Many MNEs (multinational corporations) are deeply concerned about the prospects of trade and environment included in a new round. Overall, world trade has continued to expand more rapidly than world gross national product, thus contributing further to the importance of international markets. China responds to political and economic changes in order to compete in the world’s market attracting foreign partners and FDI. In contrast to European countries, China has weak legislation and legal protection which create difficulties and risks for MNEs to enter this country.
The legal environment is defined as “Industrial and commercial property rights such as trademarks, patents and copyrights gives their owner some protection against the competition by giving him monopoly rights for a certain period of time as a reward for his endeavour or acquired goodwill in his product“ (Steiner and Woods 2003). Intellectual property abuse is one of the main problems in developing countries like China.
The case of Transrapid Shanghai portrays that an international corporation needs a strong legal rules abd patent ptotection to operate in China nad remain competitive. The main problem for international companies is a difference between EU and Chinese legal laws and regulations applied to trade operations and business practices. Today, trade and intellectual property in the EU is rules by the following laws: 2004 First IPR Enforcement Directive (Civil Enforcement), international convention and Second Intellectual Property Rights Enforcement Directive Criminal Measures (2007).
In comparison with EU regulations, Patent Law in China is not well developed. Addressing the relationship between the TRIPS Agreement and environment, the CTE focuses in its deliberations on two main issues: the generation of, access to, and transfer of environmentally sound technologies, and the contradiction between the TRIPS Agreement and the Convention on Biological Diversity. In regard to the first issue, the question concerns what happens if TRIPS put such technologies beyond the reach of developing countries. This would undoubtedly have a negative impact on the environment and on the stringent efforts developing countries are making to cope with the environmental requirements (www.wto.org).
It is true that Article 7 of the TRIPS Agreement stipulates that patenting should encourage the promotion of technological innovation and the transfer and dissemination of technology, to the mutual advantage of producers and users and in a manner conducive to social and economic welfare Chinese legal environment is subjected to WIPO (World Intellectual Property Organization), Paris Convention and Madrid Agreement.
Before TRIPS, countries like Egypt, India and China did not impose strong patent restrictions on its domestic industries, which supported the development of its industries by allowing them to use different methods to produce mainly products developed by Western companies. In contrast to EU environment, in China enforcement particularly difficult which create a risk for international companies and their intellectual property rights (Wang 43).
The advantages of doing business in Chine involve market size, sustainable economic growth, a shift towards international standards of intellectual property. In 2001, Chinese economy has continued to progress in this way, and currently foreign countries with branches and interests in China. On December 11 2001 China entered into the World Trade Organization which opened new opportunities for international trade.
The global stock of FDI increased greatly between 1984 and 2002 and reached $7,200 billion in 2002. “Total sales in the North American market came to $310.6 billion (34.2% of total overseas markets) whereas in China including Hong Kong the figure amounted to $130.5 billion. In terms of total local sales, with the gap widening to about 4 to 1 (the former reached $295.2 billion while the latter was only $70.6 billion” (Kwan 2004).
Push towards international intellectual standards and laws improve position of China on the global market. Chinese government protects its own producers by imposing double-digit import tariffs. When China entered WTO these policies were reduced in order to meet international regulations and rules. Protective tariffs are relatively high since they are designed to protect domestic industry (www.worldbank.org). The purpose of a protective tariff is to bring the price level of the imported goods up to that of domestic substitutes. In contrast, revenue tariffs are quite low since they are designed to generate maximum revenue for the government.
The impact of tariffs upon individual business firms is usually direct. Costs and prices of competitive products are affected. Companies often do things that they otherwise would not do, particularly in response to a protective tariff. China followed WTO restrictions and reduced its tariffs from “from 10.4 percent in 2004 to 9.9 percent in 2005” (China Daily, 2004). China develops its tariff system and its classification according to the International Conventions including such tariffs as protective and revenue tariffs. On the other hand, the main problem for China is increased rate of protective barriers used by European countries and the USA against Chinese goods.
The main tariffs include the Customs tariff and duty rates. As nations become more economically integrated as a result of ongoing efforts to promote trade and investment liberalization, they need institutional support to promote collective action in response to global-scale risks of market failure (Directive on criminal measures 2005). Only the WTO is available to play the role of facilitator of economic interdependence, coordinator of negotiations on the terms of integration, and referee for international economic disputes.
The WTO must facilitate regulatory cooperation at the global scale to prevent the economic inefficiency and social welfare losses (not to mention the environmental harms) that might accrue from such trans-boundary pollution. However, the line between legitimate and illegitimate environmental standards will often be unclear, leaving the WTO to sort out which side a particular activity falls on. Whereas the knowledge developed in scientific laboratories is protected as “property,” the more informal, traditional systems are open to appropriation because they are the “common heritage of humanity” and are therefore open to plundering.
Although these biological materials brought into Western seed banks, gene banks and laboratories are freely collected, these materials can be extracted, “improved” and designated as private property (Wang 36; www.wipo.int; www.iacc.org).
The fact that the legislations and policies have changed means that in the Chinese economic system the first step in the change has taken place. Change is not made by just one step, it is a process. People who have grown up and lived with a certain way of doing things cannot simply make the change because they are told by their leaders that change is underway. The main risks in China are connected with current legislations and regulatory environment.
They involve loss of sales and profits, loss of image and danger of sustainable damage. The current situation suggests that decreasing consumption in Europe and increasing competition could cause the decrease in prices. Because the global intellectual property laws pushed by the U.S. do not recognize collective innovation, indigenous communities cannot benefit through existing patent law from the sale of products derived from their own knowledge of plants.
At the same time, the Eurocentric concept of individual authorship that is embodied in intellectual property law enables corporate researchers to file patents under their own name or the company that employs them. Intellectual property laws, which are first and foremost property laws, do nothing but exacerbate the unequal distribution of wealth between rich and poor nations by ensuring that those who already own property are able to use that power to increase their proprietary holdings.
North American and European countries, particularly the United States, have led an unrelenting battle against developing countries to force them to adopt an intellectual property system that is advantageous to these already wealthy countries. TRIPS imposes minimum standards on copyright, patent, trademarks and trade secrets standards that are much more stringent than the legislation in developing countries, and which often run counter to their national interests. Significantly, multinational pharmaceutical and agribusiness companies, represented by Western governments, helped to develop aspects of this global intellectual property code (Samli 150).
The facts mentioned above show that expected profits from doing business in China are not outweighed by the risk of damage caused by intellectual property abuse. China, as a part of global economy, has improved its patent laws and regulations in order to meet international standards and attract investors. Many patient laws become a real threat for Chinese businesses and corporations. At the same time knowledge of indigenous peoples is rendered unpatentable, these same people are expected under TRIPS to pay for the Western “knowledge” that is increasingly entering their countries. Intellectual property abuse can influence short-term strategies and goals of the MNEs but it will not have a great impact on long-term strategies.
Also, it is important to note that intellectual property abuse will influence small businesses rather than large corporations able to protect their rights and intellectual property. The perception knowledge can only be created in powerful companies able to appropriate their resources and protect their intellectual property. EU’s pressure on developing countries to pass TRIPs compliant intellectual property legislation ensures that these countries will be able to gain a monopoly over the production of these products not only in the First World but in developing countries as well.
Works Cited
Kwan, Ch. H. China in Transition. 2004. Web.
Directive on criminal measures aimed at ensuring the enforcement of intellectual property rights proposed IPRED2 (Second Intellectual Property Rights Enforcement Directive). 2005. Web.
Samli, A. C. In Search of an Equitable, Sustainable Globalization. The Bittersweet dilemma. Greenwood publishing Group, 2002.
Steiner. J & Woods.L Textbook of EC Law´, 8th Edition, Oxford:Oxford University Press), 2003.
Wang, Chinese Commercial Law:. Oxford University Press, USA, 2000.