TWN Info Service on on Intellectual Property Issues (Mar17/07)
31 March 2017
Third World Network
 
Reform global IP rights, investor protection regimes
Published in SUNS #8429  dated 24 March 2017

Geneva, 23 Mar (Kanaga Raja) - The United Nations Development Programme (UNDP) has called for the reform of both the global intellectual property (IP) rights and global investor protection regimes as one of the options aimed at making better global institutions by promoting global public goods.

In its chapter on "Transforming global institutions", the UNDP's Human Development Report 2016 (HDR) said that a fair system regulating the flow of goods, services, knowledge and productive investment is a global public good.

In the report, "Human Development for Everyone", the UNDP said that the world order and its effects on human development depend on the quality of global institutions.

While national policies can facilitate a country's insertion in global society, a good economic, social and political order requires institutions to coordinate the collective actions of all countries, it said.

Among the options for reform cited by the report aimed at making better global institutions by promoting global public goods are: stabilizing the world economy, applying fair trade and investment rules, adopting a fair system of migration, coordinating taxes and monitoring finance globally, making the world economy sustainable, assuring greater equity and legitimacy of multilateral institutions, as well as ensuring well funded multilateralism and cooperation.

FAIR TRADE AND INVESTMENT RULES

On applying fair trade and investment rules, the report said that international trade has been a strong engine of development for many countries, particularly in Asia.

But two problems are now crucial. First, trade rules - including their extension to intellectual property rights and investment protection treaties - tend to favour developed countries.

Second, world trade has slowed in recent years, which might reduce opportunities for developing countries.

"The international agenda should be to set rules to expand trade of goods, services and knowledge to favour human development and the Sustainable Development Goals," said the UNDP.

For developing countries, one of the most important global public goods would be "a fair and well functioning" World Trade Organization.

There is hope, UNDP said, pointing out that as developing countries have gained negotiating power, multilateral agreements can, despite their limitations, become a tool for fairer trade.

The Doha Round intends to add development principles to trade rules, by introducing implementation issues to ease the ability of developing countries to perform World Trade Organization obligations, by addressing imbalances in agricultural subsidy regimes and by strengthening and operationalizing special and differential treatment.

"Assessing the usefulness of the current intellectual property rights regime to meet the Sustainable Development Goals could be a basis for reform," said the report.

The HDR pointed to two Sustainable Development Goals that are particularly sensitive to property rights: the promotion of healthy life and well-being for all (Sustainable Development Goal 3) and the technology facilitation mechanism, introduced in the Addis Ababa Action Agenda (Sustainable Development Goal 17).

The report noted that the UN Secretary-General's High-Level Panel on Access to Medicines has recommended that World Trade Organization members revise agreements on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to enable a swift and expeditious export of essential medicines produced under compulsory license to countries that cannot produce them themselves.

In practice, priority should be given to medicines on the World Health Organization Model List of Essential Medicines.

A similar principle should be used with the technology facilitation mechanism: Every year technologies critical to achieving the Sustainable Development Goals should be identified (in a forum proposed by the Addis Agenda), as should the obstacles to their adoption.

In this context, said the UNDP, "if intellectual property rights enforced through World Trade Organization mechanisms prove to be an obstacle to the timely diffusion of required technology, the international community must take a hard look at reshaping the way such assets are protected and remunerated internationally."

Progress in this direction could be particularly important in fighting climate change, since technology diffusion is essential to decouple GDP growth from greenhouse gas emissions.

The report said while investors and their property rights have to be properly defended against arbitrariness, most bilateral investment treaties with developing countries have been negotiated asymmetrically.

"Developing countries should use the available legal space to reassess and change the models of these treaties."

The report noted that South Africa, after consultations with the investment community, has allowed existing bilateral investment treaties to lapse and locates investor protections in a domestic law effective December 2015.

Brazil has negotiated new treaties with Angola, Chile, Colombia, Malawi, Mexico, Mozambique and Peru based on a core model of investment facilitation and cooperation.

The Brazilian approach generally rejects investor-state arbitration to resolve disputes. India's new model protects the investor instead of the investment. And it requires the exhaustion of domestic remedies before arbitration can be triggered.

The UNDP report highlighted that the current global landscape is very different from what the world faced in 1990. New global challenges threaten the 2030 Agenda for "leaving no one behind."

It said inequality and exclusion, violence and extremism, refugees and migration, pollution and environmental degradation - all are caused by humans and their interactions, particularly across borders.

That is why their solution depends not only on the actions of individual countries, but also on the construction of global collective capabilities to achieve results that no country can on its own.

Uncoordinated national policies addressing global challenges - cutting greenhouse gas emissions, protecting labour rights, ensuring minimum incomes, cooperating to strengthen fragile states, providing humanitarian aid and refuge to those extremely endangered - are bound to be insufficient because of the existence of externalities.

"So global and regional institutions are necessary to bring systematic attention, monitoring and coordination to key global issues."

It said that international institutions and the resulting world order have enabled considerable progress in human development.

But these institutions have also coexisted with persistent extreme deprivation - leaving behind large segments of the world population - and persistent human insecurity.

The mixed success calls for reforms, with an agenda that keeps what works and addresses evident gaps.

The UNDP said that asymmetries persist in the way countries participate in global markets, in defining rules, in financing compensatory mechanisms and in having the capacity to pursue accountability.

"These inequalities constitute barriers to practical universalism and compromise fairness, as some groups have decisive advantages in defining both the rules of the game and the payoffs. The winners and losers of globalization depend on the way globalization is pursued," the UNDP added.

To respond to these challenges, global institutions can enhance collective capabilities. They can expand opportunities for international exchange (including people, knowledge, goods, services and capital), both for cooperation and for participation and accountability.

But there is tension between globalization and democratic national policymaking, said the UNDP, noting that international rules can constrain some national policies, including those that today's developed countries used in the past.

"The governance of multilateral institutions is important not only for achieving their key functions, but also for expanding the collective capabilities among nations. An appropriate structure ensures the legitimacy and the quality of the work of such institutions."

The governance of international trade is dominated by rules - the General Agreement on Tariffs and Trade and its successor, the World Trade Organization. They have favoured trade expansion in a context of generalized trade liberalization in developing countries as a result of structural adjustment in the 1980s and 1990s.

"However, the rules affect national space to define public policies. In particular, they limit the use of trade policy to support sectoral or industrial development (policies used in the past by today's developed countries to promote their industries)."

In addition, some rules can restrict the use of social policy, such as India's National Food Security Act, said the report. It noted that India's National Food Security Act of 2013 grants the "right to food" in the biggest ever food safety net programme, distributing highly subsidized food grain (61 million tonnes) to 67 percent of the population.

The scale of buying grain from poor farmers for sale to poorer consumers put India at risk of violating its World Trade Organization obligations in agriculture. World Trade Organization members are subject to trade sanctions if they breach a ceiling on their agricultural subsidies.

But the method of calculating the ceiling is fixed on the basis of 1986-1988 prices and in national currency, an unusually low baseline.

"This clear asymmetry in international rules reduces national space for development policy," said the report.

India, as other developing countries, did not have large agricultural subsidies when the rules were originally agreed.

The (Indian Food Security) Act - which aims to stave off hunger for 840 million people and which can play a pivotal role in the UN agenda to end hunger everywhere - is being challenged because it raises India's direct food subsidy bill from roughly $15 billion a year to $21 billion.

In comparison, the United States increased its agricultural domestic support from $60 billion in 1995 to $140 billion in 2013.

"The matter has not been resolved, except for a negotiated pause in dispute actions against countries with existing programmes that notify the World Trade Organization and promise to negotiate a permanent solution."

The report also said that the World Trade Organization's Doha Development Round offered some space for rebalancing the rules, this time towards a development-oriented perspective.

But progress on the key issues of this round, under negotiation since 2001, has been limited. With the Doha Round stalled, international trade rules have been dominated by regional and bilateral trade agreements, where protecting investments and intellectual property rights have become central.

"In practice, industrial countries (the main source of foreign direct investment and patents) use such agreements to obtain benefits. The payments of royalties and licences from developing to developed countries (particularly to the United States) have grown immensely since 1990."

According to the UNDP, international investment agreements and bilateral investment treaties might restrict governments' ability to define national policies and standards.

These agreements often define expropriation as an action that reduces investors' expected profits - a very broad definition that is ripe for litigation. An international entity, in most cases the International Centre for Settlement of Investment Disputes, resolves disputes related to these instruments.

Proper regulation of foreign corporations might become difficult, said the UNDP. As an example, it noted that in October 2012 an arbitration tribunal of the International Centre for Settlement of Investment Disputes ruled against Ecuador in a case brought by Occidental Petroleum Corporation and Occidental Exploration and Production Company under the United States - Ecuador Bilateral Investment Treaty.

It imposed a penalty on Ecuador of $1.8 billion plus compound interest and litigation costs, bringing the award to $2.3 billion.

What legal observers found striking about this judgement is that the tribunal recognized that Ecuador cancelled its contract because the company violated a key clause (selling 40 percent of the concession to another company without permission) but found that Ecuador violated the obligation of "fair and equitable treatment" under the United States - Ecuador Bilateral Investment Treaty, said the UNDP.

Most countries have signed some of the 2,958 bilateral investment treaties recorded by the United Nations Conference on Trade and Development.

Among other findings in the report are that the resources channelled through the main global institutions are modest.

In 2014 official development assistance was a mere 0.17 percent of world GDP. UN spending in 2014 was 0.06 percent of world GDP. Lending from the main international financial institutions has also been limited: IMF disbursements were 0.04 percent of world GDP, and multilateral development bank disbursements were 0.09 percent of world GDP.

"If directed to one goal, these resources make a difference. But they are often directed to multiple fronts, some associated with deprivations and some with global public goods (with increasing demand, as for peace and security)."

The funding of global institutions appears inadequate for achieving international targets. The Sustainable Development Goals, far broader than the Millennium Development Goals, require investments in developing countries of $3.3-4.5 trillion over the next 15 years.

Subtracting current annual investments of $1.4 trillion, the resource gap is around $2.5 trillion (around 3 percent of world GDP in current prices), said the report.