Incomplete Harmonization Contracts in International Economic Law: Report of the Panel, China - Measures Affecting the Protection and Enforcement of Intellectual Property Rights, Wt/Ds362/R, Adopted 20 March 2009

Abstract:     
In China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights, the Panel addressed three main issues: 1. The relationship between China’s censorship laws and its obligations to protect copyright under the WTO Agreement on Trade Related Intellectual Property Rights (“TRIPS”). 2. China’s obligations under TRIPS to ensure that its customs authorities be empowered to dispose properly of confiscated goods that infringe intellectual property rights. 3. Whether China’s volume and value of goods thresholds for application of criminal procedures and penalties with respect to trademark counterfeiting or copyright piracy comply with TRIPS requirements for application of criminal procedures and penalties.

International trade agreements are generally intended to cause states to internalize policy externalities. The policy externalities that arise from domestic decisions regarding intellectual property protection may deprive foreign intellectual property owners of the monopoly profits that they would otherwise derive from intellectual property protection. In connection with intellectual property protection, even a state that lacks “traditional” market power on world markets may be able to impose terms of trade externalities on other states by reducing its protection of intellectual property below the global optimum. For this reason, and because of the international public-goods aspects of intellectual property, states have incentives to undersupply intellectual property protection. At least in part, TRIPS seems to be an attempt to reduce these policy externalities. All contracts, and all international treaties, are incomplete. This case involves some good examples of treaty incompleteness. Incompleteness can arise from circumstances of uncertainty regarding the possible tradeoffs, and the optimal balance, between different goals, including state autonomy in censorship on the one hand and internalizing policy externalities in intellectual property protection on the other. We analyze the possibility that it might be efficient to allow states broad discretion over censorship. Alternatively, in connection with the requirement for criminal penalties, incompleteness can arise from uncertainty regarding the particular industry structure that might be involved, and what would constitute production of “commercial scale” for that industry. We also question the rationale for the limitation on the use of non-violation complaints in connection with the TRIPS, since non-violation complaints may be used to reduce the possibility that states will use discretion, such as that granted with respect to censorship, in a manner that is inconsistent with the rationale for that discretion - so as to defect from the general commitment to provide copyright or other intellectual property rights.

Keywords: Trade, Intellectual Property, Harmonization, Incomplete Contracts, Nullification Or Impairment, TRIPS

JEL Classification: F10, F13, K33, O34

working papers series