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Unilateral Tariffs and the Risk of Intellectual Property Retaliation – A Multilateral Trade Perspective
Unilateral tariffs risk intellectual property retaliation
Context: The rise of unilateral tariffs, particularly by major economies like the United States, has disrupted the stability of the multilateral trading system. In response, some countries are exploring retaliatory mechanisms beyond conventional trade restrictions—especially through the suspension of Intellectual Property Rights (IPRs).
Evolution of Cross-Sectoral Trade Norms: WTO, Uruguay Round and Legal Alternatives
- WTO and the Uruguay Round: Foundation of Multilateral Trade Rules
- The Uruguay Round (1986–1994) was a landmark in international trade negotiations.
- It transitioned the global trading system from GATT 1947 (focused on goods) to a more inclusive framework encompassing:
- Services
- Intellectual Property
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- It led to the formation of the World Trade Organisation (WTO) and crucial agreements like:
- TRIPS (Trade-Related Aspects of Intellectual Property Rights)
- GATS (General Agreement on Trade in Services)
- Key Innovation – Single Undertaking Principle
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- All WTO agreements became uniformly binding on member states.
- Facilitated cross-sectoral negotiations and reciprocity, enabling more integrated dispute resolution.
- Under Article 22 of the Dispute Settlement Understanding (DSU), the mechanism of cross-retaliation was formalised:
- Members could suspend obligations in sectors different from the one violated, such as IP rights, to pressure compliance.
- Legal Avenues Beyond WTO – General International Law
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- Countries can also adopt countermeasures under international law, particularly:
- The Law of State Responsibility, which:
- Allows temporary, proportional retaliation.
- Requires actions to be legally grounded, specific, and reversible upon compliance.
- The Law of State Responsibility, which:
- These legal pathways remain significant in cases where the WTO system is undermined or delayed.
- Countries can also adopt countermeasures under international law, particularly:
Intellectual Property as a Retaliation Tool: Historical Precedents
- US–Antigua Gambling Dispute (2004)
- Antigua successfully challenged the US’s restriction on online gambling.
- Despite the ruling, the US failed to amend its policies.
- WTO authorised IP-based retaliation, allowing Antigua to suspend US IP rights.
- Though a proposed platform to distribute US content was not implemented, it set a legal precedent for IP retaliation.
- US–Brazil Upland Cotton Dispute
- Brazil contested prohibited subsidies granted by the US to cotton producers.
- WTO approved Brazil’s request to:
- Suspend TRIPS obligations
- Target US pharmaceutical patents
- Though the subsidies were not withdrawn, the threat of IP retaliation led to a $300 million settlement in 2014.
- The case demonstrated how IP threats can serve as bargaining tools in trade disputes.
Growing Relevance of IP Retaliation Amidst Unilateral Tariffs
- Unilateral tariff actions, especially by developed economies, have undermined multilateral trust.
- The crippled WTO Appellate Body since 2019 has weakened enforcement mechanisms, prompting countries to:
- Consider non-traditional countermeasures
- Use intellectual property as leverage
- IP-based retaliation provides a cross-sectoral tool to respond to:
Economic coercion
- Discriminatory trade practices
- This shift signals a strategic recalibration of international economic diplomacy.
Policy Developments Facilitating IP-Based Retaliation
European Union’s Regulatory Framework
- The EU has adopted progressive legal measures to empower its trade enforcement capabilities:
Regulation 2021/167 (Enforcement Regulation):
- Authorises the suspension of TRIPS obligations and other rights under FTAs and WTO rulings.
- Can be invoked when the other party fails to implement WTO rulings.
- Regulation 2023/2675 (Anti-Coercion Regulation):
- Enables the EU to act pre-emptively, without waiting for a WTO decision.
- Authorises suspension of IP rights of firms or entities from countries engaged in economic coercion.
- Aims to protect EU strategic autonomy in a deteriorating global trade environment.
Challenges and Limitations of IP-Based Cross-Retaliation
- Proportionality under WTO Rules
- WTO requires that any retaliatory measure:
- Be equivalent to the damage incurred.
- Ensure no excessive punitive actions, maintaining balance.
- WTO requires that any retaliatory measure:
- Legal and Procedural Requirements
- Under international law, retaliation must be:
- Legally justified and specific to the breach.
- Temporary, ending once the violating party returns to compliance.
- Designed to facilitate dispute resolution, not escalate tensions.
- Under international law, retaliation must be:
- Reputational and Political Costs
- Developing countries may face:
- Diplomatic pressure from powerful nations.
- International scrutiny for suspending IPRs.
- Such actions may harm investment prospects or bilateral relations.
- Developing countries may face:
- Operational Hurdles
- Implementing IP retaliation (e.g., suspending patent protection) involves:
- Legal infrastructure, monitoring mechanisms, and domestic reforms.
- Many developing countries lack such capacity, limiting their options.
- Implementing IP retaliation (e.g., suspending patent protection) involves:
Way Forward: Preserving the Multilateral Trade Order
- Reaffirming the Need for WTO Reform
- The trend of unilateralism and retaliatory IP actions indicates the fragility of the existing multilateral framework.
- Countries must revive the WTO Appellate Body and strengthen DSU mechanisms.
- Strategic Calibration of Retaliation
- While IP-based retaliation is legally viable, it must remain:
- Calibrated
- Lawful
- Proportionate
- This ensures the credibility and stability of international trade law.
- While IP-based retaliation is legally viable, it must remain:
- Multilateral and Development-Oriented Cooperation
- Nations should engage in:
- Multilateral cooperation to define clear norms for IP retaliation.
- Capacity building programs to help developing countries assert their trade rights.
- Reform of TRIPS and dispute protocols to promote equity and deter economic bullying.
- Nations should engage in:
