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VOL. IV, NO. 28 | December 2017

Intellectual Property Rights: The Deadlock in the EU-PH Free Trade Deal
by Rowell G. Casaclang

On 11 December 2015, the Philippines launched negotiations on its free trade deal with the European Union (EU), some three years after the two parties signed the Partnership and Cooperation Agreement (PCA). In addition to being a prerequisite to FTA negotiations, the PCA functions as a general framework of relations between the two sides in the political, security, economic, and development spheres. The agreement, however, is yet to be ratified by the Philippine Senate.

The Philippines is eager to forge a more binding agreement with EU, currently the world’s biggest trade bloc, for several reasons. The EU granted the Philippines the Generalised Scheme of Preferences Plus (GSP+) status in 2014, allowing it to export 6,274 eligible products to its market tax-free. A free trade deal with EU gives the Philippines permanent duty-free access to EU’s market on top of what GSP+ now offers and creates opportunities to attract bigger EU investments. The Philippines’ Department of Trade and Industry believes that a FTA with EU levels the playing field for the Philippines vis-à-vis other ASEAN economies that are also trying to close deals with that bloc. Singapore and Vietnam concluded negotiations with EU in 2014 and 2015, respectively.

The EU is aggressively pursuing bilateral trade agreements with ASEAN Member States primarily to facilitate its ultimate objective of sealing an EU-ASEAN trade deal in the future. EU has scaled down to bilateral negotiations following the decision of both parties to put regional negotiations on hold in March 2009. Likewise, EU previously cancelled a regional trade deal with the Community of Andean Nations due to opposition from Bolivia and Ecuador. The bloc has instead opted for bilateral talks with Peru and Colombia.

Plateful of priorities

Ten topics in the EU-Philippines FTA have been tabled for negotiation, namely, trade in goods; rules of origin; customs and trade facilitation; trade in services; investments; government procurement; intellectual property rights (IPR); competition policy, subsidies, and rules related to state-owned companies; trade and sustainable development; and legal and institutional issues. After two rounds of negotiations were completed in June 2016 and February 2017, there are no indications when the next rounds will take place. Negotiations with Japan, Mexico, and Mercosur1 were identified as priority by the European Council in 2017. In July 2017, EU and Japan finally agreed on a trade deal, ending a five-year on-and-off negotiation. The EU held several rounds of negotiation in 2017: five rounds with Mexico and four rounds with Mercosur. The EU is dead set to finalize these FTAs this year.

Why were talks between the Philippines and EU stalled then? The summary of the second round of negotiation somewhat provides a hint. The Philippine panel requested the EU negotiators to clarify provisions on several topics (i.e., trade in goods, customs and facilitation, dispute settlement, legal and institutions, and intellectual property) in the EU text. The EU’s IPR text in particular pushes for provisions which the Philippine side claims to be difficult to implement. The EU proposal on IPR covers rules on patents, trademarks, designs, undisclosed information, and plant varieties; copyright and neighboring rights; geographical indications; and IPR enforcement.

The EU places great value on IPR given the bloc’s heavy reliance on innovation industries and artistic and cultural works. With the enhanced protection of IPRs, EU aims to enable more European artists, investors, farmers, businesses, and publishers to market their ideas and products in third countries like the Philippines. Ultimately, EU wants to fulfil its primary objectives of IPR valorization (i.e., the account valuation of IPR assets for purposes of leverage financing) and protection of intangible assets. On the other hand, the Philippines’ IPR interests seek to maximize technology transfer arrangements and protect several items including geographical indication products and plant varieties.

Contentions over IPR

There are several issues concerning EU’s IPR proposal. First, many observers are worried about the restrictive nature of EU’s IPR regime. In particular, EU would like to impose data protection standards based on its current directive.2 EU Directive 2004/27/EC grants EU pharmaceutical companies eight years of data exclusivity, two years of marketing exclusivity, and a one-year extension of marketing exclusivity.3 As such, the proposed agreement on patents grants originators or innovator companies the sole right to place a medicinal product in the market. For a certain number of years, which is yet to be decided, the results of their preclinical and clinical trials will be protected from use by another company that wants to produce the same drug substance. It should be noted that data exclusivity provisions are not available in the Philippines so the imposition of data exclusivity standards alone could result in restraining local innovators from producing cheaper lifesaving medicinal products as well as in making affordable medicines inaccessible.

Data exclusivity standards have also appeared in other EU’s draft FTAs and have caused a stir with countries, such as Colombia, Peru, and India. Talks between EU and India were suspended since 2013 amid India’s strong opposition against measures that can cause delay in the supply of Indian generic medicines.

Second, EU seeks to impose longer terms of protection for copyright of all works, which include, among others, literary/artistic works, musical compositions, and cinematic/audiovisual works. For instance, copyright for a musical composition or cinematographic or audiovisual works shall run for the life of the owner plus 70 years following his death. The Philippines however subscribes only to a shorter period of copyright protection, which covers the lifetime of the author or producer and 50 years after his death. Extending copyright protection could delay the entry of artistic and literary works into the public domain.

Lastly, concerns also arise from widespread IPR-related problems facing both EU and the Philippines. Many European companies, mostly innovators in nature, view the Philippines as a hotbed of smuggling and counterfeit goods, activities that can cause significant damage to their brands’ images. A study by the University of Asia and Pacific revealed that about PHP 905 billion worth of products4 were smuggled into the Philippines from 2011 to 2015.

To be fair, the Philippines performs better on IPR protection and enforcement compared to some EU Member States. The Philippines was finally removed from the US Special 301 Review Watch List in 2013, after it resolved its failure for more than 20 years to fully implement WIPO Internet treaties and take out policies that limit the entry of pharmaceutical products. Several progressive strides have been done as well, particularly the strengthening of the Intellectual Property Code of the Philippines, which has been in effect since 1995. The EU, on the other hand, still has three of its members under the US watch list. Bulgaria is monitored for cases of online and cable television piracy along with Greece for online and software piracy. Romania is also cited for online piracy, unlicensed software use, and distribution of counterfeit goods.

Prospects for the Philippines

Securing a fair trade deal with the EU is of utmost importance. Therefore, it is crucial to ask if the agreement will ensure public welfare and, above all, bring about significant net economic benefits for the Philippines. As for the IPR topic, the proposed EU text is clearly more focused on what the intellectual property holders can gain. The Philippine team ought to push for a balance between the rights of the intellectual property holders and public interest, as what India and other EU prospective partners have been doing. The experiences of Singapore and Vietnam were quite different given that they offer data exclusivity periods for patent holders. However, both managed to get EU to agree to provisions that are in accordance with their national laws.5

Apart from the EU-Philippines FTA, it is also worth noting that it is in the Philippines’ best interest to strengthen its IPR regime in pursuit of economic gains. As a developing country, striving to create a stronger IPR environment facilitates technology diffusion and skills enhancement, among others, which can boost domestic innovation and promote long-term economic growth.

Endnotes

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1  Mercado Común del Sur or Mercosur is a trading bloc in South America founded in 1991 by Argentina, Brazil, Paraguay, and Uruguay. Its primary objective is to bring about free movement of goods, capital, services and people among its member states. Negotiations between Mercosur and EU started in 2000 but were stalled in 2004 amid disagreements regarding the level of trade liberalization in agricultural goods, services, and public procurement markets. Negotiations were re-launched in 2010 but were stalled again in 2012.

2  The proposed text mentions concurrence with TRIPS-Plus but apparently goes against its provisions. TRIPS-Plus simply provides for the protection of innovator companies against unfair commercial use but does not absolutely allow for data exclusivity.

3   Data protection standards for medicinal products were first introduced in EU in 1987.

4  The study found out that smuggling is rampant in eight critical industries, namely, petroleum, steel, resins, wood, cigarettes, sugar, palm oil, and automotive batteries. The most smuggled products are petroleum products, with worth estimated to reach PHP 680 billion during the period.

5  Both Singapore and Vietnam offer a five-year data exclusivity period. Vietnam, however, could lift the protection when the generic applicant managed to obtain permission from the original applicant/originator.

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CIRSS Commentaries is a regular short publication of the Center for International Relations and Strategic Studies (CIRSS) of the Foreign Service Institute (FSI) focusing on the latest regional and global developments and issues.

The views expressed in this publication are of the authors alone and do not reflect the official position of the Foreign Service Institute, the Department of Foreign Affairs and the Government of the Philippines.

Rowell G. Casaclang is a Foreign Affairs Research Specialist with the Center for International  Relations and Strategic Studies of the Foreign Service  Institute. Mr. Casaclang can be reached at [email protected]