The Office of the US Trade Representative reiterated a few days ago that the US-Taiwan Trade and Investment Framework Agreement (TIFA) meetings have been cancelled. Whether any more of these meetings will be held will depend mainly on the successful reconciliation of the two sides' differing views, with intellectual property rights (IPR) being the top priority. The US has always seen the existence and continuation of the TIFA meetings as a premise for further talks regarding a free trade agreement.
This is not an isolated occurrence. The white paper on unfair trade published on March 29 this year by Japan's Ministry of Economy, Trade and Industry also directs harsh criticism at Taiwan. The fact that two of Taiwan's most important trade partners single out the issue of intellectual property rights shows that we can no longer ignore the importance of this issue.
Taiwan has received crucial US assistance in its bid to gain accession to international organizations such as APEC and the WTO, but has also been on the receiving end of much US criticism during bilateral trade talks. The deepest difference of opinion involves IPR, including copyrights, patents and trademark rights. The US hopes that Taiwan will create legislation that goes further than the WTO trade-related aspects of intellectual property rights standards (TRIPS). The basic reason for this is that the US does not feel confident in Taiwan's ability to implement legislation or prohibit piracy. It therefore hopes that severe punishment and strict legislation will have some deterring effect to make up for shortcomings in implementation.
From a long-term perspective, because marginal profits on investment are going down, sources of economic growth will include "innovation." The question of how to allow innovators to reap the profits of innovation or, to put it in other words, how to guarantee their property rights, is key to guaranteeing that economic activities continue to bring forward new or innovative concepts.
From this point of view, IPR, like other property rights, involve considerations of economic incentive. However, if numbers of users are made the standard for evaluating economic efficiency, the use of IPR will diminish as a result of the need to support license fees, and this obviously does not meet demands for economic efficiency. In other words, the protection of IPR should find an equilibrium somewhere between technological development and technological dissemination.
Beginning in 1997, Taiwan has been amending IPR-related legislation. Forty-three percent of software in Taiwan is pirated, which is lower than the Asia Pacific average of 55 percent. That was a decrease of 10 percentage points when compared with the figures two years earlier. In 2001, the US company IBM collected over US$1 billion in fees from licenses originating in its patents, more than one-tenth of IBM's gross profits, which shows that such fees have become a major source of income.
Last year, Japan for the first time, experienced a surplus in patent-related license fees. This shows that, regardless of whether we are talking about a nation or a corporation, IPR will become an increasingly important part of economic growth. IPR are driving the development toward a knowledge economy, and are an important foundation for industrial transformation. Japan has already proposed the goal a "nation built on intellectual property rights," and Taiwan should follow suit. Most important is that we stick to our own rate of development and do not wait for "external forces" to apply pressure.
Honigmann Hong is an associate research fellow in the Division of International Affairs at the Taiwan Institute of Economic Research. Lu Yi-hsun is an assistant research fellow at the institute.
Translated by Perry Svensson
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