U.S. Foreign Policy and Intellectual Property Rights in Latin America

Foreign Policy and Intellectual Property

Piracy of intellectual property rights has emerged as one of the most important foreign policy issues for many industrialized countries, particularly the United States. Issues involving the protection of U.S. intellectual property interests abroad have been the subject of front-page articles in such newspapers as the Wall Street Journal1 and the Washington Post.2 Global intellectual property protection is important to the United States, given that new technologies are a main source of economic growth.3 Because intellectual property is relied on, in one form or another, by almost every segment of the U.S. economy, protecting intellectual property assets abroad is crucial to the health of the economy and the nation's position as an innovative world leader.

Strong rules for the protection of patents, copyrights, and trademarks facilitate international trade by enhancing a firm's ability to realize returns on investment and to increase sales and employment. Yet U.S. companies have suffered from the lack of rigorous and uniform international standards for intellectual property rights. U.S. producers are estimated to lose up to $80 billion a year because of inadequately enforced intellectual property rights around the world.4 The Congressional Research Service estimates that U.S. companies lose one dollar to inadequate protection of intellectual property rights for every three dollars of revenue gained from exported products.5

Latin America has one of the lowest standards of intellectual property protection of any region in the world.6 Only China presents the United States with greater losses of revenue as a result of inadequately protected intellectual property rights.7 Manufacturers in Latin America have been able to mimic a wide range of U.S. name-brand goods, often invading other foreign markets with them and thereby negatively affecting the bottom line of our most competitive firms. The widespread extent of the problem, coupled with increasing concern on the part of businesses, has made protecting intellectual property on a worldwide basis a major component of the U.S. foreign policy agenda. The U.S. government has undertaken efforts to strengthen worldwide protection of intellectual property rights through multilateral fora such as the General Agreement on Trade and Tariffs (GATT) and bilateral consultations with problem countries.8 Argentina, Brazil, Chile, and Mexico have agreed, pursuant to recent treaties, to raise their standards of intellectual property protection. How quickly increased standards of protection will be adopted, and what form those standards will take, remains an open question subject to many variables that we analyze in this essay.

Improved standards of protection for intellectual property rights in Latin American countries are still the product of foreign economic pressures and local political conditions.9 U.S. firms generating information-intensive technologies for export have been demanding that the United States impose trade sanctions or threaten to withdraw trade benefits as a way to punish Latin American countries' unauthorized use of intellectual property. Foreign pressure notwithstanding, the nascent attempts at intellectual property reform in Latin America can also be explained by favorable incentives within the political and economic systems of the region.

With the globalization of the world economy, Latin American countries are finding that maintaining competitiveness is a critical factor in development. The development and commercialization of applied knowledge is widely recognized as the main source of economic growth.10 Until recently, however, modern intellectual property rules were not applied by Latin American governments even when the benefits of such rules were recognized by business interests and by the countries generating the essential technologies needed for development.11 Even now, although formal protection may be available on paper, enforcement is largely nonexistent and even the best enforcement efforts are weak.

The forces explaining this inertia, as well as the causes behind the current emergence of regionwide intellectual property rights reform throughout Latin America, have been overlooked. This oversight is explained by the failure to recognize the costs and benefits of legal reforms as perceived by politicians and business leaders.12 In particular, the costs of enforcing intellectual property rights are seen by politicians in less-developed countries as a short-term liability hampering their chances for reelection and, among other things, reducing campaign contributions made by lobbies representing local pirate industries.13 In contrast, the benefits of defining and enforcing intellectual property rights are perceived as more distant and less tangible.14 As a result, there is a pronounced contrast in views between the United States, which regards the protection of intellectual property as a fundamental right comparable to rights over physical property, and Latin American countries, which regard the protection of intellectual property as an economic policy variable.

In this essay, we explain the forces behind the move to strengthen the protection of intellectual property rights in Latin America. First, we examine the double-sided problem of intellectual property rights reform epitomized by the lack of adequate standards for intellectual property protection and the failure of enforcement mechanisms. Because information can be easily digitized, copying information-intensive intellectual property such as computer programs, recordings, and pharmaceuticals is easier than ever before and costs American businesses increasingly greater revenue losses.

Second, we explain how, under the Uruguay Round of GATT, Latin America is committed to raising its standards of intellectual property protection. We also explore current attempts at reform and the problems impeding these and future reforms, such as the use of intellectual property as an economic and foreign policy tool, the short-term incentives for politicians facing reelection to support local pirate industries, and the institutional failure of courts and administrative agencies throughout Latin America.

Finally, we outline the impact that U.S. foreign policy and trade agreements can be expected to have on intellectual property reform within Latin America. Foreign economic pressures, coupled with regional trade pacts such as Mercosur, can be used to reconfigure the cost-benefit analysis of political and business leaders and to create incentives for Latin American countries to raise their levels of intellectual property protection in the near term. The Uruguay Round's Agreement on Trade-Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods (TRIPs) has established a forum for the arbitration of international intellectual property disputes within the World Trade Organization (WTO) and contains potentially effective enforcement mechanisms. We conclude that although Latin American nations have traditionally considered intellectual property to be "the heritage of humanity" rather than an asset to be privately held,15 as they struggle to attract world-class technologies to their shores, they are slowly realizing that, in the words of Yogi Berra, "we have seen the enemy and it is us."

Piracy of U.S. Intellectual Property in Latin America

Latin America does not possess a legal tradition of protecting intellectual property rights.16 Intellectual property can be best defined as "information with a commercial value."17 The most common forms of intellectual property rights are patents, copyrights, and trademarks. Patents protect the physical embodiment of technological information or inventive activity--the invention--rather than abstract thoughts. Inventions can include machines, manufactured articles, compositions of matter (such as chemicals), processes (such as a method for synthesizing a chemical product), designs, and genetically engineered products. A patent gives the holder, or patentee, the right to exclude others from making, using, selling, or offering to sell the product or process claimed by a patentee for a specific period of time, which in the United States is twenty years. This right protects the holder against subsequent discovery of another way to produce or use the patented product. After the patent expires, the invention is in the public domain and can legally be reproduced and sold by anyone.

Copyright law uses property rights to stimulate production and distribution of original and expressive information. A copyright protects the expression of an idea, but not the idea itself. Copyright law protects expressive, literary, and artistic works by authors, composers, and performers. The form of these works may include words, music, pictures, and three-dimensional objects. Fiction and nonfiction, poetry, plays, musical compositions, paintings, maps, sculptures, and motion pictures are examples of works covered by copyright. The creator is allowed the exclusive right to reproduce, distribute, display, sell, and perform the works; others can do so only with permission of the creator. In most countries, a copyright lasts for the life of the author plus fifty years.

A trademark is any work, name, or symbol used in trade to distinguish a product. Trademarks are symbolic information about the goods and services of a business, and they allow a firm to build product recognition. Brand names (such as Xerox), service marks (such as United Airlines), and certification marks (such as UL) that make a representation with respect to a product by someone other than the producer all receive trademark protection. Trademark protection prohibits others from making a product with a confusingly similar mark. As long as it is properly used, trademark protection never expires.

A few other forms of intellectual property protection exist internationally, although they are recognized only in the United States and a few other countries. One such form of protection is for a computer mask work, which is the layout of a semiconductor computer chip. The mask work represents the expression of the design elements of a semiconductor chip for which its creator holds exclusive rights. Mask work protection combines elements of a patent and a copyright.

Intellectual property rights in the form of patents, copyrights, and trademarks are granted by national governments and are enforceable only in the country in which they are granted. Once granted, they can be traded or licensed like other forms of personal property. The scope of intellectual property rights granted, and the degree to which those laws are enforced, closely reflects what a nation considers to be its best interests. Although the United States extends patent protection to seeds and plants, for example, the intellectual property laws of many Latin American countries explicitly or implicitly exclude most agricultural inventions.18 The level of protection in industrialized countries is generally high, whereas intellectual property protection in Latin America varies widely, with many products excluded from protection altogether.19 The enthusiasm with which intellectual property rights are enforced by Latin American governments varies even more than the level and scope of protection.

The Conflict between the U.S. and Latin American Approaches to Intellectual Property Protection and Enforcement

Latin America is plagued by two problems with respect to intellectual property: the lack of formal laws providing an adequate scope of protection and the failure to enforce existing laws against violators. The failure to enforce formal laws is as bad as the absence of laws altogether.

Although the terms piracy, counterfeiting, and infringement are frequently used interchangeably when discussing violations of intellectual property rights, they do not mean the same thing. Infringement is a legal term that refers to violations of a cognizable claim for which redress can be sought in the courts. Piracy and counterfeiting are generic terms for all unauthorized uses of intellectual property and usually refer to copying protected products for financial gain. In this essay, we refer to all unauthorized uses of intellectual property for financial gain, whether they are technical legal violations or not, as piracy. The distinction is important because much of what U.S. businesses refer to as infringement (copying of legally protected products) is actually copying of something for which most laws in Latin America provide no protection and for which businesses have no recourse in Latin American courts.

Latin American countries have traditionally been forced to import information-intensive goods and services. With the exception of Brazil and Mexico, primary goods are still the main component of these countries' gross domestic products.20 As a result, no local constituencies lobby for strong protection of intellectual property rights for information-intensive products. Instead, in most Latin American countries, high-technology products such as software and pharmaceuticals do not enjoy effective patent or copyright protection. This lack of protection has generated a hostile environment for foreign and domestic investment that has hampered the countries' economic growth potential.21

To the extent that Latin American countries do grant formal protection for intellectual property, they often take away with the left hand what they have bestowed with the right. Three of the techniques used by developing countries to weaken the protection afforded by intellectual property rights are issuing compulsory licenses, allowing parallel imports, and applying a working requirement test. Latin American countries have traditionally imposed compulsory licensing agreements as a condition precedent to granting and enforcing intellectual property rights. For example, if a foreign national wants to sell a particular product in Argentina, the firm must also license the right to make, use, and sell that product to local firms, often on fixed-rate royalty terms. Local intellectual property holders are marginally affected by such conditions because at present, Latin American nationals generate less than 1 percent of royalties from the licensing of intellectual property.22 The United States has always opposed compulsory licensing clauses, particularly if they are coupled with fixed royalty payments. Most Latin American countries also attempt to undercut the market power of a foreign national by allowing parallel imports--that is, by allowing competitors who have acquired the right to use a patent abroad to sell a copy of the patented product locally in direct competition with the patent's owner. Finally, a working requirement test means that unless the holder of a patent uses or produces (i.e., works) the innovation within the national boundaries, other producers wishing to use the patented technique will be entitled to a license even without the patentee's consent.

The strategy of weakening and destabilizing intellectual property protection, although perceived by Latin American governments to be in their best interest, conflicts sharply with the view of intellectual property held by the United States. The justification for intellectual property protection in the United States has always been that it provides an incentive to invent by rewarding creativity, thus encouraging innovators to spend their time and resources in research and development efforts, and that it stimulates the investment of resources needed to market the invention. By exchanging formal property rights protection for the inventor's disclosure of the information needed to reproduce the invention, the intellectual property system reduces the likelihood of duplication of effort by others and allows further advances in technology to be made based on the disseminated information. In exchange for revealing the information contained in the innovation, the innovator is granted the right to exclude others from using his or her idea. But the rights holder's exclusivity is only temporary: twenty years for a patent and the life of the author plus fifty years for a copyright.

U.S. Business Losses

Losses due to inadequate enforcement of intellectual property rights in information-intensive sectors such as pharmaceuticals, entertainment software, and motion pictures in Latin America cost U.S. businesses an estimated $3.4 billion each year (see table 1).23 Intellectual property rights help facilitate the transfer of technology from developed to developing countries. The most common means of legally transferring technology is through licensing, in which the holder of the intellectual property rights allows another person or entity to use those rights in exchange for payment of a royalty. Often, however, individuals and firms will make use of the intellectual property for financial gain without the owner's permission.

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Table 1. Estimates of U.S. Losses to Infringement and Counterfeiting in Latin America

Total Losses by Sector in Millions of Dollars
Pharmaceuticals	$1,686.0
Business software	1,141.5
Entertainment software	259.1
Motion pictures	174.0
Music	115.5
Books	70.5
TOTAL	3,446.6

Sources: Jeb Blount, "Hands of Steal," Latin Trade, November 1996, pp. 50, 52; Business Software Alliance (BSA, "1995 BSA/SPA Piracy Study Prepared by International Planning & Research (IPR)," manuscript, 18 December 1996.

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Because much intellectual property is produced only after considerable financial investment, the actual, perceived, and expected losses on the part of U.S. firms due to inadequate intellectual property protection influence the willingness of firms to transfer technology to Latin American countries.24 In the past, the value of intellectual property was based on its physical manifestations, but increasingly, the value of intellectual property is derived from the information it contains.25 The United States, as the world leader in creating information-intensive technologies, holds a tremendously valuable portfolio of high-technology rights and therefore stands to lose the most from inadequate protection.

Software, biotechnology, and semiconductor technology all involve industries in which the value of the information contained in or stored by the technology exceeds the value of the physical or mechanical product containing the information. Not only are these innovations information intensive, with the information they contain being the source of value, but they are rapidly evolving technologies that are a major source of export revenue for the United States.26 The nature of these technologies makes even their low-tech variations easy to copy. For example, a cassette tape duplicator, made in the United States and available in Brazil for US$4,000, can make three copies of a cassette tape in ninety seconds.

The strength of intellectual property protection in Latin American countries has a direct influence on the amount and type of technology transferred by U.S. firms to the region.27 The more information intensive the technology, the greater the reticence to transfer the technology in the absence of adequate intellectual property enforcement. Firms with intellectual property rights to chemicals, pharmaceuticals, machinery, and electrical equipment are significantly influenced by the strength of the regime of intellectual property protection in Latin American countries.28 For example, in the chemical and pharmaceutical industries, an average of 49 percent of American firms surveyed in various industries stated that intellectual property protection in Argentina was too weak to permit transferring their best and latest technology.29 For Colombia, that number was 55 percent; for Chile, 42 percent; for Mexico, 45 percent; and for Venezuela, 51 percent.30

Firms in the transportation equipment, metals, and food industries are not as dissuaded from investing in Latin American countries as are more information-intensive sectors.31 No U.S. firm surveyed from the metals industry stated that intellectual property protection in Argentina, Brazil, Chile, Mexico, or Venezuela was so weak as to prevent transferring their best and latest technology.32 In the food industry, the percentage of U.S. firms surveyed that felt intellectual property protection was too weak to permit transfer of their best and latest technology ranged from a high of 25 percent for Mexico to a low of 12 percent for Argentina, Chile, and Venezuela.33

U.S. firms find the strength of intellectual property protection abroad to be a factor more important to the decision to invest in a developing country than do Japanese and European firms.34 The United States is the country most aggressively lobbying to raise standards of intellectual property protection in Latin America "because few other countries are willing to make a stink about piracy, even when they have lots to lose.... Potential allies, such as Japanese video-game makers, German and Swiss drug concerns and British and French filmmakers prefer to walk softly and let the United States carry the big stick."35 Because 67 percent of U.S. exports are considered information intensive, compared with 44 percent for Germany and 51 percent for Japan, U.S. exporters have more of a stake in protecting intellectual property than do exporters in other industrialized countries36

Today's high-technology products, such as computer software and hardware, biotechnology, and pharmaceuticals, are extraordinarily information-intensive. Computer software, for example, is expensive to develop but easy to copy. In the pharmaceutical industry, the discovery process is resource intensive; once an effective drug is on the market, the compound is comparatively easy to synthesize.37 A copyist does not even need to invest much energy or creativity in figuring out how to copy a product because U.S. law requires that the inventor reveal to the world how to make and use the product in exchange for receiving a grant of intellectual property rights. As it becomes easier to copy information-intensive products, the incidence of piracy rises in Latin America. For example, the average price charged to consumers by Latin American pharmaceuticals for pirated antibiotics is 56 percent lower than the price charged for the patented product in the United States. Yet the pirate Latin American pirate pharmaceutical producers pay an average total cost of production that is 134 percent lower than the cost paid by U.S. producers.38 The difference between the U.S. and the Latin American average costs arises mainly because the pirate pharmaceutical industry does not pay the research and development costs of these antibiotics.

With so much at stake, it is no wonder that industrialized countries, led by the United States, have lobbied for protection of intellectual property rights in Latin America to be on a par with that of the developed world. The United States cannot protect the intellectual property of its own nationals in the international arena through domestic policy alone. International treaties specifically devoted to intellectual property rights protection, however, have been largely ineffective in dealing with piracy in Latin America.

The Failure of International Intellectual Property Treaties

The Paris Convention for the Protection of Industrial Property39 and the Berne Convention for the Protection of Literary and Artistic Works40 have been the primary treaties governing the international protection of intellectual property for more than a century. The Paris Convention covers inventions, trademarks, service marks, and industrial designs and requires each member to grant to nationals of other members the same protection that it grants to its own nationals. The Paris Convention, however, allows compulsory licenses to be issued at the discretion of the national legislation if the patentee does not work a patent. The Berne Convention, of which the United States is a member, is the principal international copyright convention and contains the most detailed provisions. It protects works "for the life of the author and fifty years." Despite its comprehensiveness, its lack of enforcement mechanisms has rendered it inadequate to meet the demands created by the dissemination of information in the age of digitization.

The Paris and Berne Conventions have provided a reasonable framework for the formal protection of intellectual property, but they have largely proven ineffective for dealing with piracy in Latin America for two reasons. First, any country at the time of accession can declare itself not bound by the conventions' dispute settlement provisions. Even in the absence of such a declaration, when a dispute reaches the International Court of Justice, the losing party can leave the relevant convention in order to avoid sanction. Furthermore, the conventions have delegated the determination of several important issues to the individual member nations. As a result, the principal complaint about the conventions, raised particularly by the United States and other countries generating information-intensive goods and services, is that some member nations do not adequately enforce the rights of intellectual property owners.

The second reason underlying the Paris and Berne Conventions' weakness is that Latin American jurisprudence regarding international intellectual property protection is based on two principles incompatible with international enforcement: territoriality and independence. The principle of territoriality holds that intellectual property laws must be enforced according to each nation's domestic rules. As expressed by the Calvo Doctrine, named after Argentine jurist Carlos Calvo (1824–1906) and adopted by most Latin American states in the nineteenth century, "aliens are only entitled to those legal rights and privileges enjoyed by nationals, and hence may seek redress for grievances only before local authorities and to the extent permitted by local law."41 The second principle, independence, maintains that the grant of intellectual property rights by one nation does not force other nations to grant the same rights.

Clearly, the principles of territoriality and independence are incompatible with the international harmonization of intellectual property rules. The effects of these doctrines have been reflected in Latin America's responses to international attempts to raise standards of intellectual property protection. For example, in 1987, fourteen developing countries, six of them (not including Cuba) in Latin America, proposed revisions to the Paris Convention that would have further weakened international standards of industrial property protection.42 These developing countries, however, failed to amend the convention mainly because of the firm opposition of the United States and countries within the European Union.43

As a result of the weakness of international enforcement mechanisms, the United States has realized that effective protection requires stronger foreign rules and enforcement procedures. One method of promoting legal reform has consisted of tying intellectual property issues to other foreign policy issues. As we demonstrate below, because information-intensive goods are a major U.S. export, tying intellectual property protection to trade sanctions has become an effective U.S. foreign policy tool.

The Road to Reform: GATT/TRIPs

On April 15, 1994, the United States entered into the Uruguay Round of the GATT negotiations. Through the TRIPs provisions, the Uruguay Round extends GATT's trade-liberalizing philosophy to the protection of intellectual property. TRIPs achieves several important objectives for international intellectual property protection: It mandates that the standard of intellectual property protection be raised in developing countries, including all of Latin America; promotes the transparency of rules governing intellectual property; applies the principles of national treatment and most-favored-nation treatment to intellectual property enforcement; and requires that all signatories establish and enforce a common paradigm of intellectual property rules. A brief explanation of the most important clauses of TRIPs, as applied to Latin America, follows.

Nondiscrimination. One of the most important features of TRIPs is the requirement of nondiscrimination: Member states must not favor the intellectual property rights of their own citizens against the intellectual property rights of citizens of other GATT members, and they must not favor the rights of citizens of one member country over those of another.44 The practical result is that products produced within Latin American nations by local firms are equivalent to imports of the same product. This principle formally establishes that importing an innovative technique, product, or process to Latin American countries is equivalent to producing it domestically.

Duration of intellectual property rights. The duration of a patent under TRIPs has been standardized to a minimum of twenty years from the date of filing;45 copyrights are standardized at fifty years on sound recordings and at least fifty years on motion pictures and other works.46 Trademark protection is established for seven years and is indefinitely renewable as long as the trademark is in use.47 TRIPs further requires contracting states to expedite, to the greatest extent possible, administrative procedures for granting patents in order to avoid a de facto reduction in the effective patent life.48 To the extent that this provision proves effective, it will be a boon for U.S. businesses, which have continually been frustrated by the long backlogs in granting intellectual property rights throughout Latin America.

Scope of intellectual property rights. Throughout Latin America, the list of products that have been declared ineligible for intellectual property protection is long and includes software, pharmaceuticals, and the products of biotechnology (e.g., genetically engineered organisms). TRIPs expands the existing scope of protection for trade secrets, computer programs, and databases. In the case of pharmaceuticals, although TRIPs extends the scope of what is patentable, it excludes natural or artificially produced biological material, animals, and plant varieties.49 The exclusions clearly represent a blow to the U.S. biotechnology industry, which dominates the world market for biotechnology products.50 TRIPs also confers on patentees the following exclusive rights: the ability to prevent third parties from the acts of producing, distributing, selling, or importing a patented product; the exclusion of third parties from using, selling, and importing a patented process; full protection of the product obtained through the patented process; and the flexibility to sell or license patent rights. Although protection for information-intensive products is not airtight, TRIPs represents an increase in the previous levels.

Licensing. This is an area where international disputes are common. TRIPs has failed to resolve the sources of conflict because it allows nations to grant compulsory licenses for "adequate remuneration" after considering each case "on its individual merits" and after attempting to negotiate "reasonable commercial terms" with holders of intellectual property rights.51 TRIPs specifies that compulsory licenses must be nonexclusive and of limited duration, but it then puts the fox in charge of the henhouse by mandating that appeals of compulsory licenses be subject to the jurisdiction of the nation imposing the license. The result is that even after TRIPs, Latin American countries are not being forced to change their compulsory licensing practices.

Transition periods for less-developed countries. TRIPs allows developing countries a ten-year grace period in which to extend intellectual property rights to categories of inventions that were previously unprotected.52 The TRIPs provisions do not require "pipeline" or retroactive protection for inventions that are covered under the new proposed laws but were not protected under the old laws. Both the grace period and the lack of pipeline protection are particularly troubling issues for U.S. investors in pharmaceutical industries in countries such as Argentina, where an enormous industry producing pirate pharmaceuticals has developed and where displacement of workers and capital is an economic and social concern.53

Enforcement mechanisms. The TRIPs agreement attempts to cure the problems in international market transactions of high-technology goods and services. It also provides benefits to those developing countries that have had limited access to high technologies because of their lack of technological capabilities. By providing clear and enforceable rules plus dispute settlement mechanisms through the WTO framework, TRIPs promotes the institutional capacity of developing nations to absorb complex technologies. In short, TRIPs is a source of international legal convergence.

Nevertheless, the legal international convergence toward U.S. standards of protection can be extremely slow. The speed at which intellectual property reform is carried out will be determined by the Latin American countries themselves. TRIPs has long transition periods during which developing countries are supposed to come into compliance with increased protection for intellectual property rights. As a result, the challenge facing the U.S. Trade Representative is to persuade Latin American countries to implement the obligations of TRIPs as quickly as possible. So far, the only countries to enact patent laws that approximate the standards set by TRIPs are Brazil (1996) and Mexico (1995).54 The process of determining when to respond to pressures to enact intellectual property law harmonization--whether earlier or later in the ten-year grace period--will be influenced by incentives operating on Latin American governments through U.S. foreign policy channels.

Improvements in the Intellectual Property Laws

Slowly, Latin American countries are addressing the issues of increased standards of protection and enforcement of intellectual property rights, but their efforts have met with mixed success. One commentator describes the scene:

Venezuela recently created its first "authors' rights task force" to pursue violators of copyrights, but the country's own national copyright registry burned down soon after. Argentine President Carlos Menem, targeting a 1933 law, decreed protection for computer programs, but a court said software couldn't be copyrighted. Paraguay indicated an intention to revise its pre-digital [intellectual property rights] laws and raided pirate factories, but the plants reopened within weeks.55

Peru's National Institute for the Defense of the Standards and Protection of Intellectual Property (INDECOPI) claims to be protecting the rights of intellectual property holders, but the incidence of piracy in that country does not appear to be diminishing.56 Intellectual property holders in Peru must pay for the costs of prosecuting violators, in addition to paying the bribes Peruvian police have demanded in exchange for conducting raids.57 Neither Argentina nor Columbia nor Chile provides intellectual property protection for pipeline pharmaceuticals that were in development before TRIPs took effect.

Among Latin American countries, Brazil, for one, appears to have made significant gains: In June 1996, Brazil passed a patent law that expanded the scope of subject matter that could be patented and granted pipeline protection for pharmaceuticals. But in so doing, it came under fire from the Roman Catholic Church, which objected to patenting living organisms created by biotechnology.58 Although Brazil now has the highest level of intellectual property protection in Latin America, piracy is still a problem; estimates credit Brazil with more than one-third of the market for pirated cassette tapes in Latin America.59

Clearly, the road to intellectual property reform in Latin America will not be easy. But Latin America has the goad of decades of failed development policies and disastrous economic planning prodding it toward adopting strategies that will allow it to develop and compete in an increasingly high-technology-driven world.

The Failure of Import Substitution

Brazil's reasons for raising its standards of intellectual property protection are simple. From a domestic policy perspective, Brazil's reforms correspond with the failure of the import substitution approach to development in Latin America. More than any other country in the region, Brazil until recently practiced an extreme version of this approach. From the early 1930s until the late 1980s, Brazil and other Latin American nations encouraged investment in domestic manufacturing as a substitute for imports, suppressed agricultural prices, expanded the size of public sector enterprises, and attempted to stimulate savings and investment through taxation and credit allocated by the public sector, all in the belief that amassing domestic physical capital was the key to development. Import substitution industries grew behind protective walls of subsidies and tariffs in a milieu where many other determinants of the rate of economic growth, such as investment in human capital and microeconomic incentives, were completely ignored by policy makers.

Protection of import substitution industries caused domestic prices and costs far to exceed international prices and created few incentives for efficiency. These protected industries produced substitutes for imports but usually depended on the import of raw materials and technology. Import demand grew rapidly as these firms imported capital goods to accelerate investment. The antiexport bias, combined with the import substitution program, caused a scarcity of foreign exchange, which in turn created a structural barrier to investment in expensive first-rate technologies. Within this environment protected from international trade, however, firms could still survive by investing in second-rate technologies. This import substitution strategy was applied to the domestic pharmaceutical and computer industries in Brazil.

The import substitution approach to development fell out of favor during the international debt crisis of the 1980s, when Latin American policy makers realized that internal markets and import substitution were not enough to assure sustainable growth.60 The demise of the import substitution model left Brazil in particular, and Latin America in general, with no other option for economic growth than to eliminate trade barriers and promote competitive exports through the incorporation of world-class technologies. As a result, countries such as Argentina, Brazil, Chile, and Mexico are being forced to reconsider many of their legal institutions, including their national intellectual property laws.61 In this context, international economic and political forces forced Brazil in 1996 to converge toward the intellectual property law frameworks prevailing in nations generating standard technologies.

At the same time, the privatization of state monopolies and the shift toward import competition produced a vast increase in the demand for high-technology products in Latin America. The United States experienced a 215 percent increase in exports of telecommunication and information technology to the region between 1988 and 1995. For Japan, that figure was 187 percent; for the European Union, 97 percent.62 In these cases, the vast increase in information-intensive goods and services exported to Latin America made it increasingly necessary to use U.S. foreign policy as a mechanism to promote intellectual property reform in Latin America. Specifically, the U.S. Trade Representative became a powerful force accelerating Latin American nations' willingness to reform their intellectual property laws to protect the rights of firms generating high-technology goods and services. It soon became clear that the international harmonization of intellectual property rules was a sine qua non for the transfer of complex technologies to the developing world.63

Impediments to Legal Reform

The U.S. approach to intellectual property protection has always been based on the philosophy that intellectual property rights were to be granted as a reward for innovation. The innovator receives the right to attempt to profit from an invention, and society benefits from the publication of knowledge that otherwise would have remained secret. In contrast to this spirit, Latin American nations have traditionally used intellectual property rights as an instrument for regulating technology transfer and avoiding paying royalties on innovations from the industrialized world. For example, in most Latin American countries the same government agency that registers patents also regulates foreign direct investment and technology transfer. Seeking to maximize scarce foreign exchange, these countries maintained a weak system of intellectual property protection so as to minimize the outflow of royalty payments.

Argentina, as a net borrower of ready-made know-how from the more technologically advanced economies, is a good example of preferring short-term benefits to long-term gains. Information technology has only recently been sought after in much of Argentina's private sector; small- and medium-sized enterprises still predominantly rely on adapting second-rate technologies to local conditions.64 Many reasons explain this. In Argentina, and indeed throughout Latin America, technological innovation has long been misrepresented as productive capacity embodied in physical capital. Public policy has not been devoted to enhancing future technological capabilities for the generation and absorption of applied knowledge. The importance of enhancing future technological capabilities simply has not been understood by policy makers. An example of this is the reliance on a tough "working requirement test" for patent protection. If an inventor ceased to use patented technology (to "work" the technology) for even a short period of time or used the technology in a way that ran counter to the wishes of the political system, the patent was revoked and the invention declared public property.

Latin American countries have been lax in their justifications for granting compulsory licenses and have also favored mandatory fixed royalty payments in accordance with a national policy of minimizing foreign exchange outflow.65 The working requirement test and other such barriers are also considered by most Latin American governments to be tools to avoid bottlenecks in the domestic production of "essential" products and to elude the exploitation of market power by foreign companies. Latin American governments also argue that, unless restrictions on foreign holders of patents are imposed, higher intellectual property protection would allow foreign companies to displace domestic producers and charge higher prices to consumers.66

By imposing unreasonable conditions for intellectual property protection, Argentina and other Latin American countries discouraged developed countries from investing their best and latest technology in the region. Much of the tacit knowledge "bundled" in complex technologies, which could be absorbed by a developing country without the requirement that an inventor work the technology, is lost under a weak regime of intellectual property protection in which inventors are not allowed to appropriate their returns.67 Until recently, Latin American legislators did not recognize that a relationship existed between a strong patent system and high levels of technological investment.

Political Cost-Benefit Analysis

The policies supporting weakly enforced intellectual property rights have also been depicted as a way to avoid displacing of domestic pirate industries. In the case of pharmaceuticals, well-known political and business leaders in developing countries have expressed ethical objections to improved standards of protection. Indira Gandhi's words have come to symbolize the strong opposition to granting intellectual property rights to pharmaceutical products in developing countries. In a famous speech, given before the World Health Assembly, she said that "the idea of a better ordered world is one in which medical discoveries will be free of patents."68 Nor is opposition to increased standards of protection limited to political leaders. The American Embassy in Buenos Aires has estimated that the pharmaceutical and software firms opposing enhanced intellectual property protection, and their associations, have consistently outspent foreign firms and their trade associations by a margin of nine to one.69 The pirate pharmaceutical industry in Argentina is worth $4.6 billion and supplies the rest of Latin America with pirated copies of U.S.-patented pharmaceuticals.

The feasibility of enacting intellectual property rights reforms depends on the politicians' assessment of the costs and benefits of providing enhanced protection. For example, in Argentina the costs of reform have been brought to the attention of Congress by powerful interest groups representing the pirate pharmaceutical sector.70 Mandated royalty payments, human and nonhuman resource displacement, and possible anticompetitive effects are all perceived by the Argentine pharmaceutical sector and its defenders in Congress as unbearable costs that would be created by the introduction of patent protection. In contrast, possible benefits, such as enhancing technology transfers and capital formation, assuring the disclosure of new knowledge, improving health and safety standards, and increasing global technological dynamism, have been perceived as long-term speculative gains. As a result, Argentinean administrations have viewed intellectual property protection as an issue subject to international negotiation. Thus, intellectual property laws have always been set ad hoc.71

Some case studies are noteworthy here. Patent laws were introduced in the presence of powerful domestic pirate pharmaceutical industries in Brazil in 1996, Mexico in 1991 (strengthened in 1995), and Italy in 1978. In the Mexican and Italian cases the perceived costs were overstated by local politicians a priori.72 It is too soon to reach a conclusion with respect to Brazil. Ultimately, Italy and Mexico experienced increased levels of investments and employment in their domestic industries.73 Moreover, the Mexican and Italian pharmaceutical sectors enjoyed lower average prices and enhanced foreign competition in an environment with lower market concentration ratios.74 When other variables are held constant, a statistically significant relationship arises between the increase in the U.S. direct investment in Mexican manufacturing during 1990–92 and an index of the perceived strengthening of the intellectual property enforcement mechanisms.75 The same can be expected for Brazil, as the recent law allowing patent protection for pharmaceuticals has been estimated to have attracted as much as $1.2 billion to Brazil in pharmaceutical investment.76

Factors affecting Improvements in Latin America's Intellectual Property Regimes

In the remainder of this essay, we discuss the factors that are expected to affect the convergence of intellectual property legal regimes in Latin America toward a standard of enforcement compatible with U.S. laws. These factors include (1) the creation of domestic and international enforcement mechanisms; (2) the use of trade sanctions as a means of enforcing intellectual property rights; (3) regional trade agreements that create incentives for Latin American nations to increase standards of protection and enforcement; and (4) increasing political stability and decreasing corrupt practices within the region.

International and Domestic Enforcement Mechanisms

The virtual absence of effective enforcement mechanisms in the Paris and Berne Conventions have hampered the possibilities of penalizing countries that infringe intellectual property rights. For the first time in history, a forum for the enforcement of international trade laws was conceived, first within GATT and now within the WTO. Trade-related intellectual property laws, as a result of the Uruguay Round, can now be enforced through arbitration panels. Moreover, consequential international penalties usually can be applied to countries that infringe patent and copyright provisions. Within this framework, the piracy of intellectual property rights contained in U.S. exports could be penalized in accordance with WTO-TRIPs rules. That is, after a favorable arbitration ruling, the United States could by law completely or partially bar Latin American exports from its market to penalize the infringement of American TRIPs. As a result, Latin American countries can no longer simply disregard international complaints. Thus the WTO legal framework is expected to enhance the chances of improving the enforcement of patent and copyright laws in Latin America.

On the Latin American domestic front, with the exception of Mexico, there are neither trained court personnel nor administrative agencies capable of enforcing intellectual property laws. Peru's INDECOPI attempted to protect patent rights after receiving complaints from domestic and foreign patentees. Yet the lack of personnel and administrative resources has made enforcement almost impossible.77 More generally, greater long-term benefits for supporting strong enforcement of domestic producers' patents are needed. A lack of domestic mechanisms of enforcement makes it difficult for business leaders to support reform.

Trade Sanctions

After the weaknesses of the Paris and Berne Conventions became apparent, countries generating information-intensive technologies, led by the United States and the European Union, began to apply unilateral pressure through their trade laws as a means of protecting their intellectual property rights and appropriating the returns from the increasing proportion of advanced-country exports classified as knowledge intensive.78 The demise of the import substitution approach to development has made the importation of technology critical. As a result, the reform of intellectual property laws will be more likely in Latin American countries that are moving toward free-trade policies, regional or otherwise.

In the United States, trade sanctions and the suspension of generalized system of preferences (GSP) benefits, which involve granting lower preferential tariffs and virtual duty-free access by developing country exports to the United States, have been effectively used for the past decade against Latin American countries that had inadequate standards of intellectual property protection. Such bilateral actions were based on carrot-and-stick economic arguments (1) demonstrating the benefits of enhanced intellectual property protection for Latin American economies (the carrot) and (2) threatening the loss of access to the United States and other markets through the reduction or elimination of GSP benefits, or the imposition of import restrictions in the United States under Section 301 of the Trade Act of 1974 as amended in 1988, or both (the stick element).79

Reductions in, or elimination of, GSP benefits and the imposition of import restrictions--or even retaliatory measures under Section 301--are delicate issues in Latin America, given the importance of the U.S. market as a source of demand for a large proportion of exports from Latin America. The United States and Canada absorbed 41.1 percent of overall exports from Latin America between 1983 and 1988, with eight Latin America countries placing more than half their exports there.80 Mexico, for instance, places almost 55 percent of its export volume in the U.S. market; Colombia, Peru, and Venezuela send between 30 percent and 40 percent; Brazil, about 30 percent; and Argentina, approximately 18 percent of total exports.81

For many Latin American countries, trade sanctions represent the possibility of export revenue losses. In October 1988, the United States imposed a punitive tariff of 100 percent against $390 million worth of Brazilian goods as a result of a Section 301 investigation of Brazil's refusal to grant patent protection to information-intensive technology.82 Argentina was subject to a Section 301 investigation of pharmaceutical patent protection in 1988, which was withdrawn in 1989 on the basis of expected legislative reform. The reform has never taken place. Argentina has recently enacted patent reform that is an improvement over the previous standards, but the new legislation neither provides pipeline protection nor eliminates compulsory licensing requirements. As a result, the United States has sanctioned Argentina with sharp reductions in its GSP benefits.

Regional Trade Agreements

Regional trade agreements are gradually becoming the main source of market-compatible legal reforms throughout Latin America.83 For example, four countries in South America (Argentina, Brazil, Paraguay, and Uruguay) plus two associates (Bolivia and Chile) have formed a trade union called the Common Market of South America (Mercado Comun del Sur, or Mercosur). Mercosur began as a free-trade agreement and later became a customs union with ambitious goals for harmonizing great bodies of substantive law, including intellectual property rights. In contrast to its regional predecessors, Mercosur was not marked by a top-down development strategy heavily dependent on presidential initiatives. Rather, foreign and domestic pressures led business, labor, political parties, and even government agencies and their organized constituencies to support legal reforms. As a result, the ensuing reforms, which are still ongoing, are more likely to be responsive to market pressures than the traditional model of reform by executive fiat.

The impetus to harmonize standards for intellectual property protection is dependent upon the degree to which countries involved in a trade agreement have compatible incentives for technological development. More specifically, countries with emerging high-growth sectors will experience private sector pressure to harmonize their intellectual property laws with those of countries experiencing the same changes. Because nonagricultural trade-related sectors of the economy have been most likely to demand information-intensive products, such sectors can be expected to lobby for improved intellectual property protection for nationally produced high technology and for free trade in foreign high technology.84 Traditional agrarian economies, in contrast, do not have the same incentives to reform their laws to protect the assets of their own or other nations' high-growth sectors.

To illustrate, imagine that two countries are attempting to harmonize their commercial laws. Country A has a code of private commercial laws that has not changed much in the past 150 years and possesses no nonagricultural sectors producing information-intensive products. (Bolivia, Colombia, and Uruguay fit this description.) Country B has relatively evolved commercial legal systems and a high proportion of trade concentrated in dynamic sectors. (Argentina, Brazil, and Chile fit this description.)85 Because the private sectors in countries A and B will demand different kinds of commercial legal frameworks, legal harmonization between the two countries will be difficult. For example, Bolivian and Uruguayan producers would demand a weak intellectual property regime in order to avoid paying high royalties to foreign patent holders. In contrast, Brazil would attempt to ensure that the intellectual property in its high-tech emerging sectors was well protected. Brazil would then gradually increase the standards of protection through better-defined property rights and a stronger enforcement mechanism (as it is now doing). At the same time, Brazil would start pressuring other countries within the trade agreement to improve their standards of protection for Brazilian high-tech products. As a result, legal convergence of intellectual property regimes would gradually occur within the free-trade area.

This hypothesis is supported by empirical historical evidence (see table 2 for the number of legal amendments introduced to commercial codes by Latin American countries from 1850 to 1990). Because all Latin American countries have civil law systems, official changes to the law are made solely through amendments to the legal code, not through decisions made by a court. Therefore, the number of amendments in the legal code is a good indicator of the degree of legal evolution over time.86 The three Latin American countries with the greatest number of amendments--Argentina (515), Brazil (521), and Chile (467)--are also the countries with the largest number of high-growth trade-related nonagricultural sectors: Argentina, sixteen; Brazil, fourteen; and Chile, eleven. These same three countries also have entered into the most international treaties aimed at harmonizing their commercial laws.

Table 2: Legal Amendments in Commercial Codes, 1850–1990

Country	Number of Amendments to Commercial Codes	Number of Trade-Related Nonagricultural Sectors	Number of International Legal Agreements
Argentina	515	16	31
Bolivia	19	1	3
Brazil	521	14	35
Chile	467	11	25
Colombia	9	0	7
Ecuador	14	1	6
Peru	56	0	12
Uruguay	12	1	5
Venezuela	5	2	1

If history is any guide, we can expect that, within a regional trade agreement like Mercosur, the high-technology sectors of countries that expect to gain the most from intellectual property reform relative to their neighbors will spearhead attempts to increase protection throughout the region. This explains the push for intellectual property and competition reforms and harmonization of laws among Argentina, Brazil, and Chile. The result will be a slow "pull to the top" as Argentina, Brazil, and Chile impose intellectual property reforms on their regional trading partners.

Incentives for the private sector to lobby to improve general standards of intellectual property protection in the near term are weak in countries that do not have national business groups lobbying for the protection of their information-intensive products. This is why private sector firms in Bolivia importing Brazilian computer software and hardware, compact discs, or movies do not have an incentive to lobby for the enactment of intellectual property laws compatible with the needs and interests of the Brazilian firms.87

Mercosur is composed of two countries (Argentina and Brazil) with overlapping economic structures that stand to benefit, vis-à-vis the other nations in the region, by increasing standards of intellectual property protection and two other countries (Paraguay and Uruguay) that are free riding in order to expand the relevant markets for their primary exports.88 Sectors such as agro-manufacturing, computer-related materials, food manufacturing, energy, and textiles in Argentina and Brazil supported TRIPs and its copyright and trademark laws (both of which are important sources of rents for their own information-intensive exports) and lobbied for the establishment of reliable dispute resolution mechanisms.89

In contrast, the private sectors in Uruguay and Paraguay, countries with agrarian economies, did not have the same incentives to support the harmonization of laws enhancing manufacturing activities.90 These two small economies may have joined Mercosur in order to increase the size of their export markets for agricultural and primary products and to avoid being politically isolated from the rest of the world, but their legal frameworks have not evolved far from their evolutionary bases and they have resisted the drive to harmonize their laws with the more developed legal frameworks of Argentina and Brazil. The agricultural private sectors of Uruguay and Paraguay do not see benefits from adopting intellectual property laws proposed by the industrial sectors of Argentina and Brazil. In fact, Paraguay has refused to enact intellectual property laws protecting products imported from Argentina and Brazil, and in turn, intellectual property infringement in Paraguay has affected Brazilian products to the point where President Hernando Cardoso of Brazil brought the issue to the latest summit of Mercosur presidents.91

This does not mean, however, that intellectual property reform will be absent in countries that predominantly produce agricultural products. Regional trade agreements such as Mercosur, by binding together countries that are striving to improve intellectual property protection with those that are not, create incentives for the latter to adopt reforms as part of a trade package. In the long run, the success of intellectual property reform in Latin America will depend on whether Latin American business leaders perceive the benefits of intellectual property reform to be higher than the expected costs.

Political Stability and Corrupt Practices

Finally, increased political stability also increases the chance that Latin American politicians and business leaders will support and adopt policies conducive to long-term gains, rather than treating intellectual property as an economic variable aimed at avoiding the short-term costs of paying royalties. With a more stable political environment subject to periodic elections, the political actors responsible for enacting legal reforms have a greater stake in the political system. Their chances of reelection make them and their parties long-term political players and able to capture the long-term benefits of the legal reforms they propose. In Latin America, intellectual property reforms would, as in Mexico and Italy, increase the flows of foreign direct investment into those sectors protected by patents.

Intellectual property law reform is feasible only when politicians perceive that the long-term benefits are greater than the short-term costs. In this context, only a stable political environment will give a politician enough time to capture the long-term benefits of his or her actions. The present relative political stability, supported by periodic elections and a greater access to public office, has created a environment where legal reforms requiring politicians to "think long term" are more feasible than ever before.

Nevertheless, it is also necessary to reduce the cost that politicians pay for supporting better laws. At present, members of Latin American legislatures who oppose the enforcement of patent and copyright laws receive financial support from domestic pirate industries. Therefore, a deputy or senator's support of legal reform would imply a high short-term cost. Interest groups representing pirate industries are currently buying the votes of members of Latin American legislatures where the enactment of patent laws seems more likely.92 For example, Argentina's CILFA is estimated to contribute an average of $60 million a year to the political campaigns of those members of Congress opposing stronger patent laws.93 In a country where contributions to politicians are neither supervised nor limited, this type of financial support makes corrupt political practices more likely.

The increasing flows of unsupervised financial contributions to members of Latin American legislatures, originating from groups representing pirate industries, are aimed at blocking the enactment of stricter intellectual property laws.94 These contributions are currently unmonitored in Latin America (except in Mexico). Therefore, to reduce the politicians' perceived costs of supporting legal reform, it is necessary to establish a close supervision of political campaign financing coupled with stiff penalties for those members of Congress who sell their votes. In this scenario, the fight against corruption would also enhance the likelihood of enacting and enforcing well-defined intellectual property rights.

Conclusions

In the final analysis, foreign political and economic pressures have provided the impetus for the current wave of intellectual property law reforms in Argentina and elsewhere. The marriage of convenience between intellectual property and international trade issues has caused Latin America to see the enforcement of intellectual property rights as one way to gain foreign market access under preferential terms while avoiding possible trade sanctions.95

Many Latin American governments are now following the bumpy and twisting road toward market-led growth and import competition after decades of failed import substitution policies.96 Reservations notwithstanding, the cost-benefit perceptions of many Latin American political and business leaders about intellectual property legal reform have begun to change during the past few years. TRIPs and the expected trade gains have tipped the balance in favor of introducing a stronger intellectual property framework that is more compatible with U.S. laws; the question now is how soon Latin American nations will implement increased levels of intellectual property protection. At this stage, we can expect domestic political forces, such as regional trade, to provide the essential engine of legal reform and regional political stability to allow governments to be able to reap the long-term benefits of those reforms. Yet, as shown above, U.S. foreign policy pressure is necessary to keep the momentum of legal reform going.

¹ Daniel Perle, "Big Drug Makers Push Egypt, Other Nations to End Their 'Piracy,'" Wall Street Journal, 13 December 1996, sec. A1, col. 1.

² John Schwartz, "160 Countries Set Treaties On Internet Copyrights," Washington Post, 21 December 1996, sec. A1, col. 1.

³ See Mitchel B. Wallerstein, Mary Ellen Mogee, and Roberta A. Schoen, eds., Global Dimensions of Intellectual Property Rights in Science and Technology (Washington, D.C.: National Academy Press, 1993), p. 66.

⁴Report of the United States Trade Representative's Intergovernmental Policy Advisory Committee (IGPAC) to the Congress of the United States on the Agreements Reached in the Uruguay Round of Multilateral Trade Negotiations, 14 January 1994, p. 22.

⁵ PhRMA, Opportunities and Challenges for Pharmaceutical Innovation (1996), p. 3 (citing Congressional Research Service).

⁶ See Edgardo Buscaglia and Jose-Luis Guerrero-Cusumano, "Quantitative Analysis of Counterfeiting Activities in Developing Countries in the Pre-GATT Period," Jurimetrics Journal 35(winter 1995): 221–41. In this essay, we use the term intellectual property to describe all types of intellectual and industrial property, including patents, trademarks, copyrights, trade secrets, and mask works. In many Latin American countries, however, the term intellectual property is limited to copyrights. Patents and trademarks are considered industrial property rights.

⁷ United States Trade Representative, Intellectual Property Rights Enforcement in China: Fact Sheet (1996), p. 1.

⁸ See Buscaglia and Guerrero-Cusumano, "Quantitative Analysis of Counterfeiting Activities in Developing Countries," pp. 225–26.

⁹ Edgardo Buscaglia, "Legal and Economic Development: The Missing Links," Journal of Inter-American Studies and World Affairs 35, no. 4 (1994): 153–69.

¹⁰See Nathan Rosenberg and L. E. Birdzell Jr., How the West Grew Rich: The Economic Transformation of the Industrial World (Bombay: Popular Prakashan, 1990); Dominique Foray and Christopher Freeman, eds., Technology and the Wealth of Nations (Boston: Little, Brown & Co., 1993), pp. 23–34.

¹¹Carlos Primo Braga, "The Developing Country Case for or against Intellectual Property Protection," in Strengthening Protection of Intellectual Property in Developing Countries, ed. Claudio Frishtak (Washington, D.C.: World Bank, 1990), pp. 69–87.

¹²See Edgardo Buscaglia, "Intellectual Property Laws in Latin America," paper presented at the American Law and Economics Association Annual Meetings at Stanford University, May 1995.

¹³For example, the pharmaceutical industry in Argentina is represented by its lobby CILFA. CILFA's total contributions to members of the Senate and Chamber of Deputies places it among the five largest pharmaceutical industry lobbies in the world. See Tomas Sercheri, "La Corrupcion y la Contribuciones de CILFA," La Razon, 17 May 1995, p. 18.

¹⁴See Carlos Primo Braga, "The North-South Debate on Intellectual Property Rights," in Global Rivalry and Intellectual Property, ed. Carlos Newell. (Ottawa: Institute of Research on Public Policy, 1991).

¹⁵The resistance to strong protection for intellectual property rights is magnified by moral considerations and by the open support of international organizations. For example, the policy recommendations of the United Nations Conference on Trade and Development (UNCTAD) have been based on the assumption that weak intellectual property protection benefits less-developed countries. See UNCTAD, Technology-Related Policies and Legislation in a Changing Economic and Technological Environment, TD/B/C/.6/146 (Geneva: UNCTAD, 1988).

¹⁶See Buscaglia and Guerrero-Cusumano, "Quantitative Analysis of Counterfeiting Activities in Developing Countries," p. 229.

¹⁷Carlos A. Primo Braga, "Trade Related Intellectual Property Issues: The Uruguay Round Agreement and Its Economic Implications," in The Uruguay Round and the Developing Economies, ed. Will Martin and L. Alan Winters, World Bank Discussion Paper No. 307 (Washington, D.C.: World Bank, 1995), p. 381.

¹⁸See Francis W. Rushing and Carole Garz Brown, Intellectual Property Rights in Science, Technology, and Economic Performance: International Comparisons (Amsterdam: North Holland, 1990), pp. 61–98.

¹⁹Brazil, for example, until recently denied protection for pharmaceutical products on the grounds that private property rights for pharmaceuticals would make the products prohibitively expensive and would create technological dependency. See Claudio R. Frishtak, The Protection of Intellectual Property Rights and Industrial Technology Development in Brazil (Montevideo: Editorial Paulista, 1990), pp. 89–99.

²⁰The World Bank, 1996 World Development Report (Baltimore: Johns Hopkins University Press, 1996).

²¹See Buscaglia and Guerrero-Cusumano, "Quantitative Analysis of Counterfeiting Activities in Developing Countries," p. 54.

²²See Carlos Primo Braga, "The North-South Debate on Intellectual Property Rights."

²³Jeb Blount, "Hands of Steal," Latin Trade, November 1996, p. 50, 52; Business Software Alliance, "1995 BSA/SPA Piracy Study Prepared by International Planning & Research (IPR)," 18 December 1996.

²⁴Edwin Mansfield, "Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation," in Global Dimensions of Intellectual Property Rights in Science and Technology, ed. Mitchel B. Wallerstein, Mary Ellen Mogee, and Roberta A. Schoen (Washington, D.C.: National Academy Press, 1993), p. 147.

²⁵The Organization of Economic Cooperation and Development (OECD) classifies a product as knowledge intensive whenever investment in research and development is more than 10 percent of the total cost of producing the product. Under the OECD classification, 56 percent of exports from advanced countries were considered knowledge intensive in 1992, up from 35 percent in 1965. See OECD, Economic Arguments for Protecting Intellectual Property Rights Effectively, TC/WP(88)70 (Paris: OECD, 1993).

²⁶Information-intensive technologies are not limited to, and should not be confused with, information technologies such as databases and communications.

²⁷Edwin Mansfield, Intellectual Property Protection, Foreign Direct Investment, and Technology Transfer, International Finance Corporation, Discussion Paper Number 19 (Washington, D.C.: World Bank, 1994), p. 1.

²⁸Ibid.

²⁹Derived from data provided by ibid., pp. 4, 7, 8.

³⁰Ibid.

³¹Edwin Mansfield, "Patents and Innovation: An Empirical Study," Management Science 32 (1986):173–81. See also Edwin Mansfield, Intellectual Property Protection, Direct Investment, and Technology Transfer: Germany, Japan, and the United States, International Finance Corporation, Discussion Paper Number 27 (Washington, D.C.: World Bank: 1995), p. 2.

³²Derived from data provided by Mansfield, Intellectual Property Protection, Foreign Direct Investment, and Technology Transfer, p. 4, 7, and 8.

³³Ibid.

³⁴Ibid., p. 1.

³⁵Blount, "Hands of Steal," pp. 51, 52.

³⁶See OECD, Economic Arguments for Protecting Intellectual Property Rights Effectively, p. 171.

³⁷Research and development expenditures on pharmaceuticals were estimated to be $15.8 billion in 1996. PhRMA, Opportunities and Challenges for Pharmaceutical Innovation, p. 9.

³⁸Felix Lobo, La Evolucion de las Patentes sobre Mediacamentos en los Paises Desarrollados (Caracas: Editorial Latinoamericano, 1988).

³⁹Opened for signature in 1883. As of 1996, 136 states were parties to this convention.

⁴⁰Opened for signature in 1886. As of 1996, 117 states were parties to this convention.

⁴¹For an analysis of the Calvo Doctrine, see Alden F. Abbott, "Latin America and International Arbitration Conventions: The Quandary of Non-Ratification," Harvard International Law Journal 17(1996):131.

⁴²See World Intellectual Property Organization, Communication from Argentina, Brazil, Chile, China, Colombia, Cuba, Egypt, India, Nigeria, Pakistan, Peru, Tanzania, Uruguay, and Zimbabwe, WIPO.GNG/NG11/W/71 (Geneva: WIPO Press, 1987).

⁴³In 1989, the United States Trade Representative announced a "Priority Special Watch List" of eight countries, including Argentina.

⁴⁴Articles 1 and 3 of the TRIPs agreement.

⁴⁵Article 33 of the TRIPs agreement.

⁴⁶Article 12 of the TRIPs agreement.

⁴⁷Article 18 of the TRIPs agreement.

⁴⁸Article 33 of the TRIPs agreement.

⁴⁹Article 27 of the TRIPs agreement. These exclusions, which are slated to be reevaluated this year, represented a victory for Latin America in the eyes of some GATT negotiators.

⁵⁰Given the long-standing opposition of many Latin American countries to the extension of patents to the pharmaceutical and chemical industries, the acceptance of GATT represents a major concession.

⁵¹Article 31(a), (b) of the TRIPs agreement.

⁵²Article 66(1) of the TRIPs agreement.

⁵³A comprehensive picture of these and other questions can be found in "Patents Farmaceuticas," Revista del Derecho Industrial, special edition, 35(May–August 1990). See also Alberto Bercovitz, "Historical Trends in the Protection of Technology in Developed Countries and Their Relationship to Protection in Developing Countries," UNCTAD/TT/Misc/75 (Geneva: UNCTAD, 1991); and Felix Lobo, "La evolucion de las patents sobre medicamentos en los paises desarrollados," Revista del Derecho Industrial 32(May–August).

⁵⁴Brazil's Law 12367 and Mexico's 1995 Patent Laws abolish compulsory licensing requirements and, for the first time, provide for training of court personnel and administrative agencies in charge of enforcing the laws.

⁵⁵Blount, "Hands of Steal," p.52.

⁵⁶Ibid., p. 57.

⁵⁷Ibid., p. 58.

⁵⁸Ibid., p. 54. The United States Supreme Court in 1980 declared in Diamond v. Chakrabarty that the products of biotechnology were patentable. 447 U.S 303 (1980).

⁵⁹Blount, "Hands of Steal," p. 56.

⁶⁰For a complete description of this process, see Edgardo Buscaglia Jr., "Law, Technological Progress, and Economic Development," Hoover Institution Working Paper I-93-5, International Studies Program, Stanford University (1993).

⁶¹See, for example, Argentina's Draft Law sent to Congress on 10 October 1991; Chile's Patent Law No 19,039; and Mexico's Patent Law (Ley de Fomento y Proteccion de la Propiedad Intelectual, D.O., enacted 27 June 1991).

⁶²See Bureau of National Affairs, International Trade Reporter (Washington, D.C.), 30 May 1996, pp. 766–69.

⁶³See GATT, Trade Policy Review (Geneva: GATT, 1990).

⁶⁴Gadbaw and Richards discuss the state of technological adaptation in Argentina but fail to explain the role played by import substitution policies. See Michael Gadbaw and Timothy Richards, eds., Intellectual Property Rights: Global Consensus, Global Conflict? (Boulder and London: Westview Press, 1988), pp. 189–90. Barton argues that countries generating advanced technologies have contributed to this state of affairs by imposing legal restrictions on technology exports based on national security concerns. See John Barton, "The Economic and Legal Context of Contemporary Technology Transfer," manuscript, Stanford University, 1992.

⁶⁵For a description of fixed-royalty compulsory licenses, see Gadbaw and Richards, Intellectual Property Rights: Global Consensus, Global Conflict?

⁶⁶Ibid., p. 134–36.

⁶⁷Seventy percent of potential foreign direct investment in Argentinian high-technology products is estimated to be lost due to a weak patent regime. For a study of the effects of tacit knowledge contained in complex technologies, see Martin Bell and Keith Pavitt, "Technological Accumulation and Industrial Growth; Contrasts between Developed and Developing Countries," Industrial and Corporate Change 2, no. 2 (1993): 157–209.

⁶⁸Gadbaw and Richards, Intellectual Property Rights: Global Consensus, Global Conflict, p. 57.

⁶⁹Mark Siegelman, "Intellectual Property Protection: Argentina," manuscript, Department of Commerce, pp. 8–14.

⁷⁰The two main trade associations representing the industry are the Industrial Center of Argentine Pharmaceutical Laboratories (CILFA) and the Latin American Pharmaceutical Industry Association (ALIFAR). Both have strong ties to key members of Argentina's two legislative branches. Millions of dollars in political contributions explain the influence of these associations in Congress. For more details, see Lobo, La evolucion de las patents sobre medicamentos en los paises desarrollados.

⁷¹For a historical account of Argentina's pharmaceutical industry, see Lobo, La Evolucion de las Patentes sobre Mediacamentos en los Paises Desarrollados.

⁷²See Buscaglia and Guerrero-Cusumano, "Quantitative Analysis of Counterfeiting Activities in Developing Countries," pp. 229–30.

⁷³Ibid., p. 229.

⁷⁴For more details, see Jeong-Yeon Lee, Ph.D. dissertation, University of Pennsylvania, 1993; and Mansfield, "Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation."

⁷⁵Lee, Ph.D. dissertation.

⁷⁶Schwartz, "160 Countries Set Treaties On Internet Copyrights," A8.

⁷⁷See Tomas Daniel Castillo, "INDECOPI y sus Fracasos," El Comercio (Lima Peru), 17 May 1996.

⁷⁸See OECD, Economic Arguments for Protecting Intellectual Property Rights Effectively.

⁷⁹A statistical abstract is available in the Inter-American Development Bank Report on Latin American Trade (Washington, D.C.: I.D.B., 1992).

⁸⁰Ibid. See also Buscaglia and Guerrero-Cusumano, "Quantitative Analysis of Counterfeiting Activities in Developing Countries," pp. 228–31.

⁸¹Inter-American Development Bank Report on Latin American Trade.

⁸²United States International Trade Representative, "Foreign Protection of Intellectual Property Rights and the Effect on U.S. Industry and Trade," Report to the United States Trade Representative, Investigation No. 332–245, at 67–69 (1988).

⁸³Edgardo Buscaglia, "Legal and Economic Development: The Missing Links," Journal of Inter-American Studies and World Affairs 35, no. 4 (1994): 153–69; see also Clarisa Long and Edgardo Buscaglia, "A Quantitative Analysis of the Legal and Economic Integration in Latin America," in The Law and Economics of Development, ed. Edgardo Buscaglia, William Ratliff, and Robert Cooter (Greenwich, Conn.: JAI Press, 1997).

⁸⁴See Buscaglia and Guerrero-Cusumano, "Quantitative Analysis of Counterfeiting Activities in Developing Countries," p. 227.

⁸⁵For a discussion of legal evolution in a civil law system, see Long and Buscaglia, "A Quantitative Analysis of the Legal and Economic Integration in Latin America."

⁸⁶In contrast, the United States has a common law system, in which formal changes to the law are made both by the judicial branch in its interpretation of the law and by the legislature through amendments to the United States Code. As a result, in a common law system, there is no one clear indicator of the degree to which the law evolves over time. See ibid.

⁸⁷Ministerio de Relaciones Exteriores y Culto de Argentina, Comunicado No. 342–92 (Buenos Aires: Biblioteca Historica de Relaciones Exteriores, 1992); United Nations Staff, World Economic Survey, 1994 (New York: United Nations, 1994), p. 67; and Long and Buscaglia, "A Quantitative Analysis of the Legal and Economic Integration in Latin America."

⁸⁸Secretariat of Economic Planning, Argentina, "Document No. 341-TA" (n.d.), pp. 3-6.

⁸⁹For more details, see Edgardo Buscaglia Jr., Maria Dakolias, and William Ratliff, Judicial Reform in Latin America: A Framework for National Development, Essays in Public Policy series (Stanford: Hoover Institution Press, 1995); and Edgardo Buscaglia and Maria Dakolias, "Judicial Crises: Court Delay and Backlogs in Latin America," Working Paper No. 87, Georgetown University School of Business Administration, Washington, D.C.,1995. In samples of sixty to one hundred firms per country, the majority of enterprises polled consider the judiciary to be "deficient." These businesses consider the lack of a reliable judiciary within Mercosur countries as one of the main reasons for necessitating a predictable dispute resolution mechanism. Buscaglia and Dakolias, "Judicial Crises," pp. 25–31.

⁹⁰Ministry of Foreign Affairs, Argentina, Informe del Ministerio de Relaciones Exteriores (Ministry of Foreign Affairs Report) No. 1345/HA34, 29 May 1994.

⁹¹Luis Castillo, "Mercosur y sus Conflictos," Trimestre Economico 4(1994):34–36.

⁹²See Edgardo Buscaglia, "Corrupcion y la Oposicion a la Ley de Patentes," El Comercio (Lima, Peru), 12 August 1996, p. 16.

⁹³Ibid.

⁹⁴Ibid.

⁹⁵The U.S. Generalized System of Preferences is an example.

⁹⁶For a complete description of the policies applied, see World Bank, 1991 World Development Report (Washington D.C.: World Bank, 1991).