the last thirty years shaft investments grew exponentially. In the 1970s, FDI averaged less than 10 billion a year in the 1980s. Slightly less than 20 billion, and in the 1990s, downright explosion occurred from 26.7 billion in 1990 to 179 billion in 1998. And these numbers are growing. Mergers, takeovers, acquisitions and internationalization of production in a range of industries – that ensures the growth of FDI. The growth of foreign direct investment in developed countries rose to 636 billion in 1999,

and a year ago was 481 billion. Proponents of the increase of foreign investments indicate that the exchange between investment flows and profitable country where people come to investment, and the country where they come from. Opponents of FDI note that international conglomerates increasingly take economic power over the weak and underdeveloped economies and thereby displace and inhibit healthy competition in local markets.

The truth lies in the middle. For small and medium-sized enterprises FDI this is an opportunity to participate more actively international business. During the last 15 years the classic definition of foreign direct investment, as I mentioned above, has changed dramatically. However, this change should be properly considered in the context of a particular FDI. First, it is clear that more than two-thirds of FDI constitute acquisition of machinery, equipment and buildings. Second, most FDI comes from multinational corporations and conglomerates.

But, in connection with the development of the Internet, the increasing role of technology, reducing the limitations associated with FDI in many markets, and the decline in the value of international communication means that in the future will become a more important role to play the new, non-traditional forms of investment. Governments around the world, especially the industrialized carefully monitor FDI because investment flows out of the country and the country has an enormous influence on the development of their own economies. In the U.S. Bureau of Economic Analysis U.S. Department of Commerce

Division, is responsible for gathering all the economic information on the country, these data should also include data on FDI. Monitoring this information is very helpful in determining how specific investments affect the economy as a whole, and especially affect the assessment of the development of individual industries. The U.S. government and the state governments are closely monitoring the flow of investment because they want to make these investments actually worked in the country and achieve real benefits.

How FDI changed over the past decade?
As stated above, the vast majority of FDI – the acquisition and supply of equipment, machinery, purchase of buildings. Economically such investments are held mainly through merger or acquisition. Normal production and they are a basic mechanism, not just to prove its effectiveness. However, over the last decade has multiplied the number of clean technology companies just starting out, so-called “start-ups”, and this, together with the increasing role and use of the Internet, has spurred changes in the methods and foreign investment.

Many of the high-tech start-ups – this tiny company that grew out of research labs of the projects carried out often in the major universities in the country and sometimes in direct state support in the form of grants. Unlike traditional manufacturers, many of these companies do not need a large manufacturing base; they do not need warehouses for goods. Another factor that should be taken into account is that the main product of such companies is intellectual property, for example, to develop a program or process technology. Therefore, such a company can be placed almost anywhere, and invest in such a company not associated with huge costs of equipment, facilities and equipment. Yes, in many cases, large companies invest in small, high-tech firms. But there is a difference compared to the past: big companies do not always buy these small companies in the bud. There are several reasons, but the most important is the following: The risk associated with the “advanced” technology and knotted at her project.

In the case of the well-established industries all goods produced by them – perfectly positioned. Normal or manufacturer wants to enter the foreign market, or somehow circumvent the trade barrier through FDI. In this case, all the risk is that after the procedure of investment product, which will then be distributed, will be less than expected, buy. That’s all. But do not forget that the manufacturer has added to its existing production assets newer and multinational corporations can use these funds are very different ways.

In high-tech ventures are usually very long incubation period. This means that the development of such a product requires a large amount of time. In the case of programs and other intellectual products, this also means that the product is constantly changing, sometimes even before their market penetration. This makes the process of investing more complicated. When you invest in the purchase of equipment or machines, you know, what the real value of your investment is and what to expect from them. In the case of investing in high-tech venture is always an element of uncertainty. Unfortunately, the wave of bankruptcies so-called “dot-com”, i.e., projects related to the internet in the late 90-ies.

There is confirmation that the brightest. Thus, the increased role of technology and intellectual property has radically changed the field of activity of FDI. Companies want to make foreign direct investment, but because of the vicissitudes of the market associated with the dot-comas, they seek and find new tools that lead to their desired goals.

Transfer of licenses and Technology
Transfer of licenses and technology has always played an important role in the cooperation between academia and the business community. Since the legal obstacles have been removed, a new situation has allowed universities to secure the right to use the developments made in their laboratories, licensing agreements also allowed to quickly convert theory (technology) into practice (the finished product), so that the latter has taken a worthy place in the markets. With the help of some government agencies,

laboratories lend grants and other financial assistance, for example, in the form of incubator programs, once shy institute “botany” is now out on the high road of business and form team toothy money-makers. Strategic alliances of business and science has an enormous influence on the development of some high-tech industries, among which are the following (and the list is incomplete): medical and agricultural biotechnology, computer programming, telecommunications, advanced materials, ceramics production, ultra-thin materials, glass fibre optics, multimedia production of digital products, optics and image, robotics and automation. Entire industrial areas now appear like mushrooms around the university laboratories, where the technology was invented, tested and transformed into a marketable product.

Licensing agreements allow manufacturing companies to take full advantage of the use of technological developments to royalty payments to developers until the new technology will not be fully debugged and ready for production.

Mutual agreement extending production
In fact, this type of alliance can be called purely commercial, but in its very profound sense, such an alliance is a direct investment. A company from the United States, the manufacturer of tables, signed an agreement on mutual dissemination of products with the Spanish company – manufacturer of chairs. Both companies have direct access to the distribution network in another country without having to pay the distributor support and other costs associated with distribution.

Being in possession of such an agreement, the Spanish manufacturer of chairs certainly invest in U.S. money to create his office to coordinate the sale through a distribution partner network, organize warehouses, delivery and organization of transportation products, and will also help in solving all sorts of administrative tasks, such as: accounting, public relations and advertising.

Joint ventures and other strategic alliances hybrids
The traditional joint venture is a “two-way”, i.e., includes two sides that work in one area and become partners in order to achieve certain strategic superiority. Reasons alliance can be different: the need to obtain such technology that leaned to the side of the company – technology recipient entire market, the desire to gain access to intellectual wealth in the form of highly paid employees, access to previously closed distribution channels in key regions of the globe. There is one reason that explains why most joint ventures consist of only two partners. Even if the two companies from one country to unite them is still difficult. If we take the company from different countries,

such a union is generally less than likely. Perhaps that is why joint ventures, after several years of partnership, often disintegrate. If, however, the company merged three or more participants, they are often called by different names: the syndicates and are designed to perform specific projects for some major construction, which requires a wide range of services, finance, human resources. To some extent, the trade unions are easier to manage because the project itself sets certain limits for each of the parties involved and too close cooperation is not necessary to perform all tasks.

Importance of FDI
The simple answer is that foreign direct investment allows the company to one hit “kill several birds with one stone”:
• Escape the pressures of a foreign country – it will protect their producers.
• Circumvent trade barriers and clear, and non-obvious.
• Go on exports of products produced in the home country, the foreign office to the organization that deploys sale in another market.

• Opportunity to dramatically increase production and sale of goods
• Opportunity for cooperation in joint production, joint venture with local partners in joint marketing, licensed software, etc.
This phrase is rather a way of thinking and working of international corporations. For employees of companies of another, smaller rank it – another hot air. Simplest explanation is the difference in term of business development for international companies and small and medium-sized enterprises. The former are more concerned with creating a large number of industries around the world and access to the largest possible number of markets.

Small and medium-sized companies tend to start the same or increase sales in other markets. The emergence of the Internet has put in many arts: it seemed that the whole thing in penetrating foreign markets. Small and medium enterprises now focus on how to gain access to the markets, how to get access to new forms of work organization and new technologies. Access to a new market – here is another main reason for investment abroad.

At a certain stage of development of export products or services reaches its critical point in terms of volume and value, at which point the organization and sales office or production in another country just becomes cheaper than going direct exports. Then any decision to invest abroad is a combination of several factors. They include the following:
• Assessment of their own resources,
• Competitive products,
• Market analysis,
• Assumptions on the new market; that the market can provide

Methods for Technology Transfer
The choice of method of technology transfer should be based on an analysis of the technology, the future strategy of cooperation with its developer, investment opportunities and technical abilities of the company in the implementation of innovative technologies. When choosing a method of transfer, it is necessary to understand that the more complex and larger in scale technology, the closer cooperation should be between buyer and its creator. As noted earlier, technology transfer does not end the supply of equipment. Equipment itself does not generate new knowledge and competence. Real change in the company’s work can be performed at the transfer of knowledge, skills and intellectual property rights. The following are the current methods of technology transfer, their advantages and limitations:

Patent or license agreement
At the conclusion of the license agreement, the patentee transfers to another company the right to use technology developed by him, or a product in a certain area for a certain time. There are two main types of licensing: 1) license, the exclusive right to the use of technology in this area; 2) non-exclusive license rights, which implies that the patent owner may transfer the right to use other companies’ technology in a given territory. At the conclusion of the license agreement, the parties usually stipulate the possibility of sub-licenses, i.e. transfer the license to a third party purchaser. The advantages of buying a license / patent include low costs, compared with other methods of technology transfer.

Technical support agreement
As a result of this agreement, the developer participates in the implementation of technology, providing at each stage of the transfer support, together with training. Engaging in the process of creation of technology transfer provides a closer cooperation between the two sides, which contributes to the overall transfer of knowledge and competencies. Thus, agreement on technical support can become part of the contract licensing, thereby increasing the efficiency of the transfer.

Joint venture
The joint venture – is a joint venture agreement between two or more companies, involves pooling assets, joint management, risk allocation, profit, production, service and marketing.
The advantages of a joint venture may include long-term cooperation between the parties, the motivation of all participants in the successful implementation of technology, as well as a lower cost compared to if the company acted alone.
The disadvantages of a joint venture can be attributed primarily different visions and different goals of the partners, the inability to be independent of management. In addition, companies cannot always objectively determine the value of capital paid each of the parties and, therefore, the subsequent distribution of profits. (Foreign company brings innovative technology competence in the implementation of technology and management, while local company usually makes labour market knowledge and local political circumstances.

Franchising
Franchising is a kind of agreement in which one company to another company, the right to manufacture and sell goods in the territory, using existing brand and business model. Company-owner of the trademark, as a rule, also transmits its experience in managing this technology. The main advantage of franchising is the fact that the company is buying a ready-made brand. Along with technology, it gets proven business model, knowledge management and marketing. The disadvantage is its reliance on the technology owner. In most cases, the company must buy raw materials, equipment, products only from certain suppliers. Under the agreement, it is most often limited to the sale of a business and the output of this product to new markets. The company must follow the rules and procedures of the technology owner. In addition, the deterioration of the image of a business franchise owner may adversely affect the companies that bought this franchise.

Strategic Partnership
Strategic partnership agreement is usually between two and larger companies to use specific competencies of each of them in the development of new innovative technologies. Forms of partnership can be joint laboratories, research programs, production and promotion of a new product. By lack of strategic partnership include difficulty in managing related companies with different cultures and at least two teams of managers with different approaches. The companies may have different goals and strategies for the development of joint technology.

Turnkey agreement
In the case of the project “turnkey”, on the supplier is responsible for the design, creation, delivery, commissioning and transfer of technology to the customer. Supplier also warrants that all stipulated in the agreement and Performance technology he created. This agreement has the following advantages: the company enters into a transaction with only one contractor who takes full responsibility for the implementation of the whole project; cost of the project is fixed, except for force majeure; the customer receives a guarantee that the project will not just be fulfilled, but will work with a given efficiency. The company should know in advance all the features and output parameters, which must possess the technology after its launch; in the case of complex or large-scale technology, it requires a deep knowledge in the field of acquired technology (to determine the output parameters of the technology can be hired an independent expert organization); selling price of a transfer of “turnkey” usually much higher than for any other method (besides, the more the contractor assumes the risk, the higher the price of transfers); company does not have full control over the progress and quality of each stage of the transfer; buyer is difficult to determine the financial position of the contractor and its ability to self-finance all stages of the transfer (contractor’s financial problems may lead to a suspension of the entire project). One way to reduce the risks during the project can be completed involving creator technology capital of the new production. This will motivate the creator to ensure the quality of technology transfer, as well as bring his experience in the further process of exploitation.

Purchase of equipment or services
Buying equipment is simple and, therefore, one of the most common methods of technology transfers. The main drawback of this method is the fact that the company limits itself only technical knowledge lay down in the equipment and obtains in these new competencies in the management and organization of production. In addition, the equipment available on the market does not provide unique opportunities to the buyer, since the equipment may be acquired by any of its competitors.

OEM agreement
An OEM agreement can be regarded as a form of subcontracting, in which the local firm produces at a precise specification of a foreign company. In this case, the foreign company donates some of its technology and equipment, conducts training and management reorganization. Subsequently, a foreign company sells manufactured products through their own channels and under its own brand. Participation in the OEM agreement enables local businesses to attract new technology and reorganize their production. With the new equipment and competency, companies can start producing goods for the domestic market under its own brand. The main drawback of this agreement is a commitment to supply products of a foreign company at a fixed price, which is much lower than the market.

CHAPTER 4: POST TRIPS
The trend towards the liberalization of the 50s and 60s took the form of reducing the number of customs duties and reducing the use of monetary and quantitative restrictions. If in the mid-50’s, the average value of customs duties in the European countries and the U.S. was 30-40%, while in the 70s it was reduced to 7-10%, but now fluctuates between 3 – 5%. However, reducing the level of tariff protection does not mean the elimination of regulation. Modern control system becomes more flexible due to the increased use of the latest means of protectionism.

Protectionism gets specific regional takes the form of new and expanded old groups. For example, an association agreement nearly 60 developing countries in Africa, the Caribbean and the Pacific, concluded with the EU on the basis of the agreements in the 70’s, actually meant the preferential tax treatment of one group of developing countries, as opposed to everything else. The result of the above trends becomes gradual “erosion” of the principle of equality of all participants of foreign trade activities, the system embodied in the MFN. Inside the new groups is liberalized exchange, i.e. introduced special intra-specific conditions of the foreign exchange. In its relations with third countries gain arise discriminatory treatment….