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Fri, Nov 09, 2001 - Page 19 News List

WTO membership expected to force more R&D spending

INNOVATION Taiwan's companies are about to lose the subsidies and preferential treatment that have been stifling innovation for so long

By Dan Nystedt  /  STAFF REPORTER

One positive impact of Taiwan's entry into the WTO next week should be increased emphasis on research and development (R&D) by local companies, industry analysts say.

The WTO will force local firms to compete without subsidies or preferential treatment by the government -- and by enforcing intellectual property rights for all.

"Once you expend effort, you have to protect it. If you spend a lot of effort inventing something and it [is not protected] ... it is not going to encourage anyone to go forward and invent something new," said Elan Liao (廖怡蘭), head of the Biotechnology & Pharmaceutical Investment Programs Office under the Ministry of Economic Affairs.

"In the development of every country, it takes laws and their enforcement to educate and train people not to violate intellectual property," she said, pointing out that before America modernized, US firms borrowed liberally from ideas and inventions developed in Europe. "The older generation [in Taiwan] didn't really know there was such a thing as intellectual property protection."

This lack of understanding has hurt Taiwan. Companies today remain skeptical to the idea of spending a lot of money on innovation when competitors' products can be reproduced with ease. This skepticism has been part of the reason Taiwanese firms focus on manufacturing instead of R&D. Another reason is government subsidies.

According to the American Chamber of Commerce's 2001 White Paper, Taiwan's Bureau of National Health Insurance has spent years feeding the local pharmaceutical industry's obsession with manufacturing.

"The Bureau of National Health Insurance's reimbursement system does not reward innovation. Generics remain overpriced within the market," the document charges.

Under Taiwan's national health insurance system, the government is effectively the exclusive buyer of all medical products and services in Taiwan. The bureau maintains a "referencing price" system which frequently favors locally manufactured generic drugs over brand-name drugs developed by foreign companies.

The White Paper calls the practice "clearly a reward for products -- and therefore companies -- with little or no R&D infrastructure ..."

The downside for Taiwan is a dearth of companies with world-class R&D. Taiwanese firms take a "short-sighted" approach and chase short-term profits instead of investing in big research projects such as the development of new drugs, said one scientist who asked not to be named.

He said the development of a new drug, for instance, can cost up to US$500 million. Although this is a substantial amount of money, the potential long-term revenues from a breakthrough medication can be tens of billions of dollars. In Taiwan, research projects of this magnitude are the exclusive domain of government-sponsored institutes and universities, he added.

Aside from prying companies away from the government subsidy trough, upgrading intellectual property protection may also bring increased investment from foreign firms, according to Gerry Norris, a pharmaceutical executive with many years of experience in Taiwan.

"Being part of the world trading community at an official level like [WTO] does augur well for inward investment ...," he said. He pointed out that only a few weeks ago, the government amended and signed into law new patent regulations extending all patents that had a 15-year term to 20 years -- in line with WTO rules.

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