The WTO Arbitration Panel in the Brazil-U.S. trade dispute, regarding the U.S. Government subsidies for cotton, ruled last week that Brazil could retaliate against the U.S.A to the tune of $ 300 million dollars.
This particular trade dispute has been running since the year 2002 and was decided in favour of Brazil in the year 2004. Thereafter the U.S.A. unsucessfully appealed the decision of the WTO Panel to the Appellate Authority. After winning before the Appellate Authority Brazil moved to commence the arbitration that would ultimately decide the scope of relief or damages that could be granted to Brazil for the injury sufferred by the cotton subsidies.
- A more detailed history of the case can be viewed here along with all of the decisions.
The particular significance of the decision is that it allows Brazil to retaliate by suspending the intellectual property rights of entities from the U.S.A. This means that Brazil can technically break pharmaceutical patents, waive copyrights and other equivalent intellectual property rights and instead allow its own generic industries to start churning out the same products without having to licence the same from the actual IP owners.
The Brazilians are not going forward immediately to execute the decision in their favour. Instead they first intend to initiate talks with the USTR and get the U.S.A. to change their laws through diplomacy rather than confrontation.
This is not the first time the WTO panel has granted such relief. A few months ago Shamnad had blogged about the decision of the Panel in the U.S.-Antigua case over here. The signifiance of the IP suspension model is that the earlier model which required imposition of tariffs on all imports from the U.S.A. would have ended up affecting the Brazilian economy and not the U.S. economy since imports now became much more expensive for the Brazilians.
The efficacy of the IP suspension model however has been questioned by some since both of the earlier Panel decisions in the Equador case and the Antigua case have not been enforced, partly due to political pressure. The IP Watchdog recently reported that a company based out of Antigua recently started a website – zookz.com – which provided unlimited music and movies for a token price. The Antiguan government however objected to this company’s activities and also proceeded to make it clear that it has never authorized the company to setup such a website. The company in turn moved a local Court to force the Government of Antigua to enforce the WTO decision.
The question therefore is how many developing countries have the political courage to enforce such decisions.
Dear Prashant,
As you (and Shamnad in his more recent post) also note, it is not only a matter of political courage for Brazil to suspend TRIPS obligations:
Brazil can only move on to suspending TRIPS once it has exhausted this option to suspend obligations from the trade in goods sector (see Art.22.3 DSU). Whether Brazil can move to TRIPS suspension seems to depend on:
1) the amount of (consumer goods) imports from the US that serve as potential subject of retaliation; and
2) the amount of injury suffered by the ongoing US subsidies (see para.5.230-233)
In para. 5.233, the arbitrators further indicate that the general systemic issues surrounding TRIPS retaliation – as identified especially in the EC – Bananas III (Ecuador) arbitration – also apply here: That means that Brazil must very carefully think through how in can implement any suspension of IP rights of US right holders in practice. A mechanism (along the lines of compulsory licensing) which allows to exploit a specific IP right of a clearly identifiable US right holder in a way which allows to calculate the economic harm inflicted on that right holder should be most promising.
Brazil also must consider potentially conflicting obligations from other international agreements on IP protection to which it is a party. While I would argue that under the general doctrine on countermeasures (as expressed in the ILC draft articles on state responsibility), such obligations do not prevent Brazil from suspending IP protection in general, it must nevertheless examine this issue carefully.
Finally, I noted with great interests the arbitrators “general considerations” on “economic and welfare costs” and “Development objectives, imbalance in trade relations and political influence” – all of which Brazil argued to support its cross retaliation request (see para.5.186-5.199). In essence, the arbitrators did not buy any of those arguments.
From all this I take that Brazil could not rely on the same type of ‘David vs. Goliath’ type of argument which Antigua was able to rely on. TRIPS retaliation can be done, but the clear hierarchy in Art.22.3 DSU does impose limits – especially on those (developing) countries which actually do have a significantly sized domestic market to make TRIPS retaliation economically feasible and ‘effective’ to induce compliance…
Let’s see whether Brazil can jump these hurdles.
Henning
Interesting how cross-retaliation in the area of Intellectual Property is titillating minds. I fully concur with Henning Grosse Ruse – Khan on the existence of three hurdles:
. demonstrating (or convincing the WTO Panel) that the suspension of concessions, first, in the same sector and, second, in a different sector of the same agreement is either not practicable or not effective;
. designing the retaliatory measure in such a way that it is practicable and effective, and also measurable;
. abiding by other treaty obligations.
A fourth hurdle is that the internal legislative framework must allow the retaliatory measure (and, inevitably, suitable legal remedies for the affected party to resist the measure… the turkey is far from cooked).
There is in my view a fifth one that is not insignificant: additional import duties go straight into the State coffers, countermeasures in the field of Intellectual Property do not. I doubt whether the Minister for Finance would give away secure income for uncertain additional taxes, or even losses.
The assumption for the countermeasure in the field of Intellectual Property is indeed that the suspension of, say, a patent would cause some local industrialists to produce or use the invention free of royalties and other obligations towards the patentee (or exclusive licensee). But who could do this at short notice, without pre-existing industrial and commercial infrastructure? Who would take the risk of investing in a business that is by essence very uncertain since the suspension can be suspended any time, as soon as the scofflaw State budges? Who would seize a windfall opportunity at the risk of jeopardising long-term cooperation with partners from the scofflaw (and other) State(s)? Would the State be prepared to mess up the business of licensees by allowing temporary free-riding?
Would the State be prepared to give a competitive advantage to products from companies in the scofflaw country, for instance plant varieties, temporarily in essence in the public domain, over local products that would still be covered not only by rights (royalties), but also by the right owner’s production and marketing organisation? Agreed, this question may be countered by the argument that the products at issue could still be subject to royalties, but accruing to the State; the counter-question is whether this would work without the backing of the goodwill of the right owner.
Wouldn’t a suspension, in India, of copyrights accruing to US interests harm Bollywood as much as Hollywood?
And what if the suspension does not work?
Designing the retaliatory measure is thus fraught with considerable difficulties. A blanket suspension of, say, patent rights seems in any event hardly possible. The only area for which there is potential is, as far as I can see it, that of medicines.
A final note on Antigua. I have posted a comment on IP Watch. The ZookZ adventure was nothing else than an attempt by private interests to capture the US$21 million compensation awarded to the State of Antigua and Barbuda.