Intellectual Property in Bilateral

Free Trade Agreements

C. Munguma
Africa University
2020
 Introduction

 Free trade agreements (FTAs) are no longer about trade;

 these agreements cover foreign investment, labour protection, procurement of
services, government contracts, environmental regulation, international dispute
resolutions, and a host of other issues.
 In terms of intellectual property rights, FTAs have been the most active forums
for protecting such rights. Moreover, international protection of intellectual
property (IP) is becoming the most dynamic area of international law these
days.
 In the post-TRIPS era, a multilateral front is not the only avenue to protect IP.
Bilateral and regional fronts remain more prevalent; these fronts build on and
strengthen the minimum standards established by TRIPS.
 After the signing of TRIPS, bilateralism dominates the international regulation
of IP.
Definitions – Free Trade

 Free trade is a policy by which a government does not

discriminate against imports or interfere with exports by
applying tariffs (to imports) or subsidies (to exports) or
quotas.
 According to the law of comparative advantage the policy
permits trading partners mutual gains from trade of goods
and services.
 Definitions – FTA

 A free-trade area (FTA) is a trade bloc whose member countries have

signed a free-trade agreement (FTA), which eliminates tariffs, import
quotas, and preferences on most (if not all) goods and services traded
between them.
 It is the opposite of trade protectionism or economic isolationism
 Treaties (such as FTAA or NAFTA) between two or more countries to
establish a free trade area where commerce in goods and services can be
conducted across their common borders, without tariffs or hindrances but
(in contrast to a common market) capital or labour may not move freely.
 Member countries usually impose a uniform tariff (called common
external tariff) on trade with non-member countries.
Definitions – Bilateral Free Trade Agreement

 A bilateral trade agreement is defined as an economic

contract between two nation states. Bilateral agreements are
used to improve economic trade imbalances between
nations.
 Taxes, tariffs and quotas are often lifted, reduced or
restricted on specific goods or services to realign trade
deficits and restore economic stability between the two
parties.
 How to become a member of the WTO

 Article XII of the WTO Agreement states that accession to

the WTO will be “on terms to be agreed” between the acceding
government and the WTO.
 Accession to the WTO is essentially a process of
negotiation — quite different from the process of accession to
other international entities, like the IMF, which is largely an
automatic process.
How to become a member of the WTO.......

 Because each accession Working Party takes decisions by

consensus, all interested WTO Members must be in agreement that
their individual concerns have been met and that outstanding issues
have been resolved in the course of their bilateral and multilateral
negotiations.
 All documentation examined by the accession Working Party during
the process of negotiation remains restricted until completion of the
process.
 Who can apply?

 “Any state or customs territory having full autonomy in the conduct

of its trade policies is eligible to accede to the WTO on terms agreed
between it and WTO Members”. (Article XII of the WTO Agreement).
 The accession process commences with the submission of a formal
written request for accession by the applicant government.
 This request is considered by the General Council which establishes a
Working Party to examine the accession request and, ultimately, to
submit the findings of the Working Party to the General Council for
approval.
 The Working Party is open to all Members of the WTO.
Submission of a memorandum on the
foreign trade regime
 The applicant government presents a memorandum covering all
aspects of its trade and legal regime to the Working Party. This
memorandum forms the basis for detailed fact finding by the
Working Party.
 Subsequent Working Party meetings will see the examination of
questions posed by WTO Members based on the information
provided in the memorandum and the replies provided by the
applicant government.
 Conditions of entry....
 After examining all aspects of the existing trade and legal regimes of the
acceding government, the Working Party goes into the substantive part of
the multilateral negotiations involved in accessions.
 This determines the terms and conditions of entry for the applicant
government.
 Terms and conditions include commitments to observe WTO rules and
disciplines upon accession and transitional periods required to make any
legislative or structural changes where necessary to implement these
commitments.
 Bilateral negotiations....

 At the same time, the applicant government engages in bilateral

negotiations with interested Working Party members on concessions and
commitments on market access for goods and services.
 The results of these bilateral negotiations are consolidated into a document
which is part of the final “accession package”.
 The “accession package” consists of three documents which represent the
results of both the multilateral and bilateral phases outlined above. These
are:
 A Report of the Working Party containing a summary of proceedings
and conditions of entry and a Protocol of Accession.
 Schedules of market access commitments in goods and services agreed
between the acceding government and WTO Members.
 Approval of the “accession package”
 Once both the Working Party's Draft Report and Protocol of Accession
and the market access commitments in goods and services are
completed to the satisfaction of members of the Working Party, the
“accession package” is adopted at a final formal meeting of the
Working Party.
 The documents are then presented to the General Council or the
Ministerial Conference for adoption.
 Once approved by the General Council or the Ministerial Conference,
the accessions package is redistributed as a non-restricted document.
 Two final documents will be issued:
 Approval of the “accession package”........

 The Decision of the General Council

 The Protocol of Accession of the new entrant - a Protocol of Accession
annexed to the Report which states that the country accedes to the WTO
Agreement, defines the Schedules and outlines final provisions for
timing of acceptance of the Protocol and full membership of the WTO.
 Becoming a full member...

 Once approved by the General Council or Ministerial Conference, the

applicant is then free to sign the Protocol of Accession stating that it accepts
the approved “accessions package” subject to ratification in its national
parliament.
 Normally three months is given from signature of the Protocol of Accession
for this to take place.
 Thirty days after the applicant government notifies the WTO Secretariat that
it has completed its ratification procedures, the applicant government
becomes a full Member of the WTO.
 WTO and Free Trade Agreements

 A key rule of the multilateral trade system is that reductions in trade

barriers should be applied, on a most-favoured nation basis, to all WTO
members. This means no WTO member should be discriminated against
by another member's trade regime.
 However, regional trade agreements (RTAs) are an important exception to
this rule. Under RTAs reductions in trade barriers apply only to parties to
the agreement. This exception is allowed under Article XXIV of the
General Agreement on Tariffs and Trade (GATT) for trade in goods, in
Article V of the General Agreement on Trade in Services (GATS) for
Trade in Services and in the Enabling Clause.
 There are two major types of regional trade agreements under the WTO -
customs unions and free trade areas.
 Disadvantages of FTAs compared to
multilateral trade agreements

 Bilateral agreements usually lead to “trade diversion”, in that the

partners divert away products that may be more cheaply priced in
favour of products from the FTA partner, even if they are not cheaply
priced, thus resulting in inefficiency.
 In an FTA between a developed country and a developing country or
countries, the latter are usually in a weaker bargaining position due to
the lack of capacity of their economies, their weaker political
situation, and their weaker negotiating resources.
 Disadvantages of FTAs compared to multilateral
trade agreements…….
 In the WTO, the principles of special and differential treatment, and less
than full reciprocity, are recognized.
 Thus, developing countries are better able to negotiate on the basis of non-
reciprocity and for non-reciprocal outcomes, in which they are not obliged
to open up their markets (or undertake other obligations) to the same degree
as developed countries.
 However, these “development principles” are usually absent in FTAs, or
they are only reflected in longer implementation periods for the developing
country. The FTAs are basically on the basis of reciprocity.
 This “equal treatment” of parties that are unequal in capacity is likely to
result in unequal outcomes.
 Disadvantages of FTAs compared to multilateral
trade agreements…….
 The FTAs contain many items that are not part of the rules of the WTO.
Many North-South FTAs include rules on investment, government
procurement and competition law, which have so far been rejected by
developing countries as subjects for WTO negotiations or rules.
 Developing countries also refused that labour standards and environment
standards be subjects of discussion in the WTO.
 All these topics are now entering “by the side-door” through the FTAs,
even though the same reasons for developing countries to reject rules on
these issues should apply in FTAs as they do in the WTO.
 Disadvantages of FTAs compared to multilateral trade
agreements…….
 Even where issues are already the subject of rules in the WTO (e.g. intellectual
property and services), there were many “flexibilities” and options open to
developing countries in interpreting and in implementing obligations in these
areas.
 However, there are attempts by developed countries to remove these flexibilities
for developing countries in the FTAs. If these attempts succeed, the “policy
space” for developing countries to pursue development and socio-economic
goals would be significantly reduced.
 The proliferation of so many agreements also puts pressure on personnel and
financial resources in developing countries and requires a lot of technical
expertise which may be not adequately available, given the large number of
agreements and the limited resources.
 Background and reasons for emphasis on IP

 The concept of IPR gained momentum in 1960: developed countries started

losing their traditional advantage in the production of manufactured goods.
 comparative advantage in high comparative high-tech goods and products
which required huge investments in R&D
 Subsequent copying was cheaper, therefore, a strong need was felt to enforce
IPRs globally.
 The U.S. attempt to ensure IPRs protection through an protection
international agreement on the trade of counterfeit goods tabled at the Tokyo
Round of negotiations (1973-79)was met with strong resistance from
developing countries.
 Background and reasons for emphasis on
IP.........
 Forced US to change its strategy and adoption of legislation known as “Special
301”after amendment in the Trade Act of 1974 to put unilateral pressure on
developing countries to increase IPR protection.
 The “Special 301” linked the trade and IP concerns: required USTR "to identify
foreign countries that deny adequate and effective protection of IPR or fair and
equitable market access" for U.S. citizens or entities that rely on IP protection.
 Allowed USTR to put foreign countries on either the "Priority Foreign
Countries list”, the "Priority Watch List," the "Watch List," etc
 Outcome of a 301 investigation: a bilateral agreement between the US and the
country which is targeted.
 IPR protection as a “Key offensive Market Access
interest” in bilateral FTAs

 The interests driving US policy to conclude FTAs are many but stronger
protection of Intellectual Property Rights forms the central theme.
 The Trade Promotion Authority Act of 2002, directs USTR to seek to
“ensure that the provisions of any multilateral or bilateral trade agreement
governing intellectual property rights that is entered into by the United
States reflect[s] a standard of protection similar to that found in
United States law.”
 The US has preferred the route of FTAs compared as to BITs.
 Expanding the domain of TRIPS through
bilateral FTAs:
 During the TRIPS negotiation (1986 -1993) US suggested that if developing
countries agreed to TRIPS, it would consider easing off negotiating
intellectual Property standards bilaterally and avoid using Special 301.
 However, this tool was increasingly used which resulted in signing of more
bilateral agreement related to Intellectual Property.
 The predominant focus on IPR in the bilateral FTAs can also be explained
by the strong resistance met by US at the TRIPS council.
 Filing of a law suit in 1999 by US backed South African pharmaceutical
industry association against the South African Medicine Act which allowed
access to generics. See the Treatment Campaign case in SA.
 “The Doha Declaration on the TRIPS
Agreement and Public Health”

 Fourth WTO Ministerial held at Doha in 2001 adopted “The

Doha Declaration on the TRIPS Agreement and Public
Health ”
 Almost 142 countries including US endorsed the declaration
confirming the primacy of public health over patents.
 agreed that “the TRIPS agreement does not and should not
prevent Members from taking measures to protect public
health ”.
 “The Doha Declaration on the TRIPS
Agreement and Public Health”......

 According to the Declaration “the Agreement can and should be interpreted and
implemented in a manner supportive of WTO Members rights to protect public
health, and in particular, to promote access to medicines for all.”
 The Declaration reaffirmed the rights of member countries to use all the public
interest safeguards in TRIPS, including compulsory licensing and parallel
importation.
 In August 2003, the WTO members agreed to lift TRIPS restriction on
compulsory licensing for export of generic medicines to countries which lacked
the manufacturing capacity.
 The Trade Promotion Authority Ac(t TPA) Act passed by US Congress in
August 2002 directed the USTR to respect and adhere to the Doha Declaration
in US trade negotiation.
 TRIPS PLUS Provisions pertaining to patents
and access to medicine
 The provisions which are TRIPS Plus and a recurrent theme in the
bilateral FTAs are the ones which are relevant to the following: -
 Provisions which require patent extension beyond the period provided for
in the TRIPS Agreement and linking it to the delay in granting of patent
and marketing approval;
 Provisions which delay approval of generic drugs by putting limitations on
compulsory licensing or
 there may be no specific provisions governing the use of compulsory
licensing but other provisions of the FTA may effectively restrict its use
by member countries;
 TRIPS PLUS Provisions pertaining to patents
and access to medicine.....

 Provisions which put limitation on parallel importation of cheaper

drugs;
 Provisions related to data exclusivity which effectively extend the test
data protection period from five to ten years,
 US Singapore FTA, US Chile FTA, US Singapore, US Morocco and
CAFTA taken as example
Patent Term:

 TRIPS Article 32 stipulates that “the term of protection available

shall not end before the expiration of a period of twenty years
counted from the filing date ”
 During the patent term it is generally illegal for a competing firm to
produce generic version of the patented drug.
 Some Case Study Examples…….
US CHILE FTA US-
 The Agreement though does not specify the patent term but Article
17.9(6) provides for adjustment of the patent term upon request of the
patent holder to compensate for delays in issuing of patent.
 Similarly Article 17.10(2) stipulates that the parties may extend the
patent term to compensate for delays in granting regulatory approval.
Article 17.9(5) limits the ground on which a patent can be revoked.
US SINGAPORE FTA: US-
 US Singapore FTA doesn‘t specify the patent term: builds on TRIPS,
therefore, the patent term is presumed to be 20 years.
 Some Agreements........

 Article 16.7 (8) states that: "Where a Party provides for the grant of a patent
on the basis of an examination of the invention conducted in another country,
that Party, at the request of the patent owner, may extend the term of a patent
for up to five years to compensate for the unreasonable delay that may occur
in the issuance of the patent granted by such other country where that
country has extended the patent term based on such delay.”
 Similar provisions exist in US Morocco FTA, US Bahrain FTA, CAFTA and
in the proposed Andean agreement
 Effect of Patent extension and
Comparison with US Law
 Such provisions can delay access to low cost generic drugs and would result
in longer patent terms in the developing countries than in the US.
 Adequate checks exist in the US law to limit the length of any patent
extension such as provided under 35 U.S.C Section156 such as the total life
of a patent from the time of marketing approval cannot exceed 14 years, that
only one five year extension is permitted; the extension applies to only one
patent per product.
 No such system exists in the developing countries.
 Compulsory Licensing under the TRIPS
Agreement:

 TRIPS Article 31 provides for compulsory licensing; lays down

procedure to be followed in temporarily overriding a patent in the
public interest.
 Allows Member countries to determine the circumstances under which
they use compulsory license.
 As a result of “paragraph 6”solution agreed by the WTO members in
August 2003, Member countries are allowed to export to Members with
insufficient or limited manufacturing capacities.
 Examples....

US-Chile FTA
 There are no specific provisions governing the use of compulsory license but
other provisions of the FTA effectively restrict its use by member countries.
 Provisions relating to protection of test data and those preventing generic
companies to obtain marketing approval during the patent term
US Singapore FTA
 Article 16.7(6) of the IP Chapter limits the use of compulsory licensing to
remedy anti-competitive behaviour, in cases of public non commercial use or
in case of a national emergency. -
 Examples......

 In case a CL is granted, the patent owner should be provided with reasonable

and entire compensation.
 Article 16.7(6) also effectively prevents generic companies from obtaining
marketing approval during the patent term.
US CAFTA:-
 Bears resemblance to US Chile FTA, data exclusivity provisions are
included.
 Parallel Importation:

 Parallel importation means importation of a patented product which is

placed both in the domestic and International market but is available at a
cheaper cost elsewhere.
 It is a measure adopted by governments to put downward pressure on the
prices of the patented product.
 Paragraph 5(d) of the Doha Declaration clearly recognizes the right to
parallel importation. Article 6 of the TRIPS Agreement allows countries
to determine their own rules on parallel importation.
 Parallel Importation....

 Article 16.7(2)of the US Singapore FTA and Article 15.9(4)of US-Morocco

FTA place limitation of parallel importation by requiring that patent
holders in respective countries be allowed to block importation of
patented drugs from outside the country, when it is done without the
authorization of the patent holder or in violation of a distribution
agreement abroad.
 By making these policies permanent in an FTA it deprives countries their
right to review their national policies.
 United States is no exception to parallel importation as the Congress has
always supported access to cheaper drugs by passing legislation which
allows parallel importation.
 Test Data Protection:

 In order to market any patented or generic drug there is a requirement

to get the approval of country’s regulatory authority and submission of
test data on efficacy and safety aspects of the drug.
 Each country has its own legal instruments to protect such data.
 Article 39.3 of the TRIPS Agreement requires of members to protect
test data pertaining to “new chemical entity” only from “unfair
commercial use” and leaves it to the discretion of the country how to
fulfil this obligation.
 Test Data Protection under the US Law
 The United States also has a system under 21U.S.C Section 355(j)
where a manufacturer seeking approval of a drug must provide
extensive clinical data on the safety and efficacy of the drug.
 After the expiry of the patent term a generic company can apply for
permission to market generic version of the drug by demonstrating
that the generic copy is biologically equivalent to the brand name
version.
 The generic company under the US law is not required to conduct its
own trials only needs to demonstrate that the generic version is
metabolized the same way as the branded version.
 Example....

US CHILE FTA:
 Provides for five year test data protection for pharmaceutical products using
“new chemical entity”.
 A disclosure of test data by the government is permissible only for the public
interest but cannot be used for the purpose of granting regulatory approval.
 During the mandatory five year period, the Parties would not be able to use
compulsory licensing as the generic companies cannot obtain marketing
approval unless they run the tests for the product themselves.
 Example....
US Singapore FTA
 Article 16.8(1),(2),(3) are TRIPS plus as it provides test data protection to
pharmaceutical products rather than new chemical entities.
 During the test data protection period of five years it would not be possible
for parties to use CL.
 Provides protection not only to test data submitted in the Singapore or US,
but also to similar data submitted in other countries.
 Such a provision would prevent generic companies from using originator
test data submitted else where and circumvention of test data protection at
home.
 CAFTA:
 Provisions are toughest as they offer up to ten years of protection to
originator drugs from generic competition even in the absence of patent
protection.
 The parties are required under Article 15.10 to protect test data for five years
submitted to regulatory authorities anywhere in the world. “The company
which owns the original test data then has five years in which to apply for
regulatory approval in CAFTA countries.”
 The company upon receiving marketing approval in CAFTA countries
enjoys another five years of test data protection depending on its decision to
enter CAFTA .
 Effect of Data Exclusivity Provisions
 Developing countries would have to wait longer than the United States to
access cheaper medicines.
 Since the pharmaceutical companies usually seek approval of their
products in developed countries, therefore, the period of market
exclusivity will expire in US before it expires in the developing countries.
 Few countries like Chile have tried to rectify the situation in their FTAs
with US such as requiring pharmaceutical companies to seek approval of
new drug soon after receiving approval in the United States.
 Learning the art of negotiations

 Few agreements such as US Morocco, US Bahrain, and US - DR -

CAFTA were complemented with side letters where the respective
governments recognised that the Intellectual Property provisions in the
relevant chapters did not affect their ability to take necessary measures
to protect public health by promoting medicines for all .
 These letters also stated that the IP Chapters did not prevent the
effective utilization of the August 2003 decision of the WTO members.
 USTR also recognises the letters as constituting a formal agreement
between the parties and of interpretive value.
 See also the EU/SADC EPA (5 countries) - which forced SA to drop
some trademarks/names locally and internationally.
 Market Access and increased investments under the
FTAs : Developing countries expectations and reality

 FTAs as a bargaining chip used by developing countries to gain market

access to the US in return for stronger IPR protection.
 FTA partners more interested in the prospects of increased investment as
a result of the agreement and also gaining access to US markets.
 But many of these countries are already enjoying tariff concessions on
their exported goods under various preferential schemes such as
Generalized Scheme of Preferences, Caribbean Basin Initiative (CBI),
and African Growth and Opportunity Act (AGOA).
 What makes the developing countries agree to such
tough standards and WTO plus commitments?

 A possible explanation could be that a “US FTA partner status ” is

viewed by developing countries as a position of strength and help
establish their credibility as serious economic reformers.
 The FTA is used as a signal to foreign investors to trust in their
respective investment regimes and their commitment to reforms.
 In the eyes of US FTA partners, the perceived access to US markets on
preferential terms while others suffer higher duty is no mean
achievement.
 Market Access: a myth or reality

 Most of the US FTA partners already granted limited market access in

certain goods under various schemes such as GSP, CBI etc.
 After coming into force of NAFTA, Mexican fruit and vegetable
exports to the US increased by 50%.
 Gain was offset by reduction in agriculture tariffs and consequent
increase in the imports by three fold for corn, fivefold for soybean,
wheat, poultry and beef from US. This also affected sorghum
producers as livestock farmers switched to cheaper corn for animal
feed.
 Market Access: a myth or reality ........

 In case of US-Jordan FTA, the later saw an increase in its export from
$31 million in 1999 to $673 million in 2003 and the and figure
crossed $800 million in 2004.
 The Jump in Jordan’s exports attributed to the “qualifying industrial
zones”
 This boom in Jordan’s export is expected to be further reduced by the
fact that Egypt, Israel and the United States signed a partial free-trade
agreement pact in December 2004.
 Tough competition offered by China and India in textiles after the end
Multi-fibre Agreement (MFA) and textile quotas is another challenge.
 Erosion of preferences
 Preferential market access to US is time bound and will erode as a result
of reduction in tariffs and quotas by the US under the multilateral trade or
by more FTAs that US is in the process of negotiating.
 Chile which despite having an FTA will see the elimination of benefits
obtained by Chilean exporters of grapes and wine to US because of the
US Australian FTA.
 In the US Chile FTA, the duties on imports of Chilean wines to US will
be reduced to zero in 12 years time, where as the US Australia FTA will
eliminate tariffs in eleven years.
 Similar concerns have been expressed by Middle Eastern countries as US
in its FTA rush may be shifting trade away from its allies in the war on
terror.
 Erosion of preferences ......

 Countries in the Andean region, sub Saharan Africa and elsewhere -

granted preferential, duty free access to the U.S. market have enjoyed a
comparative boom, with exports to the United States rising nearly 40
percent in some cases.
 Again these FTAs have the potential to significantly shift trade away
from the terrorist prone countries to relatively peaceful areas of the world.
 Conclusion
 Countries need to be aware and ready to use the flexibilities available
under the TRIPS.
 Market access granted by US is a temporary gain, however, commitment
to stronger IPR rules is permanent and likely to be implemented on non
permanent non preferential basis.
 While the GATT and GATS under the WTO provide exception to MFN
principle under an FTA, TRIPS Agreement does not provide this
exception and mandates MFN treatment of IPRs holders.
 Recent deal between the Republicans and Democrats extended the TPA.
References & Further Reading

 KHOR, M. (2008 ) BILATERAL

AND REGIONAL FREE TRADE AGREEMENTS: SOME
CRITICAL ELEMENTS AND DEVELOPMENT IMPLICATIONS
 https://www.thebalance.com/what-is-cafta-3305580
 https
://corporatefinanceinstitute.com/resources/knowledge/economics/free-trade-ar
ea
/
 https://bizfluent.com/list-6113059-disadvantages-trade-agreements.
 html http://www.tandfonline.com/doi/pdf/10.1080/02589000120104062
 US Senate Report https://www.usitc.gov/publications/332/pub2166.pdf