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Intellectual Property Rights Protection and Emerging Economies by Stuart E. Eizenstat

BG9913E | Date: 1999-08-20

(The author is U.S. Deputy Secretary of the Treasury. Ambassador Eizenstat wrote this article while he was Under Secretary of State for Economic, Business and Agricultural Affairs.)

The 21st century will belong to creators of new ideas. Innovation has been the foundation stone for today's technological revolution. Human genius has brought us digital music, medical marvels, micromotors -- and dynamic economic growth. Tomorrow's Age of Technology will build on this explosion of ingenuity and bring prosperity to nations that encourage creativity.

Protecting innovation is critical to the future growth of developed and developing countries alike. There is a direct correlation between a country's protection of intellectual property -- patents, copyrights, and trademarks -- and its economic growth and development. For many developing countries, intellectual property initially seems an ephemeral concept, but they are increasingly learning that if taken seriously, protecting intellectual property can produce concrete, positive results. Without protection of trade secrets, without patent or trademark safeguards, countries in every stage of development will fall short of their potential. In case after case, effective protection of intellectual property has been a launching pad for domestic and foreign investment, technology transfer, economic growth, and high-paying jobs.

Intellectual property obligations such as those contained in the WTO (World Trade Organization) Agreement on Trade Related Intellectual Property Rights (TRIPS) are sometimes seen as serving the interests of the United States or other developed countries at the expense of the developing world. The reality, as amply demonstrated by real world cases, is that effective intellectual property protection is the essential cornerstone for creating an attractive investment climate in any nation. The tide of technology is strong and capable of lifting all economies. But nations that fail to protect intellectual property will be left behind.

Technology is generating the best jobs in the world economy. The packaged software sector generated nearly three-quarters of a million jobs in 1996/97 alone. Sixty-two different economies shared this growth, ranging geographically and alphabetically from Argentina to Vietnam, and including developing countries in the Western Hemisphere, Central and Eastern Europe, Africa, and Asia. Through direct foreign investment, many of these countries are now developing indigenous software industries. Local employment opportunities and tax revenues from this new international software industry were estimated at 21 billion dollars ($21,000 million) in 1996/97. The factor directly contributing to all these success stories? Improved copyright protection. Among the Gulf

States, for example, it is no coincidence that the United Arab Emirates, the leader in copyright protection, also has the largest information technology sector -- employing over 3,500 people.

We have seen similarly striking results in other economic sectors. In the audio/visual area, Cyprus stands out. In 1990, prior to implementation of stronger copyright and anti-piracy measures, Cyprus had two cinemas. Now there are 34 theaters, with development of multiplexes in the works. In Asia, in the area of sound recordings (cassettes, CDs, and DVDs), the impact of copyright protection on economic growth is equally noteworthy. Less than 10 years ago, the music industry estimated annual losses in Asia at more than $400 million. Since the introduction of legislative and enforcement measures, markets in Asia have grown remarkably -- over 500 percent in Singapore alone.

More amazing (and gratifying) to many has been the dramatic growth of indigenous music. From a base near zero, national music now holds 50 percent of the market share in Malaysia, 72 percent in Indonesia, 41 percent in Singapore, 65 percent in Taiwan, 57 percent in Korea, and 71 percent of the market share in Thailand according to 1997 data. This translates not only into jobs in production and distribution but also into a renaissance of national culture that some predicted would be doomed by economic globalization.

Patent protection has produced equally positive results in the pharmaceutical sector. In 1996, Brazil adopted very good patent legislation. Since then, Brazil has attracted some $2 billion ($2,000 million) in new investment in high-tech industries, particularly pharmaceuticals. Employment outside the United States by international pharmaceutical firms totaled 164,000 in mid-1996, with the most significant increases over previous years in the Asia/Pacific and Latin American regions where governments adopted patent protection.

India provides an interesting example of what can happen when intellectual property protection is uneven. Since it adopted copyright protection that largely conforms to international standards, India has emerged as a world-class competitor in computer software development. Recent joint ventures in India have included United Air Lines and Software Solutions. These large firms can go anywhere to find the best partners, and they have chosen Indian firms.

The skill and industry of India's engineers and research scientists are admired internationally. So why have bio-tech and pharmaceuticals stagnated while the information technology sector booms? The answer is simple. India does yet not provide patent protection for pharmaceutical products. Protecting the process of manufacture only, as India and some other countries do, is not the same thing. Until this changes, no India-based scientist or firm is likely to develop and market innovative pharmaceutical products.

The trademark aspects of copyright and patent protection add even more importance to intellectual property protection. Around the world, corporations are investing billions of dollars (and creating hundreds of thousands of jobs) to manufacture everything from basketball shoes to auto parts. They will not invest without assurance that their trademarks will be protected.

With the January 1, 2000, deadline looming large for the implementation of the WTO Agreement on Trade Related Intellectual Property Rights (TRIPS), the United States, other WTO member states, and institutions like the World Intellectual Property Organization (WIPO) are providing technical assistance to states preparing to bring their intellectual property protection up to international standards. The question every WTO member should now be asking is how to speed up the reforms required to create a climate for economic growth in the 21st century.