Trade Policy Mix under the WTO : Protection of TRIPS and R&D Subsidies
AbstractThis paper provides a theoretical framework to explain why governments seek restrictions on IPR protection and allow R&D subsidies through multilateral trade agreements such as the TRIPS Agreement and the Agreement on Subsidies and Countervailing Measures. After 7 years of discussion, the Uruguay Round extends GATTs trade-liberalizing philosophy to worldwide use of subsidies as a secondary means to intervene in international trade. Through the Agreement on Subsidies and Countervailing Measures the WTO tries to preserve one of basic principles of GATTs philosophy : Fair Competition. The principle of Fair Competition is of particular importance in understanding the WTO. To harness GATTs trade liberalizing philosophy, the WTO as a successor of GATT takes this principle as objectives that are pursued through the enforcement and implementation of other principles, for instance the nondiscrimination and reciprocity. As an example of the fair competition principle, the WTO prohibited any type of export subsidies through the Agreement on Subsidies and Countervailing Measures, but allowed R&D subsidies. The allowance of R&D subsidies by the WTO is a puzzle because it is well known that R&D subsidization forms the prisoners dilemma when governments are active to set R&D policy. In order to find any reasonable logic to explain this puzzle, we focus on the interaction between strategic trade policy tools : R&D subsidization and IPR protection. Indeed, at an international level IPR protection has been a major focus of negotiations along with R&D subsidies. The WTO also requires member countries to strongly enforce patent protection through the TRIPS Agreement. In our analysis, it turns out that it is globally optimal to perfectly disseminate knowledge without IPR protection and to subsidize inventive firms by solving a problem that the weak IPR protection damages firms incentive to invest in R&D activities. However, current trade agreements do not match with our global optimum. We show that exporting countries may benefit at the expense of importers from a trade agreement to demand stronger enforcement on IPR protection because exporting countries experience the prisoners dilemma problem when both countries free ride on the rival firms R&D outcome. Therefore we conclude that it is possible to understand the TRIPS Agreement as an inefficient victory of the interests of northern exporting countries over those of southern importing countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 21758.
Date of creation: Dec 2000
Date of revision:
Contact details of provider:
Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org
More information through EDIRC
Trade Policy Mix; TRIPS; R&D subsidies; Agreements on Subsidies; Countervailing Measures;
Find related papers by JEL classification:
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-21 (All new papers)
- NEP-INO-2011-11-21 (Innovation)
- NEP-INT-2011-11-21 (International Trade)
- NEP-IPR-2011-11-21 (Intellectual Property Rights)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Qiu, Larry D. & Tao, Zhigang, 1998. "Policy on international R&D cooperation: Subsidy or tax?," European Economic Review, Elsevier, vol. 42(9), pages 1727-1750, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong).
If references are entirely missing, you can add them using this form.