Innovation and technology transfer: Prospects under the EU-ACP EPAs
Despite the indisputable role of innovation in productivity growth (and thus in enhancing development prospects), access to new technologies by developing countries (DCs) and least developed countries (LDCs) remains one of the most contested areas of international economic regulation. The persistent and deepening “innovation divide” between industrialized nations, where most research and development investment (R&D) occurs, and the African, Caribbean and Pacific (ACP) countries who rely primarily on imports of technology to enhance domestic supplies of technical knowledge, suggests that existing global policies directed at promoting technology diffusion and increasing access to technical knowledge have been wholly inadequate.
Like most other free trade agreements (FTAs), the EPAs address innovation exclusively through formalized rules of intellectual property (IP) protection and in terms that view the creative enterprise as a by-product of the free movement of goods and services across borders. The standard assumptions from the free trade context of what might loosely be called a global innovation policy include the following: i) lower barriers to the entry of goods and services promote competition and encourage R&D investments by firms; ii) trade surpluses will generate income for investment in aid and capital to reinvest in local and regional markets; and iii) the competitive environment resulting from an open trade regime will stimulate productivity of small and medium enterprises (SMEs) and encourage local innovation.
As scholars have pointed out, however, many of these assumptions are untested under the regulatory environments that prevail in most ACP countries. While foreign firms historically have enjoyed technological gains under conditions of liberalized trade, evidence of any substantial positive innovation and technological impact on ACP countries is far from established. Significant constraints on the scope and flexibility of ACP countries to implement domestic policies more conducive for technological catch-up and imitation are inherent in the global IP system pursuant to the TRIPS Agreement. Notwithstanding, most free trade agreements are structured along these classic assumptions, with no proven basis to suggest that the negotiated frameworks in fact support access to technology, facilitate technology transfer or stimulate domestic innovation.
As such, long-standing technology and innovation deficits in DCs and LDCs are treated as symptoms of market failures attributed to, among other things, low levels of FDI, weak or non-existent domestic absorptive capacity for new technical knowledge and low rates of capital accumulation. Rarely do recent free trade agreements incorporate any provisions or principles that address the structural pitfalls common to DCs and LDCs that have adopted IP laws but have yet to experience any development gains as a result. Nor do these agreements reflect any possibility that protection for IPRs, as linked to innovation and technology transfer, may occasion costs that should be offset by balancing the obligations imposed on DCs and LDCs with principles that secure the primacy of the social welfare objectives underlying IPRs.
For sure, the TRIPS Agreement recognizes the “underlying public policy objectives of national systems for the protection of intellectual property, including developmental and technological objectives”; however, it imposes no legal obligation on member countries to implement norms that can secure those objectives. The Agreement acknowledges the importance of technology as an essential development input, but offers no framework to evaluate the efficacy of the mandatory rules in enhancing access to knowledge-based goods. And while it grants rights to members to implement domestic policies and laws to promote basic development interests, including measures to address market distortions caused by abuses of IPRs, this comes with political and economic costs that often are too high for ACP countries to bear, either for fear of retaliation from developed countries or for lack of domestic capacity to take advantage of these provisions.
Technology and IP Provisions in the EPAs
The pivotal question, then, is how to make IPRs relevant to the development agenda reflected in the Cotonou Agreement and stated in the objectives of the specific EPAs. At a minimum, the obligations pertaining to IPRs should not impede prospects for domestic innovation in ACP countries or exacerbate the innovation divide.
Ceding National Policy Space
Like other regional FTAs, the EC-CARIFORUM EPA has incorporated IPR provisions that largely mirror the substantive obligations of the TRIPS Agreement. Despite the fact that Article 46 of the Cotonou Agreement explicitly acknowledged the development dimension of IPR protection, EC negotiators have in some cases attempted to include obligations that extend even beyond those required by the TRIPS Agreement. These so-called “TRIPS-plus” provisions generally require ACP regions to strengthen particular IPRs beyond the minimum standards established by the TRIPS Agreement. In addition, a provision may qualify as “TRIPS-plus” if it expands the scope of subject matter coverage beyond those disciplines recognized by the TRIPS Agreement. For example, in the area of copyright, Article 143 of the EC-CARIFORUM EPA imposes on the CARIFORUM the obligation to comply with the standards set forth in the World Intellectual Property Organization (WIPO) “Internet Treaties” - the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).
While such obligations may be facially neutral, there are hidden costs associated with even ostensibly beneficial provisions. Any increased breadth of subject matter covered by the IPR provisions of EPAs reduces the discretionary policy space that could be used to promote initiatives directed solely at domestic innovators in ACP countries. The more policy space is taken over by EPA-based obligations regarding IPRs, the less ACP countries can act unilaterally for the benefit of local firms.
Passive versus Active Technology Obligations
Currently, the EPA framework for innovation and technology transfer consists of good faith commitments to cooperate in the area of research, innovation and technology transfer. Like the TRIPS Agreement, these commitments do not impose any legal obligations on the EC to adopt policies that improve prospects for technology transfer, nor do they recognize existing normative principles that could stimulate access to technology in ACP states. At best, the EPA provisions appear neutral with regard to the question of innovation and access to technology in ACP countries.
The role of EPAs in promoting technological diffusion and enhancing innovation capacity in ACP regions is essential to whether these agreements can materially affect sustainable development gains. Some impact studies demonstrate that on the whole, ACP countries have much more at stake than the EC with respect to trade disparities. If ACP exports to the EU are likely to be less competitive, and estimated tariff losses are as significant as projected, the loss in income for most countries will have a direct impact on domestic investments in technology and innovation.
To offset the economic consequences of trade diversion that is anticipated as a result of the EPAs, ACP countries must diversify and build up the competitiveness of domestic markets. This process requires access to technology and strengthening domestic capacity to incorporate new techniques and processes in productive activities. Currently, none of the technology provisions in the EPAs provides a basis for ACP countries to experience positive welfare gains over what currently prevails under the TRIPS Agreement. Technical assistance, financial assistance and other levers such as transitional periods could mitigate the short-term costs of the passive technology obligations currently in the EPAs. A possible consideration is that funding approximate to losses in tariff revenue could be contributed to a fund to support access to technology for SMEs in ACP countries, as well as other assistance directed at supporting innovation. However, long-term solutions require significantly different substantive and institutional arrangements to secure sustainable access to technologies for development goals.
Improving Prospects for Access to Technology and Innovation under the EPAs
The multilateral system for the protection of IPRs already recognizes important exceptions and limitations necessary to address the provision of public goods, most notably in the area of public health and education. The EPAs provide an opportunity to incorporate these access norms in the free trade environment, while also adopting special concessions to reduce or eliminate the transaction costs associated with utilizing the mechanisms designed for the benefit of ACP countries. Ultimately, access to technology must be considered a basic development goal; unless the EPAs establish a viable legal framework with complementary mechanisms that facilitate convergence between the welfare goals of IPRs and those of the free trade regime, the innovation deficit will outlast (and eventually overwhelm) any gains possible from a liberalized economy.
From access to health and education to climate change mitigation and adaptation, innovation and new technologies play a crucial role in achieving the increasingly diverse array of economic development goals. The ongoing EPA negotiations offer an opportunity within the unique context of an historical relationship between the EC and ACP countries to address a critical source of economic growth by adopting provisions that encourage access to technology on terms consistent with the multilateral IP system, and with the aspirations of the Cotonou Agreement. In contrast to other FTAs, the EC-ACP EPAs should go beyond mere formal acknowledgement of the essential role of technology in accomplishing development-related goals. Instead, the technology-related provisions of the EPAs should enable an environment in which access to technology and strengthening the domestic innovation capacity of ACP states constitutes a material part of the EC’s investment in the development process.
Author: Ruth L. Okediji is a professor of law at the University of Minnesota Law School.
Credit: This is an abridged version of an article entitled “Prospects for Innovation and Technology Transfer under the EC-ACP EPAs”, written by Ruth L. Okediji. The full-length article was originally published by the German Marshall Fund of the United States: Jones E. and Martí D. (2009), “Updating the EPAs to today’s global challenges”.German Marshall Fund of the United States Economic Policy Series 09, available at: http://www.gmfus.org//doc/GMF7257_Final_Ebook.pdf
 See Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299; 33 I.L.M. 1197 (1994) [hereinafter TRIPS Agreement], pmbl. ¶5.
 See id., art. 7.
 See id., art. 8.
 See, e.g., EC-CARIFORUM EPA, arts. 143, 147, 151-163.
 See, e.g., EC-CARIFORUM EPA, arts. 135-138, 142.
 See, e.g., Lionel Fontagne, David Laborde & Cristina Mitaritonna, An Impact Study of the EU-ACP Economic Partnership Agreements (EPAs) in the Six ACP Regions, CEPII-CIREM, April 2004, at 21-23, available at http://trade.ec.europa.eu/doclib/docs/2008/march/tradoc_138081.pdf (last visited Sep. 7, 2009).
 Id. See also Michael Gasiorek & L. Alan Winters, What Role for the EPAs in the Caribbean?, 27(9) The World Economy 1335 (2004).
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