Toward free and fair trade: a global public good perspective - Reforming Globalization - Statistical Data Included

Challenge, Sept-Oct, 2002 by Ronald Mendoza, Chandrika Bahadur

The question of balance between free trade and fair trade is therefore a pressing one. In what follows, we analyze imbalances in the regime in two ways. In one, we examine three key agreements (i.e., those on intellectual property, textiles, and agriculture) negotiated in the Uruguay Round, to ascertain any imbalances in the way they were constructed. In the other, we examine the expected quantitative impact of the regime. Both methods indicate that the multilateral trade regime is imbalanced in terms of benefits and costs.

Imbalances in the Regime

Negotiations in the Uruguay Round centered on increasing market access for developing countries in protected developed country agriculture and textiles markets in exchange for trade agreements in intellectual property rights, services, and investments, all of which primarily benefited developed countries through increased rents and market access (Ostry 2002). The idea behind this "grand bargain" was that member countries could trade off costs of one agreement with benefits gained on another. However, it was an inherently unequal exchange. Agreements on intellectual property, services, and investment do not unambiguously promise efficiency gains for the developing countries. In fact, they generate both large wealth transfers and adjustment costs that are asymmetrically distributed (Panagariya 1999).

This outcome raises serious questions about the net benefits for the developing countries in the multilateral trade regime, constituted largely by the agreements in the Uruguay Round. A comprehensive evaluation of its development impact has yet to be made despite its clear necessity. While such an evaluation is beyond the scope of this paper, our contribution lies in examining the three key trade agreements for the developing countries: the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the Agreement on Textiles and Clothing (ATC), and the Agreement on Agriculture. We examine each of these agreements to determine whether or not each, individually, is balanced in potential benefits and costs for developed and developing countries.

The TRIPS Agreement

The TRIPS agreement was introduced in the Uruguay Round to establish a common standard of intellectual property rights across all WTO member countries. Under TRIPS, they agreed to provide common standards for protection of all intellectual property applying to all technologies in products and processes, with the aim to balance innovation with transfer and dissemination of technology to the mutual advantage of producers and users in a manner conducive to social and economic welfare (parts I and II, articles 1-40). (13) It defined the broad civil and administrative procedures for enforcement of intellectual property rights (part III, articles 41-61) and, in return, provided for transitional arrangements, technology transfers, and technical cooperation for the least-developed countries (parts IV, V, VI, and VII, articles 62-73).

The TRIPS agreement was strongly opposed by developing countries for three reasons. First, the concentration of research and development activities in the developed countries meant that a stronger international patent regime would transfer rents from developing countries to developed countries. Second, stronger patents would increase the end consumer price of their applications, making these products harder to access for consumers with low purchasing power. Third, many developing countries had an established tradition of collective as opposed to individual ownership patterns, especially for indigenous knowledge, which was fundamentally contrary to the TRIPS model.