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SOUTHNEWS

 
No. 366, 20 May 2021

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Broad support for the extension of the transition period exempting LDCs from implementing the TRIPS Agreement – but consensus lagging at WTO
 


 
Least Developed Country (LDC) Members are exempted till 1 July 2021 from implementing obligations to protect intellectual property rights (IPRs) under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In the October 2020 session of the TRIPS Council, the LDC Members submitted a duly motivated request (IP/C/W/668) for further extension of this period, as provided for under Article 66.1 of the Agreement. The LDC group is requesting extension of this transition period until their graduation from LDC status and thereafter for a period of 12 years. While the request by the LDC group has received general support in the TRIPS Council, some developed country Members (notably the United States, European Union (EU), Japan, Canada and Switzerland) have sought further clarification from the LDC group on the scope of the requested extension. Discussions have not progressed beyond informal consultations. Text-based negotiations are needed in order to timely adopt a decision by the TRIPS Council granting the extension. This is concerning, given that the expiry date of the current transition period - 1 July 2021 - is drawing nearer.

In this context, the South Centre organized a webinar on 9 April 2021 to discuss the request by the LDC Members. The panelists agreed that the request is just, legitimate and permissible under World Trade Organization (WTO) rules.

The panel was comprised of H.E. Ambassador Ahmad Makaila - Permanent Representative of Chad to the United Nations (UN) and other intergovernmental organizations in Geneva and coordinator of the LDC group in WTO, Prof. Carlos M. Correa - Executive Director of the South Centre, Prof. Kevin Gallagher – Director of the Global Development Policy Center, Boston University and member of the UN Committee on Development Policy (CDP), Dr. Giovanni Valensisi – United Nations Conference on Trade and Development (UNCTAD) LDC Division, Dr. Joy Kategekwa – Head of the United Nations Development Programme (UNDP) Africa, and Mr. Nirmalya Syam from the South Centre. Dr. Viviana Munoz Tellez – Coordinator of the Health, Intellectual Property and Biodiversity Programme of the South Centre, moderated the discussion.

Delivering the opening address, Prof. Carlos Correa said that the issue of extension of the TRIPS transition period is not only important for LDCs but for the international community as a whole. A large part of the global population (about 880 million people) live in LDCs, but these countries only account for less than 2 per cent of the global gross domestic product (GDP), and about 1 per cent of global trade. So it is imperative to help LDCs reach their development goals in the context of the 2030 Agenda for Sustainable Development. The COVID-19 pandemic has deteriorated the socio-economic situation in LDCs, including those who are very close to or have achieved the graduation criteria. The request by LDCs for extension of the TRIPS transition period is taking place in this context.

The preamble of the TRIPS Agreement says that LDCs should enjoy ‘maximum flexibility’ to enable them to create a sound and viable technological base. This concept of maximum flexibility is especially important. Secondly, the extension is a right that LDCs have under the TRIPS Agreement, it is not something that may be subject to discussion. In particular, there is no time limitation to such an extension. Thirdly, the premise of Article 66.1 of the TRIPS Agreement is that LDCs need time to develop a viable technological base. Article 66.1, hence, accords LDCs a transition period for the implementation of the treaty obligations that must be extended by the TRIPS Council upon a duly motivated request to allow LDCs to reach such as technological base.  Thus, WTO Members accepted a premise that says that IPRs may become an obstacle for achieving this goal of viable technological base. Indeed, during their development trajectories, developed countries had a very flexible intellectual property (IP) regime. For example, the industrialization process in the US started based on copying and imitation of technologies originally developed in Europe, particularly in the United Kingdom. In the US, for instance, during most of the 19th century foreign authors were denied copyright protection. The underlining concept for this policy was that there was a need to increase literacy in the country by allowing access to excellent, but cheap books. So, there is nothing new in the concept that to reach a certain level of technological development there is a need to suspend or not apply strong IP rights. A report by the US Office of Technology Assessment to the Advisory Board of the US Congress states that “When the United States was still a relatively young and developing country it refused to respect international intellectual property rights on the grounds that it was freely entitled to foreign works to further its social and economic development.” This also applies to other developed countries that introduced stronger IP protection as they developed, and not from the very beginning of their development process, particularly their industrialization process.

The request by LDCs has some innovative features. Unlike previous extensions, the present request does not have an arbitrary or fixed term that will apply to all LDCs. This is sound. It is not reasonable to think that all LDCs will reach a viable technological base at the same time based on a purely arbitrary term. Secondly, the request seeks to extend the transition period beyond the graduation date of LDCs. LDC graduation is determined under indicators that do not take into account the technological level that a country may have reached. Therefore, it is very important to allow the extension of this transition period for LDCs beyond their graduation. Prof. Correa reiterated the support of the South Centre to the LDC group in order to achieve as an outcome the approval of the extension. Prof. Correa recommended participants to refer to a recent South Centre policy brief that explains the foundations of the request.

Ambassador Ahmad Makaila recalled that the request by the LDC group was discussed by the WTO Members in October 2020 and in March 2021. The LDC group received strong support from the majority of Member States. Some Members (a few developed countries) asked for more information on the length and scope of the extension. The LDC group answered all questions by those developed countries in informal and bilateral discussions.

The request by the LDC group is premised on a right accorded to LDCs under Article 66.1 of the TRIPS Agreement to make duly motivated requests for extensions which is required to be mandatorily granted by the TRIPS Council. In the context of Art. 66.1, it is recognized that LDCs have particular hurdles in the economic, financial and administrative realms. The Agreement cannot thus be applied in the same manner as in more developed countries. This allows a flexibility to have a viable technological base and deal with the challenges of development. For that reason, an initial and renewable period of 10 years has been set forth by the TRIPS – except articles 3, 4, 5. It is uncertain when the LDCs will be sufficiently mature to overcome these hurdles. Flexibility is necessary as long as the uncertainty exists and as long as LDCs are unable to create a viable technological base.

The maximum of policy space for flexibility is needed to address the challenge of development. For this reason, the extension of the transition period should remain in place as long as the country remains an LDC. The effects of the COVID-19 crisis have not yet been measured, and most reports highlight that the crisis will undermine the achievements of the LDCs throughout the years in education, poverty reduction, etc. The past year was the worst for LDCs in 30 years. For all LDCs, there has been a general downturn with a huge adverse impact on all LDCs, including those in the process of graduation. The category of LDC is defined by the UN and not the WTO. The UN General Assembly has called Members of WTO to authorize the graduated countries to benefit from additional years of its flexibilities to ensure a sustainable graduation. A number of UN bodies have largely supported extension of flexibilities even after the graduation. LDCs will also need supplementary flexibilities, with additional 12 years. In a larger perspective, LDCs have 13-14% of the global population, but only account for 1.3% of global GDP and 1% of international trade. As a consequence, the extension of the transition period, even 12 years after graduation would not be prejudicial to the international community. On the contrary, it would lead to sustainable development. LDCs do not want a privilege, but the maintenance of the flexibility they already benefit from.

In the context of WTO, LDCs have small delegations in Geneva, and it is difficult to negotiate an extension after each period, given the limited capacity of negotiation. Therefore, a longer period will be useful to the group. The supporting policies for graduated countries will benefit the group as well as the multilateral system. Therefore, the LDCs have requested for an extension of the transition period until their graduation from the LDC category and thereafter for a period of 12 years.

Ambassador Makaila reaffirmed that the LDC group is vividly committed to Art. 66.1, the existing transition permitting exemption of the TRIPS Agreement, and that extension requested by the LDC group is fully within the scope of Article 66.1 of the TRIPS Agreement.

Prof. Kevin Gallagher expressed strong support for the request made by the LDCs, including the extension of the transition period for graduating countries as well. Considering the pandemic shock and the inadequate response from the global community, many LDCs are facing a potential lost decade. If they don’t get the requested extension of the transition period, this will only ensure that the LDCs are held back further. Graduation does not mean that these countries suddenly have skilled labor, production capacities or other capacities to benefit from TRIPS, and it certainly does not correlate to any evidence basis for such readiness. The fact is that once an LDC graduates they continue to face huge barriers, and will continue to face the same challenges as prior to graduation. Therefore, the extension of the TRIPS transition period must be granted into the post-graduation period for LDCs as well. The LDC request quotes the UN Secretary-General that the LDCs have not been able to successfully combat poverty through high rates of economic growth, achieving structural transformation and building productive capacities, nor through increasing their global share of exports. The high degree of vulnerability from which the LDCs suffer  - both economic and climate shocks – have significantly set back progress towards sustainable development and the achievement of the Sustainable Development Goals (SDGs). Declining commodity prices have diminished the value of exports and foreign currency earnings, exacerbated debt burdens, while natural hazards have caused devastating loss and damage to lives, livelihoods and infrastructure. The UN CDP has noted that LDCs are highly vulnerable to external shocks such as the COVID-19 pandemic. The secretariat calculates an Economic and Environmental Vulnerability Index when evaluating graduation and monitoring progress of LDCs. The CDP has found that LDCs are 30 per cent more vulnerable to droughts, hurricanes, floods, pandemics and capital flow volatility.

The key to economic development is the development of knowledge based assets. This is the most important part of moving up the ladder to get catch up growth. An LDC by definition lacks knowledge based assets that are so important to move forward. 43 of the 47 LDCs have experienced a fall in their average income, and the majority of them are at risk  of, or already are, in debt distress. They are paying more in the annual debt service now than their entire health budget in many cases, let alone invest in expanding productive capacity, technological capabilities, etc. that would allow them to graduate and take advantage of TRIPS. The CDP estimates that extreme poverty in LDCs will increase by about 35 per cent due to the current pandemic. The production base of LDCs to build knowledge based assets is fledgling and still needs a lot of attention. Most LDCs are reliant on one or two extractive industries, but commodity prices are highly volatile in general and have not been high in this crisis period, as they were during the financial crisis of 2008. Given that most LDCs are net technology importers, the pandemic along with debt distress and low commodity prices makes it difficult to import any technologies. This underscores the need to be able to build endogenous productive capacities within the countries themselves. LDCs lack that basis currently, with only about 20 per cent of their populations having the necessary skills for only about 8 per cent of manufacturing in medium to high technology areas, relative to 44.9 per cent of emerging markets and developing countries. On average, LDCs have 71 researchers per million inhabitants compared to 1200 researchers per million people for the rest of the world. Only 28 per cent of their population is in secondary education, compared to 80 per cent for emerging market countries and almost 100 per cent in Organisation for Economic Co-operation and Development (OECD) countries. In LDCs, only 18 per cent of the people are Internet users, compared to 50 per cent for emerging markets and developing economies, and 87 per cent for OECD countries. One important indicator is Research and Development (R&D) spending, which for LDCs is far less than 1 per cent, around 0.5 per cent compared to around 2 per cent for the rest of the world, and about 4 per cent for frontier economies like South Korea and China.

Technical assistance under the TRIPS Agreement for LDCs has not been meant to help build productive capacities so that LDCs can take advantage of TRIPS when they graduate. The technical assistance is only to help countries understand the rules so that they can adhere to the rules when they graduate. The support measures are also not there to enable LDCs build endogenous productive and technical capacities to be utilized when they graduate. There needs to be an expansion of support measures for LDCs, new financing that helps to build technological capacities, build secondary education, build new endogenous industries, technological and productive capacities. The financing schemes of the International Development Association (IDA), the World Bank and many other development banks focus on important but small micro interventions into health, education, etc. which are very important, but there is need for step wise increase in development finance for LDCs that helps countries build national innovation systems that can help expand productive capacity and technological innovation. Without that, technological progress will be stunted even more in the face of the global crisis. The UN Department of Economic and Social Affairs (DESA) secretariat pointed out in a policy brief that the COVID-19 pandemic threatens to have a devastating consequence on the LDCs. Health systems may be unable to cope with the increase in infections and lockdowns around the world. Unless bold policy actions are taken by the international community, achieving the Sustainable Development Goals by the 2030 deadline will likely slip out of reach.

Dr. Giovanni Valensisi noted that the COVID-19 pandemic has had a huge impact on LDCs in socio-economic terms. The crisis is impacting both the supply and demand side of their economies at all levels, household, enterprise, domestic and international sphere. Most recent UNCTAD and International Monetary Fund (IMF) estimates show that this is the largest global recession since World War II. In the case of LDCs, the decline in GDP has meant not only a recession but also a decline in GDP per capita in a majority of LDCs. Nearly all of the LDCs are suffering from a growth deceleration. 2020 and 2021 are estimated to be the first two consecutive years during which no LDC will be able to meet the 7 per cent growth target. There continues to be a compression of imports in most developing economies, which could have a knock on effect on the domestic economy of LDCs as they are import dependent for a whole range of sensitive products from food to medicines as well as capital goods. In terms of financial flows, the decline in exports will be exacerbated by a decline in all kinds of financial flows. Several LDCs are also experiencing capital flight and exchange rate depreciation which could increase their cost of debt servicing, particularly for many LDCs that are displaying worsening debt vulnerabilities. Most LDCs have running structural deficits both in the government budget and in their current account budget leaving a very reduced fiscal space. This has resulted in an increase in people living in extreme poverty by 32 million in LDCs.

LDCs face the prospect of medium term damage and long term effects on potential output. Sluggish investments due to the crisis will impact output growth in the future. There is also the prospect of huge disruption in human capital accumulation. A recent United Nations Children’s Emergency Fund (UNICEF) report suggests that globally around 800 million children had their schooling disrupted. In the future, this could not only impact possible output, but also the potential to develop an endogenous technological base. A prolonged crisis could also lead to further job destruction and a consequent loss of productive capabilities, impacting future growth.

Productive capacities are key for resilience in the face of these challenges. Firms with more sophisticated productive capacities were able to adapt better, e.g. in some LDCs, textile manufacturers were able to repurpose production to manufacturing personal protective suits. This highlights the importance of endogenous productive and technological capabilities. Therefore, policy space and international support measures such as TRIPS transitional period extension are vital to support the efforts of LDCs in developing technological capabilities.

Dr. Joy Kategekwa  recalled the experience of previous negotiations on the 2005 extension. It was not easy to make the duly motivated request submitted by the LDC Members as a group because developed countries were reading the language in Article 66.1 narrowly to suggest that only a specific LDC rather than the group as a whole, could submit such a request. There was always a desire to push the line that there was no automaticity to the extension based on the duly motivated request, that special and differential treatment was not about exclusion from the obligations but to give space and time to get ready with the ultimate aim of implementation of the obligations under the Agreement. Article 66.1 of TRIPS should not be read in isolation, but along with the obligations under Article 66.2 of TRIPS and Article 18 of the General Agreement on Tariffs and Trade (GATT) to understand the whole development frame of what participation of LDCs in the multilateral trading system should be. Article 66.1 is a recognition of what the UN agreed 50 years ago, that there is a group of countries that have specific, unique challenges that require special attention. 50 years later, there are 47 LDCs, 33 of which are in sub-Saharan Africa. The question to consider is what is the framework of IP in the broader framework of development in the context of WTO law. This leads to questioning of what has been done under Article 66.2 to help LDCs get that viable technological base? How can developed countries provide incentives to firms and enterprises in their territories as mandated by Article 66.2 to  ensure that even when LDCs reach graduation they would not need further extension of the transition period. Extension should be accompanied by sufficient goodwill and building of technological capacities to help LDCs to build that viable technological base. This becomes stronger in the light of Article 18 of GATT which recognizes that countries can set aside WTO law in general for the purpose of building an infant industry, to ensure that trade works for development. Industrialization is critical to expand manufacturing of goods and increase exports. Beyond the extension, it should also be explored what more can be done to boost the productive capacities of LDCs during the extension period. How can official development assistance (ODA), investment policies, public sector financing, South-South cooperation be used to target the strengthening of capacities? While about 82 per cent of Africa’s trade with the rest of the world is still on raw materials and commodities with low value added products, there is a rising volume of value added and technology intensive products in intra African trade. This suggests that with the right technology inputs Africa can expand in a manner in which trade can be leveraged to boost development. In addition to legal arguments in support of extension, there should be focus on the complementarity of what is expected of other Members. The time of extension is not the only solution and there is a need to look at complementary measures and use all the tools available. It is critical that the extension goes ahead because the success of the African Continental Free Trade Area (AfCFTA) relies on it. These reasons were cogent even before the COVID-19 pandemic.

Mr. Nirmalya Syam stressed that it will be critical to expedite discussions and ensure that the extension as requested is granted. Article 66.1 is based on not only the need for building a sound and viable technological base, but also the economic, financial and administrative constraints and special needs and requirements of LDCs. Hence, it is very broad and allows a diverse possible motivations on which the request for extension may be based. It is also mandatory for the TRIPS Council to grant the request. The period of extension is not set in Article 66.1 and has been extended in the past for varied terms. Thus, the practice of Member States is suggestive that there is no standard time frame for such extension or time limit that is applicable. The request for extension until graduation is not unprecedented; even in 2013 the LDCs had requested for such an extension in their duly motivated request. If the LDCs are of the view that their challenges would not be overcome as long as they are LDCs, an extension as long as they remain LDCs is justified and legally feasible. Extension until graduation is not a perpetual extension, but limited till the time the criteria of graduation is reached in accordance with the process for such determination by the UN.

Moreover, nothing in Art. 66.1 limits the TRIPS Council from granting an extension beyond graduation as requested. In fact, the 2005 extension had added conditions on preserving existing levels of IP protection, which went beyond the text of Article 66.1. In 2013, this condition was withdrawn and a best endeavor commitment to preserve existing levels of IP protection on the part of LDCs was included in its place. This was not constrained by any consideration of whether the TRIPS Council had the authority to add to the conditions under Article 66.1. Moreover, under Art. 9.2 of the WTO Agreement, the TRIPS Council has the mandate to make recommendations to the Ministerial Conference or the General Council suggesting an interpretation of a provision in the TRIPS Agreement. Hence, it can be concluded, that the TRIPS Council has the authority to decide on the extension as requested and make any interpretative recommendation to complement the decision if necessary, for formal adoption by the Ministerial Conference or the General Council of the WTO.

Conclusion

In conclusion, all the panelists reaffirmed the utmost importance of a decision by the TRIPS Council granting an extension of the transition period under Article 66.1 of the TRIPS Agreement, as requested by the LDC group. In this regard, it will be critical to ensure that the discussions progress from informal consultations to clarify the terms of the request to actual text based discussions to allow for a decision by the TRIPS Council for extension of the transition period, ahead of the upcoming session of the TRIPS Council on 8-9 June 2021. This will be the last formal session of the TRIPS Council before the end of the current transition period on 1st July 2021. Recently, about 50 distinguished experts and academics have written a letter to the United States Trade Representative and the EU Trade Commissioner supporting the request of the LDC group for extension of the TRIPS transition period. As the letter notes, “[A]ny attempt to refuse or weaken the LDC’s request will be unconscionable given the social and economic hardship at this unprecedented moment. Instead, adopting the LDC request in its entirety will strengthen the credibility of the WTO as an institution that can benefit the poorest and most vulnerable segment of the international community and meet the collective challenges we face.”

Author: Nirmalya Syam is Senior Programme Officer of the Health, Intellectual Property and Biodiversity Programme (HIPB) of the South Centre. 

 
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For more information, please contact Anna Bernardo of the South Centre: Email bernardo@southcentre.int, or telephone +41 22 791 80 50.
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