TRIPS

& TRIMS: GENERAL PRINCIPLES

SANKALP JAIN*


TRIPS AGREEMENT: AN OVERVIEW

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS
Agreement) is the first WTO agreement requiring Members to establish a relatively
detailed set of substantive norms within their national legal systems, as well as requiring
them to establish enforcement measures and procedures meeting minimum standards. The
TRIPS Agreement is sometimes referred to as the first WTO agreement that prescribes
positive law. This factor alone might account for a more than typical level of controversy
as the Members deal, in many cases, with adopting rather far-reaching changes to their
national legal systems.

However, added to the uniquely positive aspect of the TRIPS Agreement is a negotiating
history that for a long time was highly contentious, particularly as between developed and
developing Members and the fact that the TRIPS Agreement touches upon sensitive and
important social issues. It is not surprising that the TRIPS Agreement has generated a
considerable amount of controversy among WTO Members, even if to date much of that
controversy has not resulted in formal dispute settlement proceedings. The TRIPS
Agreement addresses a wide range of intellectual property subject matter areas (copyright,
trademark, patent, and so forth). It also covers competitive markets, enforcement
measures, dispute settlement, and transitional arrangements.

TRIMS AGREEMENT: AN OVERVIEW

After the late 1980s, a significant increase in foreign direct investment, especially in
developing countries, took place throughout the world. Some countries receiving the
foreign investment, however, imposed numerous restrictions to protect and foster domestic
industries and to prevent the outflow of foreign exchange reserves. Examples of these

*
sankalp_jain11@yahoo.com.

Electronic copy available at: http://ssrn.com/abstract=2779518

restrictions include local content requirements (which require that locally produced goods
be purchased or used), manufacturing requirements (which require that certain
components be domestically manufactured), trade balancing requirements, domestic sales
requirements, technology transfer requirements, export performance requirements (which
require that a specified percentage of production volume be exported), local equity
restrictions, foreign exchange restrictions, remittance restrictions, licensing requirements,
and employment restrictions. Some of these restrictions distort trade in violation of GATT
Articles III and XI, and are therefore prohibited.

Prior to the Uruguay Round negotiations (1986-1994) that resulted in a well-rounded
Agreement on Trade-Related Investment Measures (TRIMs Agreement), only a few
international agreements provided disciplines for measures restricting foreign investment
and provided limited guidance in terms of content and country coverage. The OECD Code on
Liberalisation of Capital Movements, for example, requires Members to liberalize
restrictions on direct investment in a broad range of areas. The OECD Codes efficacy,
however, is limited by the numerous reservations made by each of the Members. In
addition, there are other international treaties, bilateral and multilateral, under which
signatories extend most- favoured-nation treatment to direct investment. Only a few such
treaties, however, provide national treatment for direct investment.

BASIC PRINCIPLES GOVERNING TRIPS & TRIMS

The basic principles under both the Agreement are as under:

1. Non-Discrimination

i. National Treatment - Each Member shall accord to the nationals of other Members
treatment no less favourable than that it accords to its own nationals with regard to
the protection of intellectual property, subject to the exceptions already provided in,
respectively, the Paris Convention (1967), the Berne Convention (1971), the Rome
Convention or the Treaty on Intellectual Property in Respect of Integrated Circuits. In
respect of performers, producers of phonograms and broadcasting organizations,
this obligation only applies in respect of the rights provided under this Agreement.

Electronic copy available at: http://ssrn.com/abstract=2779518

 Any Member availing itself of the possibilities provided in Article 6 of the Berne
Convention (1971) or paragraph 1(b) of Article 16 of the Rome Convention shall
make a notification as foreseen in those provisions to the Council for TRIPS.1

ii. Most Favoured Nation: With regard to the protection of intellectual property, any
advantage, favour, privilege or immunity granted by a Member to the nationals of
any other country shall be accorded immediately and unconditionally to the
nationals of all other Members. Exempted from this obligation are any advantage,
favour, privilege or immunity accorded by a Member:

a) deriving from international agreements on judicial assistance or law
enforcement of a general nature and not particularly confined to the
protection of intellectual property;

b) granted in accordance with the provisions of the Berne Convention (1971) or
the Rome Convention authorizing that the treatment accorded be a function
not of national treatment but of the treatment accorded in another country;

c) in respect of the rights of performers, producers of phonograms and
broadcasting organizations not provided under this Agreement;

d) deriving from international agreements related to the protection of
intellectual property which entered into force prior to the entry into force of
the WTO Agreement, provided that such agreements are notified to the
Council for TRIPS and do not constitute an arbitrary or unjustifiable

discrimination against nationals of other Members.2

1
Art. 3, TRIPs Agreement.
2
Art. 4.

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2. Exhaustion

For the purposes of dispute settlement under this Agreement, subject to the provisions of
Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the
exhaustion of intellectual property rights.3

3. Transparency

Members reaffirm, with respect to TRIMs, their commitment to obligations on transparency
and notification in Article X of GATT 1994, in the undertaking on "Notification" contained in
the Understanding Regarding Notification, Consultation, Dispute Settlement and
Surveillance adopted on 28 November 1979 and in the Ministerial Decision on Notification

Procedures adopted on 15 April 1994.4

NATIONAL TREATMENT

National treatment is regarded as one of the cornerstones of the WTO. Especially relevant
to our purpose here is Article III.4 of the GATT 1994, which requires national treatment with
respect to all laws, regulations, and requirements affecting the internal sale, offering for

sale, purchase, transportation, distribution, or use of imported goods.5 Similarly, national
treatment is provided for in Article XVII of the GATS and Article 3 of the TRIPs Agreement.
However, with regard to the GATS, national treatment is not an automatic requirement, but
is contingent on the concession of a Member making liberalization commitments in trade in
services. Provisions for national treatment are also found in the TBT Agreement, the
Agreement on the Application of Sanitary and Phyto-sanitary measures (SPS Agreement)
and the Agreement on Government Procurement.

The principle of national treatment is meant to maintain a competitive equality between
domestic products and enterprises on the one hand and those of other Members on the
other. Although the application of the national treatment principle varies according to

3
Art. 6.
4
Art. 6, TRIMS Agreement.
General Agreement on Tariffs and Trade, 1994, Art. III.4, Apr. 15, 1994, WTO Agreement in Legal Instruments.
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whether it applies to trade in goods, trade in services, or intellectual property.6 National
treatment is meant to establish a level playing field between domestic and foreign products
and enterprises. The scope of laws, regulations and requirements in Article III.4 of the
GATT, 1994 has been interpreted broadly to include any laws and regulations which might
adversely modify the conditions of competition between domestic and imported products in
the internal market.7 It is noteworthy that Article VIII of the GATS requires Members to
ensure that any monopoly supplier of a service in its territory, in the supply of the monopoly
service in the relevant market, neither acts in a manner inconsistent with that members
specific commitments nor abuses its monopoly position to act in other markets in a manner
inconsistent with commitments. This provision is somewhat similar to abuse control
exercised by domestic competition law authorities in some countries.

MOST FAVOURED NATION TREATMENT

The Most Favoured Nation (MFN) principle requires that a Member accord goods and
services of another Member treatment no less favorable than that it accords to goods and
services of all other Members. This principle also applies in the area of intellectual property.
This principle is designed to guarantee equal competitive conditions between goods and
services of different foreign members. It applies universally with regard to the GATT 1994,
the GATS, and the TRIPs Agreement, although the GATS allows a Member to attach a
reservation to this principle and exclude its application in part or in whole.

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GATT 1994 deals with trade in goods. In this area, the principle of national treatment is universal, which
should apply generally unless exempted by Article XX of the GATT 1994 or other provisions of the WTO
Agreements. In principle, a border measure on trade in goods should take the form of a tariff, and the tariff
rates should not exceed the concession rates agreed upon in trade negotiations. The principle of national
treatment enshrined in Article III.4 is to ensure that a tariff concession is not circumvented by an internal
measure that discriminates against foreign like-products. In trade in services, the principle of national
treatment is not a universal principle. It applies when a Member makes a concession that with regard to a
particular sector it grants national treatment to foreign providers of services. Also, it is often hard to
distinguish between border measures and domestic measures. For example, if a foreign insurance company of
a Member establishes a subsidiary in the territory of another Member and provides insurance services, this is a
type of trade in services. However, for the purposes of regulation of this insurance company, there are no
border measures similar to tariffs. In the area of intellectual property, national treatment was traditionally
envisaged in the Paris Convention and the Berne Convention even before the TRIPs Agreement.
7
Italian Discrimination against Imported Agricultural Machinery, BISD 7S/60, L/833 at para 12 (October 23,
1958).

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MFN treatment is provided for in Article I of the GATT 1994, Article II of the GATS and Article
4 of the TRIPs Agreement. Like the principle of national treatment, equality of competitive
conditions is broadly interpreted. In the Bananas case, for example, the Panel and the

Appellate Body held that Article II of the GATS should be given a wide scope.8 The MFN
principle, first embodied in treaties of friendship, commerce and navigation, was regarded
even in the inter-war years as an essential condition of the free and healthy development

of commerce between States.9 In the negotiations for the International Trade Organization
(ITO) the United States argued that an MFN provision was absolutely fundamental, and
the MFN provision included in the draft charter for the ITO became the first paragraph of

GATT Article I, essentially unchanged from the initial draft proposal of the United States.10

Article I of the GATT provides that with respect to customs duties and charges of any kind
imposed on or in connection with importation or exportation or imposed on the
international transfer of payments for imports or exports, and with respect to the method
of levying such duties and charges, and with respect to all rules and formalities in
connection with importation and exportation, and with respect to all matters referred to in
paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by
any contracting party to any product originating in or destined for any other country shall be
accorded immediately and unconditionally to the like product originating in or destined for
the territories of all other contracting parties.

There are two important aspects to this MFN provision which distinguish it from the MFN
provisions of past bilateral treaties. First, the inclusion of MFN in GATT made it a
multilateral not a bilateral obligation as it had been under friendship, commerce and
navigation treaties. Instead of having to conclude country-by-country treaties providing for
MFN treatment, by becoming a party to the GATT a state could obtain MFN benefits from all
other GATT contracting parties automatically. GATT applied MFN multilaterally. Second,
GATT opted for unconditional MFN. According to the terms of GATT Article I:1, MFN

8
European CommunitiesRegime for the Importation, Sale and Distribution of Bananas, WT/DS27/R;
WT/DS27/AB/R.
9
The World Economic Conference: Final Report 34, League of Nations Doc. C.356.M.129.1927.II (C.E.I.46)
(1927).
10
John H. Jackson, World Trade and the Law of the GATT 252 (1969)- A reference to government contracts
for public works was excluded from both the ITO and the GATT.

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treatment was to be provided immediately and unconditionally. GATT represented a clear
break from any notion of conditional MFN where MFN would be provided only in exchange

for some reciprocal benefit.11


The MFN principle is generally regarded as a cornerstone of the GATT.12 Although stated
explicitly in Article I:1, it is also found directly and indirectly in a number of provisions of the

GATT.13 It reflects the fact that a multilateral trading regime depends on non-discrimination
in that each party has to be able to ensure that its traders have equality of competitive
opportunities. And that is what MFN provided. As the Appellate Body pointed out in
Canada- Autos, the object and purpose of GATT Article I:1 is to prohibit discrimination

among like products originating in or destined for different countries. 14 Somewhat
circularly, the Appellate Body went on to say, that the prohibition of discrimination in
Article I:1 also serves as an incentive for concessions, negotiated reciprocally, to be
extended to all other Members on an MFN basis. Article I:1 provides more than an
incentive; it contains an obligation to extend such benefits at all WTO Members. The MFN
obligation is repeated in GATT Article II, which relates specifically to tariff bindings. Each
contracting party is required to accord to the commerce of the other contracting parties
treatment no less favourable than that provided for in its schedule of tariff concessions.

EXHAUSTION OF RIGHTS

Article 6 of the TRIPS Agreement provides that nothing in the Agreement will be considered
to address the subject of exhaustion of IPRs for purposes of dispute settlement. Although
virtually all Members understood Article 6 to allow each of them to adopt its own policies
and rules on the subject of national and international exhaustion, there was sufficient
concern over interpretative questions raised by certain Members that the Doha Declaration

11
See: International Law Commission [ILC], Draft Articles on Most-Favoured-Nation Clauses with
Commentaries, at 33-9. While many major nations moved to an unconditional MFN policy prior to War
World I, the United States changed to an unconditional policy in 1923.
12
Appellate Body Report, European Communities Conditions for the Granting of Tariff Preferences to
Developing Countries, 101, WT/DS246/AB/R (Apr. 20, 2004).
13
GATT: Arts. II, III (7), IV, V (2), (5) & (6), IX (1), XIII (1), XVII (1), and XX (j).
14 nd
John H. Jackson, The World Trading System: Law And Policy Of International Economic Relations 158-60 (2
edn., 1997).

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on the TRIPS Agreement and Public Health made clear that each Member is allowed to
adopt its own policies with respect to exhaustion, without being subject to dispute

settlement.15

The concept of exhaustion of IPRs may not be well known to those who are not familiar
with IP law. The concept exists because of a fundamental difference between intellectual
property and tangible (or physical) property. That is, IP is embodied in goods and services,
but it is not the goods and services themselves. Generally speaking, when a tangible product
(such as a can of soda) is sold and transferred, the seller has no further claim on the
product, and the buyer can dispose of it as he or she wishes. The holder of an IP right (such
as a trademark), on the other hand, generally does not give up his or her right to the IP
when a product that embodies it is sold and transferred. The IP holder continues to hold the
IP right.

The exhaustion question concerns whether that right can be used to control the further
disposition of the product. WTO Members have not agreed on uniform rules regarding
whether exhaustion of IPRs should have a national or international character. Under a
doctrine of international exhaustion, if a product is lawfully placed on the market in one
WTO Member, the holder of a parallel IP right in another Member is not able to control its
importation or resale based on that parallel IPR. Under a doctrine of national exhaustion,
the lawful marketing of the product in one WTO Member does not affect the rights of a
parallel IP holder in another Member, and the IP holder in the other Member may use its
parallel IPR to block the importation and further disposition of the product. Some WTO
Members follow a rule of international exhaustion, and some a rule of national exhaustion.
It is not uncommon for Members to have different exhaustion rules with respect to
different types of IPR.

While Article 6 and the Doha Declaration establish beyond doubt that each Member is
entitled to allow international exhaustion and so-called parallel importation of IPRs
protected goods, this does not mean that an exhaustion policy will never be challenged in

15
F. Abbott, T. Cottier, and F. Gurr, The International Intellectual Property System: Commentary and Materials
(Kluwer Law International, 1999).

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WTO dispute settlement. This is because the term exhaustion is not self-defining, and a
Member might bring a claim against another Member asserting that it has adopted an
unreasonable definition of the concept of exhaustion. Thus, a panel and the Appellate Body
(AB) might be called upon at some point to determine what the limits on the scope of the
exhaustion principle are.

TRANSPARENCY

The two-part requirement of transparency is also a cornerstone of the WTO. The first part is
the obligation imposed on Members of the WTO to publish or make publicly available all
relevant regulations before application, the requirement of impartial administration of such
regulations and the right to review decisions taken under them. The second part is the
requirement that Members give notice of governmental actions to the WTO and other
Members. The principle of transparency is provided for in Article X of the GATT 1994, Article
III of the GATS and Article 63 of the TRIPs Agreement. Provisions of transparency are
included in many other WTO Agreements in Annex 1A. This principle serves as the basis for
a rule- oriented foreign trade policy and for maintaining stability and predictability of the
trade law regulations of Members.

Transparency is a basic pillar of the WTO and it is a legal obligation embedded in Article X of
the GATT and Article III of the GATS and Article 63 of TRIPS. WTO members are required to
publish their trade regulations to establish and maintain institutions allowing for the review
of administrative decisions affecting trade, to respond to requests for information by other
members, and to notify changes in trade policies to the WTO. Transparency has a number of
important benefits. It reduces the pressure on the dispute settlement system, as measures
can be discussed in the appropriate WTO body. Frequently, such discussions can address
perceptions by a member that a specific policy violates the WTO; many potential disputes

are defused in informal meetings in Geneva.

Transparency is also vital for ensuring ownership of the WTO as an institution if citizens do
not know what the organization does, its legitimacy will be eroded. The trade policy reviews
are a unique source of information that can be used by civil society to assess the

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implications of the overall trade policies that are pursued by their governments. From an
economic perspective, transparency can also help reduce uncertainty related to trade
policy. Such uncertainty is associated with lower investment and growth rates and with a

shift in resources toward non-tradables.

CONCLUSION

Though support for national treatment was expressed in several controversial (and legally
non- binding) United Nations General Assembly resolutions, the issue of expropriations is
almost universally handled through treaties with other states and contracts with private
entities, rather than through reliance upon international custom. National treatment only
applies once a product, service or item of intellectual property has entered the market.
Therefore, charging customs duty on an import is not a violation of national treatment even
if locally-produced products are not charged an equivalent tax. Most favoured nation
relationships extend reciprocal bilateral relationships following both GATT and WTO norms
of reciprocity and non-discrimination. In bilateral reciprocal relationships a particular
privilege granted by one party only extends to other parties who reciprocate that privilege,
while in a multilateral reciprocal relationship the same privilege would be extended to the
group that negotiated a particular privilege. The non-discriminatory component of the
GATT/WTO applies a reciprocally negotiated privilege to all members of the GATT/WTO
without respect to their status in negotiating the privilege.

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 BIBLIOGRAPHY


LIST OF AGREEMENTS

1) Agreement on Trade-Related Aspects of Intellectual Property Rights, 1995 (TRIPS
Agreement)

2) Agreement on Trade-Related Investment Measures, 1995 (TRIMs Agreement)

3) General Agreement on Tariffs and Trade, 1994 (GATT)

4) General Agreement on Trade and Services, 1995 (GATS)

LIST OF BOOKS

1) C. Correa, Integrating Public Health Concerns into Patent Legislation in Developing
Countries (South Centre, 2000).

2) Daniel Gervais, The TRIPS Agreement: Drafting History and Analysis (2003).

3) F. Abbott, T. Cottier & F. Gurry, The International Intellectual Property System:
Commentary and Materials (Kluwer Law International, 1999).

4) John Jackson, The World Trading System: Law And Policy of International Economic
Relations (1997).

5) John Jackson, World Trade and the Law of the GATT (1969).

6) K. Maskus, Intellectual Property Rights in the Global Economy (IIE 2000).

7) Peter Van Den Bossche, The Law and Policy of the World Trade Organization-Text,
Cases and Materials (2005).

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LIST OF ARTICLES

1) D. M. McRae & J. C. Thomas, The GATT and Multilateral Treaty Making: The Tokyo
Round, 77 American Journal of International Law 51 (1983).

2) F. Abbott, Technology and State Enterprise in the WTO, in Cottier, T. and Mavroidis
P. (eds.), World Trade Forum: State Trading in the Twenty- First Century 121 (Uty.
Mich. Press, 1998).

3) F. Abbott, The Doha Declaration on the TRIPS Agreement and Public Health:
Lighting a Dark Corner at the WTO, Journal of International Economic Law 469
(2002).

4) J. Reichman, Securing Compliance with the TRIPS Agreement after U.S. v. India,
Journal of International Economic Law 585 (1998).

5) McRae Donald M., GATT Article XX and the WTO Appellate Body, in Marco
Bronckers & Rienhard Quick (eds.), New Directions in International Economic Law:
Essays in Honour of John H. Jackson 219 (2000).

6) Ustor Endre, Second Report on the MostFavouredNation Clause, 2 Yearbook of
the International Law Commission 199 (1983).

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