PROPOSED MALAYSIA-UNITED STATES FREE TRADE AGREEMENT (MUFTA) IMPLICATIONS FOR MALAYSIAN ECONOMIC AND SOCIAL DEVELOPMENT

PROPOSED MALAYSIA-UNITED STATES FREE TRADE AGREEMENT (MUFTA): IMPLICATIONS FOR MALAYSIAN ECONOMIC AND SOCIAL DEVELOPMENT TWN Third World Network twnet@po.jaring.my 25 February 2007 Contents INTRODUCTION DISADVANTAGES OF FTAS COMPARED TO MULTILATERAL TRADE AGREEMENTS CHANGING VIEWS ON THE EFFECTS OF LIBERALISATION .7 “RECIPROCITY” AS A PRINCIPLE IN FTAS .8 MAIN FEATURES OF FTAS INVOLVING UNITED STATES MARKET ACCESS IN GOODS TRADE IN GOODS: IMPLICATIONS OF MUFTA FOR MALAYSIA .12 Manufacturing 12 Agriculture 13 Limited gains for Malaysia 13 Problems facing Malaysia 14 SERVICES 16 A GENERAL 16 B FEATURES OF SERVICES CHAPTERS IN FTAS 17 C SPECIAL CHAPTERS AND TARGETING OF KEY SECTORS, I.E FINANCE AND TELECOMMUNICATIONS .21 D DOES THE DEGREE OF LIBERALIZATION MATTER FOR DEVELOPMENT? .22 E NEED FOR A COMPREHENSIVE NATIONAL SERVICES PLAN 23 F SERVICES: IMPLICATIONS OF MUFTA FOR MALAYSIA 23 Basic Telecommunications 25 Distribution Services, including Direct Selling 26 Banking 26 Insurance 27 Securities 27 Audio-Visual and Broadcasting 28 Legal Services 28 Architectural Services 29 Engineering Services 29 Accounting and Taxation Services .29 INVESTMENT: LIBERALISATION AND INVESTOR PROTECTION 29 A SINGAPORE ISSUES 29 B BACKGROUND TO INVESTMENT ISSUE 30 C MAIN DESIGN AND STRATEGIC AIM OF THE US 31 D THE NEED FOR SPACE AND FLEXIBILITY FOR INVESTMENT AND DEVELOPMENT POLICIES AND THE EFFECTS OF AN INVESTMENT AGREEMENT 32 E CONCLUSIONS .34 F INVESTMENT: IMPLICATIONS OF MUFTA FOR MALAYSIA 34 TELECOMMUNICATIONS 38 10 FINANCIAL SERVICES 46 11 LIBERALISATION OF GOVERNMENT PROCUREMENT 49 A GOVERNMENT PROCUREMENT IN TRADE AGREEMENTS .49 B FEATURES OF GOVERNMENT PROCUREMENT IN FTAS INVOLVING USA .50 C NATIONAL POLICY CHANGES NEEDED DUE TO FTA .52 D EROSION OF POLICY SPACE AND IN THE ROLE OF GOVERNMENT PROCUREMENT 53 E EFFECTS OF GOVERNMENT PROCUREMENT LIBERALIZATION UNDER FTA 54 F GOVERNMENT PROCUREMENT: IMPLICATIONS OF MUFTA FOR MALAYSIA 55 12 COMPETITION POLICY .62 A BACKGROUND TO THE ISSUE 62 B TOWARDS A DEVELOPMENT FRAMEWORK ON COMPETITION FOR DEVELOPING COUNTRIES 65 C WHAT THE US PROPOSES ON COMPETITION IN ITS FTA: ANTI-COMPETITIVE BUSINESS CONDUCT, DESIGNATED MONOPOLIES AND GOVERNMENT ENTERPRISES 67 D COMPETITION POLICY: IMPLICATIONS FOR MALAYSIA OF MUFTA 70 14 ENVIRONMENT, BIOSAFETY AND FOOD SAFETY .74 A BIOSAFETY AND LABELLING OF GENETICALLY MODIFIED ORGANISMS .74 B OTHER ENVIRONMENT ISSUES 76 Convention on Biological Diversity 76 Environmental implications in relation to the Investment chapter 77 Government procurement and implications for the environment 78 15 INTELLECTUAL PROPERTY RIGHTS (IPRS) 78 A BACKGROUND 78 WTO’s TRIPS Agreement 78 IPR negotiations shift to FTAs 79 Industry influence .81 B MUFTA WILL OBLIGE MALAYSIA TO SIGN UP TO MANY INTERNATIONAL IP TREATIES 82 C IMPACT OF MUFTA ON ACCESS TO MEDICINES 83 The Effects 86 D EFFECTS ON PATENTING OF LIFE, BIODIVERSITY, GENETIC RESOURCES, AGRICULTURE AND FARMERS 89 Background .89 UPOV 1991, Plant Varieties protection and Effect on Farmers’ Rights 90 Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure .92 Implications for Malaysia 93 Data exclusivity and farmers 94 E PATENT COOPERATION TREATY 95 Effects on the 9th Malaysia Plan 96 Health/quality of life 96 Moving up the value chain 96 Biotechnology .96 Malaysia’s economic growth is affected if Malaysians are sicker 96 F SCOPE OF PATENTABILITY 97 Software patents 98 G COPYRIGHT 98 .Background .98 Copyright term extensions 102 Expressions of concern in Australia about the extension of copyright duration to 70 years 103 Australian Federal Government concerns 103 State Government concerns 104 Librarians’ concerns 105 Application of Agreement to Existing Subject Matter 108 Anti-circumvention provisions .108 When circumvention is needed 111 MUFTA obliges Malaysia to join WIPO 1996 Internet Treaties 112 Some implications of Copyright section for Malaysian society 114 H TRADEMARKS .115 I ENFORCEMENT .116 General 116 Internet service provider liability 116 How ISP liability works in USFTAs 117 The cost of ISP liability .120 J IMPLEMENTATION 121 K IPRS: SUMMARY ON EFFECTS OF MUFTA .121 16 NEED FOR POLICY FRAMEWORK AND ASSESSMENT OF COSTS AND BENEFITS 123 EXAMPLE OF FTA COST-BENEFIT FRAMEWORK .125 References 126 PROPOSED MALAYSIA-UNITED STATES FREE TRADE AGREEMENT (MUFTA): IMPLICATIONS FOR MALAYSIAN ECONOMIC AND SOCIAL DEVELOPMENT Third World Network INTRODUCTION This paper deals with the FTA that is being negotiated between Malaysia and the United States or MUFTA (Malaysia-US FTA) It begins with some general aspects of bilateral FTAs It then briefly states the architecture of issues in the MUFTA and does a description and analysis of each issue or chapter It is quite a task to analyse the text of an agreement when none exists yet MUFTA is still being negotiated Moreover the drafts of the negotiations are not available to the public However, it is still possible to give a summary of what MUFTA may look like, because it is quite well known that the US makes use of a “template” for its negotiating position in its bilateral FTAs Its recent bilateral FTAs are rather similar in chapter headings as well as in text It may well be that the US would not agree to conclude an FTA unless its text basically is in accordance with the template Thus, some of the FTAs, particularly the Singapore-US FTA has been used as a likely draft of what a Malaysian-US FTA may be like, and a description and analysis is undertaken based on such a “model.” As there are so many topics, this report has been able to deal with several but not all Perhaps a subsequent report can be more comprehensive We hope this contributes to the on-going discussion on the MUFTA DISADVANTAGES OF FTAS COMPARED TO MULTILATERAL TRADE AGREEMENTS It is generally recognized that bilateral agreements, especially between a developing and a developed country, are not the best option and that multilateral negotiations and agreements are preferable The reasons for this include: Bilateral agreements usually lead to “trade diversion”, in that the partners divert away products that may be more cheaply priced in favour of products from the FTA partner, even if they are not cheaply priced, thus resulting in inefficiency In an FTA between a developed country and a developing country or countries, the latter are usually in a weaker bargaining position due to the lack of capacity of their economies, their weaker political situation, and their weaker negotiating resources In the WTO, the principles of special and differential treatment, and less than full reciprocity, are recognized Thus, developing countries are better able to negotiate on the basis of non-reciprocity and for non-reciprocal outcomes, in which they are not obliged to open up their markets (or undertake other obligations) to the same degree as developed countries However, these “development principles” are usually absent in FTAs, or they are only reflected in longer implementation periods for the developing country The FTAs are basically on the basis of reciprocity This “equal treatment” of parties that are unequal in capacity is likely to result in unequal outcomes The FTAs contain many items that are not part of the rules of the WTO Many North-South FTAs include rules on investment, government procurement and competition law, which have so far been rejected by developing countries as subjects for WTO negotiations or rules Developing countries also refused that labour standards and environment standards be subjects of discussion in the WTO All these topics are now entering “by the side-door” through the FTAs, even though the same reasons for developing countries to reject rules on these issues should apply in FTAs as they in the WTO Even where issues are already the subject of rules in the WTO (e.g intellectual property and services), there were many “flexibilities” and options open to developing countries in interpreting and in implementing obligations in these areas However, there are attempts by developed countries to remove these flexibilities for developing countries in the FTAs If these attempts succeed, the “policy space” for developing countries to pursue development and socioeconomic goals would be significantly reduced The proliferation of so many agreements also puts pressure on personnel and financial resources in developing countries and requires a lot of technical expertise which may be not adequately available, given the large number of agreements and the limited resources The report “The Future of the WTO” commissioned by the WTO Director-General and which was published in January 2005 has criticized the proliferation of bilateral and regional trade agreements (RTAs), which it says has made the “MFN” (most favoured nation) principle the exception rather than the rule, and which has led to increased discrimination in world trade However, it appears that FTA negotiations are moving ahead and negotiations on even more FTAs and RTAs are being announced Several researchers have pointed out that whilst bilateral agreements may be tempting for a developing country to get some specific advantages from its developed-country partner, such as better market access for some of its products, there are also several potential dangers and disadvantages Developed countries such as the US and Japan are known to want to use the instrument of bilateral agreements to obtain from their partners what they failed to achieve at the WTO, in which the developing countries have been able to oppose or resist certain negative elements in various agreements CHANGING VIEWS ON THE EFFECTS OF LIBERALISATION Whilst an advanced developing country which is already highly liberalized may be able to bear the pressures of faster liberalization, other developing countries may not be able to compete with the faster opening of their markets or with other demands of the developed country Up to a few years ago, there was a widespread belief in the orthodoxy (promoted especially by the IMF and World Bank, and by policy makers in developed countries) that liberalization is necessarily good for development, and the faster the liberalization the better it is for development This was the intellectual basis for developed countries to pressurize developing countries to quickly and deeply cut their tariffs and remove non-tariff barriers, as well as open up their services sector, financial sector and investment regime However, there has been growing skepticism not only from civil society but also policy makers regarding this orthodoxy, mainly because such rapid liberalization has led to import surges in many developing countries, with adverse effects on the local industrial and agricultural sectors, and on the balance of payments and the debt position The emerging paradigm is that developing countries require certain degrees of protection to enable the local firms and farms to compete in their own domestic markets, and that this was the way the now-developed countries arranged their own trade and industrial policies when they were at the development stage Such protection is especially required by developing countries when many agricultural products are heavily protected by tariffs and subsidies in the developed countries, and where export and domestic subsidies enable these countries to sell artificially-cheapened products on the world market Tariff protection is the means by which developing countries can defend their farmers from unfair competition, especially since quantitative restrictions were prohibited under the Uruguay Round Arguments have been put forward by developing countries along the above lines in the WTO The developing countries are also pursuing three tracks to strengthen the development dimension in the WTO: (1) proposals to clarify, review or amend existing WTO rules, due to problems of implementation of these rules; (2) proposals to strengthen existing SDT (special and differential treatment) provisions, and to introduce new ones where they not exist but are required; (3) proposals to have adequate SDT provisions in new rules or revision of rules in current negotiations (especially in agriculture and industrial products) Some developed countries are beginning to change their previously strict insistence on liberalisation in developing countries For instance the UK government has declared that it will not seek to “impose” liberalization on African countries and on least developed countries The recent G8 summit also has a statement along similar lines Notably, this change in attitude is stated only for “least developed countries” (LDCs) and thus presumably does not apply to non-LDC developing counties But it can be noted that a change in attitude towards liberalization has started even in developed countries’ policy circles “RECIPROCITY” AS A PRINCIPLE IN FTAs There is a significant lack of a similar “development track” within FTAs between developed and developing countries Instead, the FTAs are being negotiated mainly on the basis of “reciprocity”, i.e that both sides take on similar levels of obligations The focus is almost strictly on “Market Access” and “National Treatment”i.e how to open up markets in order to get more business opportunities There is hardly any development content as such, not is there much sympathy for the unequal capacity the developing country faces, both in its level of development, and in its negotiating capacity This is mainly due to the demand for such a basis by trade policy makers of developed countries They also point to the need for FTAs and RTAs to be consistent with WTO rules, in particular Article XXIV of GATT 1994 (covering customs unions and free trade areas) (WTO 1994: p522-525) This Article enables FTAs to be established under certain conditions One provision is that “the purpose of a customs union or a free trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.” It also defines a free-trade area as a group of two or more customs territories in which the duties and other restrictive regulations of commerce are “eliminated on substantially all the trade between the constituent territories in products originating in such territories.” [GATT, Article XXIV.8(b)] This is widely taken to mean that FTAs have to be reciprocal in nature, since SDT provisions are not mentioned in the Article, and that tariffs and other trade restrictions have to be eliminated on “substantially all trade” between the parties It is not defined what constitutes “substantially all trade.” In the course of discussions between the European Union and African-Caribbean and Pacific (ACP) countries, which are negotiating economic partnership agreements (EPAs), it is understood that the EU considers this to mean at least 90% of trade, while some ACP countries interpret it to mean at least 60% of trade There have been recent proposals to revise or clarify Article XXIV so that it clearly enables non-reciprocal relations to prevail in FTAs between developed and developing countries The ACP Group has made such a proposal Recently, China has also made a development-oriented proposal on Article XXIV If the Article is not clarified or revised, if reciprocity remains the principle in an FTA between a developed and developing country, and if the FTA covers almost all products, then a typical developing country is likely to be at a serious disadvantage, as it has less production capacity and probably has significantly higher tariffs, especially on industrial products Elimination of tariffs will thus hurt the business or viability of local industries and even farms of the typical developing country MAIN FEATURES OF FTAs INVOLVING UNITED STATES The main issues in FTAs that involve developed countries such as the US, EU and Japan typically include the following: Market access in goods  Manufactured goods  Agricultural goods Services in general Specific services sectors financial services, telecommunications Intellectual property rights Investment liberalization and investor protection Liberalisation of government procurement Competition issues: Business practices, monopolies and government-linked companies Environment and food safety issues Labour standards Only the first item has traditionally been the subject of an FTA The second and fourth issues were introduced into the multilateral trading system through the Uruguay Round that concluded in 1994 They are the new issues in GATT, and are now in WTO The set of issues in items 5-7 (investment, procurement, competition) are known as the Singapore issues as they were first introduced into the WTO through its Ministerial Conference in 1996 in Singapore However they were only subjects for discussion in working groups and there has been opposition from developing countries to make them subjects of binding rules In July 2004, the WTO General Council agreed that there would not be any negotiations on them during the Doha work programme period, and work in the working groups on these issues stopped However, the FTAs involving the US include these items as subjects of rules On the last two issues, it was also agreed that labour and environment standards not be part of rule-making in WTO Labour standards are not even a subject of discussion in the WTO This is due to the fear of developing countries that they would become the basis of protectionist measures against their products However in the FTAs, “environment” may cover environmental issues broadly and not just standards In this paper, we include the sensitive issue of biosafety and labeling of products containing genetically-modified organisms (GMOs) in this section It can be seen that subjects that have been rejected by developing countries as topics of negotiations or even discussion have made a comeback through the FTAs MARKET ACCESS IN GOODS Given the problems arising from FTAs, some developing countries decide to negotiate an FTA with a developed country is the fear of being left behind, as they see other countries, especially in their region, entering FTA negotiations with developed countries, which constitute their major markets There is a fear that those developing countries that are entering FTAs will gain a competitive edge and thus leave those that not join an FTA behind The developing country may also believe that entering an FTA will give it benefits in terms of greater access into the markets of the partners, as the FTA will provide preferences in terms of lower tariffs or quotas It is thus crucial that the developing country identify the products which are important for it, whose exports it hopes will expand through the FTA, and to assess whether realistically whether there will be an increase in market access and to what extent This will then have to be measured against the costs to be incurred by the country, in terms of market access to its own markets by the partner, as well as in terms of concessions in other areas (such as services, investment and intellectual property) Many countries that had hoped to obtain significant expansion of market access to the major developed countries have been disappointed in the results of the negotiations A major reason for this is that there are structural, legal and political impediments that prevent the developed country from opening its market beyond a certain limit, in respect of its sensitive products (where further opening will cause dislocation to its producers) As Smith (2005) points out, there are a number of structural problems that make it difficult for developing countries to obtain market access in sectors of interest to them in FTAs with developed countries Firstly, there is usually unequal bargaining power in developing-developed country bilateral negotiations, with the developing countries in a weaker position Secondly, it is not possible for developed countries to reduce or withdraw agricultural export and domestic subsidies on the products that the developing county partner are exporting, as the subsidies would have to be removed for all the products, which would then also benefit non-FTA partners Thirdly, there may exist laws that frame the terms of reference for what the developed country can offer The United States negotiators are also constrained in the terms they can offer in FTAs by their Bipartisan Trade Promotion Authority Act of 2002 (Smith 2005) This Act prevents US negotiators from concluding FTAs which:  ‘reduce any rate of duty (other than a rate of duty that does not exceed percent ad valorem on the date of the enactment of this Act) to a rate of duty which is less than 50 percent of the rate of such duty that applies on such date of enactment’  ‘reduce the rate of duty below that applicable under the Uruguay Round Agreements, on any import sensitive agricultural product;’ o ‘The term “import sensitive agricultural product” means an agricultural product—  (A) with respect to which, as a result of the Uruguay Round Agreements the rate of duty was the subject of tariff reductions 10 It illustrates how they are being invoked against consumers, scientists, and legitimate competitors, rather than pirates.127 Of these two treaties, WCT has been very strongly criticised as it goes beyond what is required under TRIPS and the Berne Convention for the Protection of Literary and Artistic Works It provides copyright holders exclusive rights over material in the online environment and specifically calls for countries to provide effective legal remedies against the circumvention of the technological protection measures (TPMs) Some of the concerns raised by the Electronic Information for Libraries (eIFL) is as follows: (i) TPMs cannot distinguish between legitimate and infringing uses The same copycontrol mechanism which prevents a person from making infringing copies of a copyright work, may also prevent a student or a visually impaired person from making legitimate copies under fair use/fair dealing or a legal copyright exception (ii) Long-term preservation and archiving, essential to preserving cultural identities and maintaining diversity of peoples, languages and cultures, must not be jeopardised by TPMs/DRMs The average life of a DRM is said to be between three and five years Obsolescent DRMs will distort the public record of the future, unless the library has a circumvention right (iii) The public domain must be protected TPMs not cease to exist upon expiry of the copyright term, so content will remain locked away even when no rights subsist, thereby shrinking the public domain The UK Commission Report on IP and Development, in its report states that “more analysis needs to be undertaken about the best means of protecting digital content and the interests of right holders whilst at the same time honouring the principles that ensure adequate access and “fair use” for consumers More specifically policy makers need to gain a better understanding of the impacts of the trend towards on-line distribution and technological protection of content on developing countries” The report adds that it is “not clear how reasonable requirements of “fair use” will be guaranteed in such an environment” It goes on to caution “Developing countries should think carefully before joining the WIPO Copyright Treaty and should not follow the lead of US and the EU by implementing legislation on the lines of the DMCA” Some may argue that the Malaysian Copyright Act already includes standards found on in WCT such as TPMs, thus one need not worry about ratifying the WCT However it should be noted that standards that are implemented in the national law, can at anytime be amended, if a negative impact on access to knowledge or public interests is shown When a country signs on to an 127 Digital Rights Management: A failure in the developed world, a danger to the developing world, Cory Doctorow http://www.eff.org/IP/DRM/drm_paper.php Electronic Frontier Foundation, Unintended Consequences: Seven Years under the DMCA April 2006 http://www.eff.org/IP/DMCA/unintended_consequences.php 113 international treaty such as WCT and WPPT, it is bound by those minimum obligations and it becomes difficult to take a step backwards More analysis needs to be done with the engagement of the various stakeholders, such as libraries, open source initiatives, industry, internet service providers and other relevant NGOs to have a discussion to understand better the costs and benefits of signing on to the WIPO internet treaties However, given the US template in their FTAs, Malaysia would be obliged by MUFTA to join these two WIPO treaties Some implications of Copyright section for Malaysian society The following are some implications for Malaysian society: MUFTA will oblige Malaysia to change its laws and policies on copyright in many ways Malaysia would have to: (a) Extend the length of copyright from 50 to 70 years (b) “Lock in” technological protection measures through the FTA (c) Join the WIPO “internet treaties” (copyright and performers/phonograms) which would in turn lock the country into the treaties’ obligations (d) The balance between the privileges of the copyright holder and the public interest would shift significantly away from the public interest An important point is that users of libraries will be much more constrained There would be a negative effect on access to knowledge (e) Implications for the 9th Malaysia Plan Thrust Two of the Ninth Malaysia Plan is ‘To raise the capacity for knowledge and innovation and nurture ‘first class mentality’’ In particular, Chapter 11 is entirely about ‘enhancing human capital’ Furthermore, Chapter of the Ninth Malaysia Plan focuses on ‘mainstreaming technology and communications technology’ In addition, Chapters 4, 6, 8, 20 in the other Thrusts all place high priority on human resource development Human resource development is heavily dependent on access to information and USFTAs restrict access to knowledge in the ways outlined above (f) Human rights impact Malaysia is a party to the United Nations Convention on the Rights of the Child (CRC) and so is legally bound to implement its provisions MUFTA could impact the 114 rights of the child in a number of ways The CRC contains a right to education 128 Textbooks are key to students and the copyright term extension likely to be part of any MUFTA (see above) will extend the monopoly on textbooks and other educational materials to 70 or 95 years before they can be copied This makes them expensive for longer and potentially reduces the access of children to the materials necessary for their education because parents (or the Malaysian Government through the Textbook Loan Scheme129) can no longer afford to provide them H TRADEMARKS The AUSFTA chapter requires the countries to allow trademarks on sounds and scents.130 The development implications of this need to be studied further The provisions relating to common names not being able to impair the effectiveness of trademarks131 may reduce the ability of countries to require the international nonproprietary name of a medicine (e.g paracetamol) to be placed in large letters on all medicine packaging so consumers can more readily see that the different brands are all the same chemical and so they can choose on the basis of price (i.e the generic) more easily I ENFORCEMENT General The enforcement part of TRIPS very clearly states that ‘It is understood that this Part does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general Nothing in this Part creates any obligation with respect to the distribution of resources as between enforcement of intellectual property rights and the enforcement of law in general.’ 132 This was added to TRIPS to address the concerns of developing countries.133 However, the enforcement chapter of USFTAs can specify that a decision that a USFTA country makes on the distribution of enforcement resources shall not excuse that Party from complying with the IP chapter.134 USFTAs can have 11 pages of detailed enforcement prescriptions 135 Some of these specify how a TRIPS level of enforcement should be carried out, others involve much stronger levels of enforcement than TRIPs The enforcement part 128 Article 28 CRC Malaysian Government Report to the Committee, Document CRC/C/MYS/1, 22 December 2006 130 Art 17.2.2 131 Art17.2.3 132 Art 41.5 133 UNCTAD-ICTSD Resource Book (2005), available online at http://www.iprsonline.org/unctadictsd/ResourceBookIndex_update.htm 134 For example Art 16.9.4 Singapore-USFTA 135 Such as the Australia-USFTA 129 115 of USFTA IP chapters are particularly detailed about internet service provider liability Internet service provider liability Internet service providers (ISPs) various things Some ISPs merely provide access to the internet Others provide people with space online to host their webpages One ISP (such as TM Net136) could host millions of webpages People put things on these webpages without getting permission from the ISP So the webpages may contain things that infringe copyright such as copyrighted books, articles, music or movies In many countries, ISPs are not liable for the copyright infringing material that people have posted on the websites they host However, in the USA, there were conflicting court decisions about whether ISPs were liable for copyright infringing behaviour by their end-users, including having copyright-infringing items on the websites they host 137 For this reason, ISPs wanted legislation to give them ‘safe harbours’ so that they could carry out their normal business activities with only limited liability, if they complied with certain conditions.138 These safe harbours have been criticized as being too narrow and procedurally burdensome to use.139 TRIPS does not require internet service providers to be liable for copyright infringing material put on websites they host by others.140 USFTAs contain these ISP safe harbours USFTAs may create ISP liability in countries where none previously existed because:  Recent USFTAs require temporary reproductions (for example in the memory of the computer while accessing a webpage), to be a copyright infringement 141 Since digital communication involves serial reproduction and distribution of temporary reproductions of digital works, ISPs may face increased liability if 136 According to http://www.tm.com.my/business/small_medium/internet/smi_net_CASP.htm, TM Net offers web hosting, domain hosting, server hosting, online storage service, media hosting and tmnet ebrowse 137 Via two doctrines only used in the USA: vicarious copyright liability and contributory copyright liability In addition, a US report found that the temporary reproductions made by a computer in its memory also infringed copyright and so ISPs could be liable for caching material 138 http://www.eff.org/IP/FTAA/ISP_june05.pdf 139 For example http://www.eff.org/IP/FTAA/ISP_june05.pdf 140 This is because TRIPS does not require secondary liability or temporary reproductions to be copyrightable The only provision of TRIPS that could possibly be used to require secondary liability is Art 41.1 ‘effective action against any act of infringement’ However this does not require secondary liability laws and major WTO members not allow secondary liability (http://www.eff.org/IP/P2P/MGM_v_Grokster/20050301_sharman.pdf ) and yet have not been sued by the USA for failure to comply with TRIPS as you would expect the US to if it really were required by TRIPS (http://www.wto.org/english/res_e/booksp_e/analytic_index_e/trips_03_e.htm#article41) That TRIPS does not require temporary reproductions can also be seen in the fact that many countries fail to allow temporary reproductions to be copyrightable and yet are not sued by the USA for noncompliance with TRIPS 141 This is the case in all USFTAs since NAFTA, for example Art 16.4.1 of the Singapore-USFTA which says ‘Each Party shall provide that authors, performers, and producers of phonograms and their successors in interest have the right to authorize or prohibit all reproductions, in any manner or form, permanent or temporary (including temporary storage in electronic form).’ 116 temporary reproductions are considered infringing and there is no corresponding limitation on copyright  In addition, the existence of safe harbours may imply the existence of liability where none previously existed in domestic law, and has been used to create a de facto liability standard in the USA, where copyright owners have sued ISPs for failure to comply with safe harbour conditions as evidence in itself of copyright infringement (even though under US law failure to comply with safe harbour conditions only means that infringement still has to be proven on general principles)  The non-violation provision in the dispute settlement chapter of all USFTAs applies to the intellectual property chapter and so may mean that even if the USFTA does not require ISP liability to be created, if the USA reasonably expected it to be and the country (M) which signed the USFTA does not make ISPs liable, M may be sued at the international tribunal by the US Government If the USA wins the case and M does not change its law to make ISPs liable, the US can raise tariffs on M’s exports to the USA How ISP liability works in USFTAs To benefit from the safe harbour, in the Australia-USFTA, the person or company must fall within the definition of ‘internet service provider’, must be involved in one of the four activities listed below and the ISP has to comply with the conditions attached to each activity If the ISP meets all of these requirements, courts cannot fine them for authorizing copyright infringements on their networks in that category of activity Courts can still things like order the ISP to remove or disable access to the copyright infringing material or terminate the user’s account \ For Category A activities, courts can only order the ISP to terminate specified accounts or take reasonable steps to block access to a specific online location that is not in the ISP’s country For activities in other Categories, the court can only order: access to the copyright infringing material to be removed or disabled, specified accounts to be terminated and other remedies the court finds necessary as long as they are the least burdensome to the ISP compared to other forms of relief Courts can basically only order these things if the ISP has received notice and a chance to appear before the court Definition of ISP The definition of ISP in the Australia-USFTA is broad enough 142 to cause even universities to be concerned that they will be considered to be ISPs, see below Activities143 142 Art 17.11.29(b)(xii) Lawyer Leaellyn Rich writing in the March 2005 New South Wales Society For Computers and the Law Journal, Issue 59, http://www.nswscl.org.au/journal/59/Rich.html 143 117 Category A activities are known as ‘conduits’ where the ISP transmits, routes or provides connections: i.e a transitory communication Category B activities, automatic ‘caching’, i.e where ISPs store material automatically, for example to make it faster to retrieve rather than the user having to connect to the overseas site again Category C activities, ‘hosting/storing’, is where material is stored on the ISP network/system at the user’s direction Category D activities, ‘directing’, is where users are directed to copyrighted material, for example via links Conditions ISPs must comply with to get safe harbour protection As Category A and B activities are seen as more passive, they gain almost automatic safe harbour status with minimal conditions attached 144 However for Categories C and D where ISPs exercise greater control, there are more rigorous conditions to qualify for safe harbour protection such as ‘take-down notice’ procedures.145 The main conditions to qualify for the safe harbour protection are:  All Categories must have adopted and reasonably implemented a termination policy for accounts of repeat infringers  Category A: o ISPs must not have initiated transmission of copyrighted material and o ISPs cannot have made substantive modifications to the content of the transmitted material (it is ok to make technical modifications such as format shifting)  Category B: o ISPs must not have initiated transmission of copyrighted material and o ISPs cannot have modified the original user access conditions for significant parts of the cached material and o ISPs must have expeditiously removed or disabled cached copyright material when it has been removed or disabled at the originating site and a notice of claimed infringement has been received o ISPs cannot have made substantive modifications to the content of the transmitted material (it is ok to make technical modifications such as format shifting)  Category C: o ISPs must not have initiated transmission of copyrighted material and o The ISP cannot have received any directly attributable financial benefit from the copyright infringing activity o The ISP must have expeditiously removed/disabled material if it gets actual knowledge of the infringement or becomes aware of 144 Lawyer Leaellyn Rich writing in the March 2005 New South Wales Society For Computers and the Law Journal, Issue 59, http://www.nswscl.org.au/journal/59/Rich.html 145 Lawyer Leaellyn Rich writing in the March 2005 New South Wales Society For Computers and the Law Journal, Issue 59, http://www.nswscl.org.au/journal/59/Rich.html 118 circumstances which make the infringement apparent such as a takedown notice claiming infringement o The ISP must publicly designate a representative to receive take-down notices  Category D: o The ISP cannot have received any directly attributable financial benefit from the copyright infringing activity o The ISP must have expeditiously removed/disabled material if it gets actual knowledge of the infringement or becomes aware of circumstances which make the infringement apparent such as a takedown notice claiming infringement o The ISP must publicly designate a representative to receive take-down notices Steps in a take-down procedure Copyright owner (C) notifies the ISP that C thinks there is infringing material on one of the websites the ISP hosts ISP ‘takes down’ the allegedly infringing material ISP sends notice to person whose material was removed (D) (otherwise the ISP could be sued by D) D sends ISP counter-notification that not infringing ISP promptly sends counter-notification to C and tells C will restore the material unless C starts court case within 10 days to get injunction ISP restores the material unless C gets injunction ISP also has to provide identification of D to C C usually does not have to have waited for the court to decide that D’s material is infringing C’s copyright Problems with take-down procedure If this procedure is required, then to minimize the burden on the ISP, the copyright owner’s notice should identify all the copyright work(s) alleged to have been infringed so the ISP can more easily find them and remove them Furthermore, to prevent abuse of the system by copyright owners, the notice should be accompanied by a statutory declaration – that is, a statement made on oath by someone with direct knowledge of the facts of the matter [that it believes the material is infringing] Otherwise many notices can be sent when the material is not infringing However the combination of the side letter and non-violation complaint in the AUSFTA may mean these safeguards are not allowed 119 The cost of ISP liability According to the lawyer who is the Associate Director of the Intellectual Property Research Institute of Australia, the ISP liability provisions in the AUSFTA ‘will impose significant costs on Australian ISPs.’146 The impact on Malaysian ISPs (e.g TM) of a standard USFTA can be seen from the effect of this system in the USA The enforcement agent of one copyright industry association sent one ISP over 16,700 arguably invalid takedown notices 147 One small U.S ISP had received over 20,000 notices in 2003 and all were invalid 148 Another US ISP received over 30,000 notices from January to April 2004 alone, only two of which were legitimate takedown notices.149 In the previous 12 months, the same ISP received over 90,000 invalid peer-to-peer notices 150 As the Vice President and Associate General Counsel of Verizon Communications, Inc., Sarah Deutsch noted, copyright owners can use automated programs to send out notices with no due diligence, but each notice received requires human intervention by the ISP to see if they are valid or not.151 More detailed information including about the subpoena system in the US and its cost to ISPs can be found at http://www.eff.org/IP/FTAA/ISP_june05.pdf and more examples of invalid takedown notices at http://www.eff.org/IP/P2P/20030926_unsafe_harbors.php This abuse of the take-down notices in the USA led a US Congressman to call for a Congressional investigation into the practice.152 Given the concerns of all of the Vice-Chancellors of the universities in Australia about the effect of the internet service provider provisions on them as they may be considered to be ISPs,153 has the Malaysian Government consulted all Malaysian Universities as to their ability to comply with any internet service provider provisions in MUFTA? Australia’s obligations under the AUSFTA with respect to internet service providers closely parallel those in the USA’s Digital Millennium Copyright Act 154 which has been widely criticized and challenged Submissions to the Australian Senate Inquiry into the Australia-USFTA reiterated that ‘recognition must be given to the realities of resource limitations in managing networks’155 146 Kimberlee Weatherall’s submission to the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America 147 Pacific Bell Internet Services v Recording Industry Association of America, Inc et al, (U.S District Court, Northern District of California, San Francisco Division, Case No C 03-3560 SI) 148 http://www.eff.org/IP/FTAA/ISP_june05.pdf 149 http://www.eff.org/IP/FTAA/ISP_june05.pdf 150 http://www.eff.org/IP/FTAA/ISP_june05.pdf 151 http://www.eff.org/IP/FTAA/ISP_june05.pdf 152 http://www.eff.org/IP/FTAA/ISP_june05.pdf 153 Australian Vice-Chancellors’ Committee Submission to the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America 154 ‘Protecting the messenger: carriage service providers’ liability for third party copyright infringement’, Jan Charbonneau, https://elaw.murdoch.edu.au/issues/2006/2/elaw_Protecting%20the %20Messenger%20for%20Carriage%20Service%20Providers.pdf 155 Australian Digital Alliance (a coalition of IT companies, scientific and research organizations, schools, universities, consumer groups, cultural institutions, libraries and individuals) submission from 120 J IMPLEMENTATION If countries think that they can sign a USFTA and then use loopholes during implementation to mitigate the FTA’s effects, they should be aware that the USTR continues to press for stronger IP protection than the USFTA requires during implementation, including during the drafting of implementing legislation.156 For example after Guatemala finalized its USFTA, the USTR gave it four pages of detailed comments and demands which can be seen here http://www.cptech.org/ip/health/trade/cafta/ustr11162005.pdf K IPRS: SUMMARY ON EFFECTS OF MUFTA The provisions in the intellectual property (IP) chapter of a Malaysia-US free trade agreement (MUFTA) may have far-reaching consequences for a wide range of areas: Malaysia’s culture; farmers; government-linked companies; students; the blind; businesses; actors, directors, producers and all those involved in the Malaysian audiovisual industry and any Malaysian who gets sick and needs medicine The IP provisions in USFTAs require much stronger levels of IP protection than Malaysia is currently required to provide under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) at the World Trade Organization (WTO) The TRIPS agreement has already been widely criticised as obliging developing counties to adopt standards of IP higher than appropriate for their level of development There are negative effects such as higher medicine prices, obstacles to industries to upgrade their technology, compulsory patenting of some life forms, introducing IP to farm seeds (which in many countries were exempted before), and facilitating bio-piracy (misappropriation by multinational companies of genetic resources and traditional knowledge belonging to developing countries) The developing countries increasingly realise that higher standards of IP can be detrimental to development in many ways There must be a balance between the IP monopoly given to private individuals and companies, and the public interest They have thus initiated a movement inside WIPO to institute a Development Agenda, to orientate IPR policies towards development needs and the public interest The FTA imposes even stricter standards of IP than even the TRIPS and thus makes the present imbalance even worse Malaysia’s farmers will be affected by making their inputs (such as seeds and agricultural chemicals) more expensive, and as they lose significant control over the saving of their seeds The data exclusivity clause for agricultural chemicals will also make these more expensive and raise production costs http://www.aph.gov.au/Senate/committee/freetrade_ctte/submissions/sublist.htm 156 Letter by some US Congress representatives to the USTR, available at http://www.cptech.org/ip/health/trade/cafta/representatives04072006.pdf 121 Malaysia’s national goal to promote biodiversity and traditional knowledge and the fair sharing of benefits from their use will be affected by the probable demands of the MUFTA that the country join the UPOV 1991 treaty, and the Budapest Treaty relating to microorganisms Malaysian businesses may also face higher input costs from the IP chapter of a MUFTA In specific sectors such as Malaysia’s generic medicine manufacturing, one of Malaysia’s largest generic companies, Hovid Berhad is already setting up manufacturing in India because ‘Once the FTA takes effect, many local pharmaceutical companies such as Hovid would stand to lose out to US-based multinational pharmaceutical companies.’ Another sector that may be significantly affected is internet service providers There are Malaysian government-linked companies that make generic medicines (e.g Pharmaniaga) and provide internet services (e.g TM Net) The prospect of stronger intellectual property protection under a USFTA has also caused many to fear increases in medicine prices in Malaysia Malaysia’s patent law will most likely have to change in many areas to accommodate the American FTA demands They potentially include: having a data exclusivity clause; extending the term of drug patents; linkage between patents and marketing approval by the drug regulatory authority; restricting the ground for compulsory licensing; and a possible restriction on parallel importation Access to information and knowledge will be another major area to be affected, as copyright laws will tighten, with extension of copyright term by 20 years, and with the “locking in” of technological protection measures Not only academics, students, and scientists but also the blind may also be particularly disadvantaged by the stronger copyright provisions The possible negative impacts due to the intellectual property chapter can be exacerbated by other chapters in a USFTA such as the preamble and the investment and dispute settlement chapters As the eminent Commission on Intellectual Property Rights states ‘there are no circumstances in which the most fundamental human rights should be subordinated to the requirements of IP protection IP rights are granted by states for limited times (at least in the case of patents and copyrights) whereas human rights are inalienable and universal… Developing countries should not have to accept IP rights imposed by the developed world, outside their existing commitments to international agreements.’ 16 NEED FOR POLICY FRAMEWORK AND ASSESSMENT OF COSTS AND BENEFITS Negotiating an FTA is a serious exercise as the outcome can have major implications for development policy and for social, economic and development outcomes While it can result in some export gains, it can also: (a) result in increases in imports, with implications for the trade balance and the debt position; (b) facilitate import surges as tariffs decline or are eliminated, and this can adversely affect the local industries and 122 farms; (c) reduce tariff revenue, with consequences for the government budget; (d) restrict and in some cases remove “policy space,” or the options and instruments available to a country to institute certain social, economic and development policies Thus, before negotiating an FTA, the country needs to have three things in place Firstly, a national development policy framework comprising an overall development strategy, with sectoral national plans (for agriculture, industry and services) and issuebased plans (policy towards foreign investment, local participation in the economy, intellectual property, etc) The proposals put forward by the FTA partner or potential partner can then be assessed within the context of such a framework Similarly, the positions of the country in the FTA negotiations can be formulated in light of the framework In the absence of such a framework, it would be difficult to determine the objectives of entering an FTA negotiation, or of the advantages or otherwise of the proposed FTA Secondly, there should be a framework to assess the benefits and costs of the FTA, in terms of its various components and of the various proposals and provisions, and the overall balance The benefits and costs can be assessed in terms of: (a) gains and losses in trade terms: eg increase in exports, imports; (b) gains and losses in terms of jobs; (c) effects on the degree of policy space and flexibilities available to the country as a result of the FTA; (d) social effects: on access to health, to knowledge, food security etc; (e) effects on technology transfer Other items can be added The costs and benefits can be applied to the various aspects of the FTA, including market access (to the other country, and the partner country’s access to one’s own market) in goods; services; intellectual property; investment, competition and government procurement; and labour and environment standards The cross-cutting social and environmental costs can also be assessed In general, a developing country can expect (or hope) to benefit from some market access in goods from an FTA with a developed country This has to be weighed against the market access to be gained by the partner to its own home market If the country lacks production and export capacity, or if the partner does not offer significant concessions, then it is possible that there may be a net cost rather than benefit, especially if the FTA is on a reciprocal basis (with no SDT for the developing country) The developing country can be expected to suffer costs in additional IPR obligations beyond the already onerous obligations in TRIPS These costs are losses to the nation since most patents, copyright and other forms of IP are owned by foreigners The costs can be in terms of increased royalty and IP licence payments (with resulting loss in foreign exchange) or higher prices of the protected products, and in terms of the social costs of decreased access to medicines, decreased access to knowledge, decrease in farmers’ rights to seeds and other resources, and decrease in food security possibilities 123 Regarding investment, there can be expected to be major costs to the developing country in terms of loss of policy space and the use of policy instruments such as regulation of entry of foreign investment, performance requirements, regulation of the flow of funds, etc The threat of expropriation cases being taken by investors can also have a real or chilling effect on national policies The ability to use investment policy as a means to increase local participation in the economy, or to nurture local firms and farms, will also be severely restricted Regarding government procurement, the loss of policy space will be immense as procurement policy is a major social and economic instrument for boosting the domestic economy and to redress social imbalances The requirement to give national treatment for foreign goods, services and firms, can also result in loss of market share of local firms, and loss of foreign exchange There can be loss of effect of fiscal policy, eg an increase in government spending to boost economic growth will have reduced effect if there is higher “leakage” through increased imports of goods and services procured by government There can also be considerable loss of policy space and options with regard to the other non-trade issues such as competition policy, labour and environmental standards, as well as in terms of effects on the competitive position of local enterprises An example of a simple cost-benefit chart is given below It can be made more complex, reflecting the realities of the particular country concerned Example of FTA Cost-benefit Framework Possible benefits Market access in goods: a Agriculture b Industrial Market access in services: a commercial services b labour Possible concessions on SPS and TBT? Possible costs Market access into country: a industrial goods b agriculture Market access into country Services Intellectual property (a)Access to medicines (b) Lifeforms Possible aid mechanisms? (c) Plant varieties (d) Biodiversity and disclosure Possible investment and requirements technology flows (e) Copyright and access to 124 information (f) Broadcasting 4., Singapore Issues (a) Investment (b) Government procurement (c) Competition policy Labour, environment standards Environmental costs Thirdly, the country should establish or organize the resources and institutional base for assessing whether or not to enter negotiations for the FTA; and if so, to organize the negotiating teams, objectives, and conduct of the negotiations As part of the process, different agencies of the government should be consulted and should be part of the process of the formulation of policy and positions It is equally important to involve stakeholders, such as local firms, trade unions, farmers, consumers, groups representing patients and involved in health provision and environmental protection This is especially because the FTA can have such wide-ranging effect on society Eventually, national decisions have to be taken as to: (1) whether in principle to enter negotiations in the FTA; (2) how to conduct the negotiations; (3) what issues to include and exclude from the FTA; (4) putting positions forward; (5) assessing the other party’s position (6) continuously assessing the costs and benefits of proposals and provisions; (7) whether or not to conclude the negotiations, if there are many sticking points and outstanding issues References AMCHAM Malaysia (2006) Public submission for the proposed US-Malaysia Free Trade Agreement By AMCHAM Malaysia and US Chamber of Commerce Carlsen, Laura (2003) The Mexican experience and Lessons for WTO negotiations on the agreement on agriculture (Speech to European Parliament) Americas Program, Interhemispheric Resource Centre Khor, Martin (2003) The WTO Singapore Issues: What’s at stake and why it matters (TWN briefing paper 16) Khor, Martin (2005) Intellectual Property, Competition and Development Paper presented at the WTO symposium on intellectual property and development, May 2005 Koh, Tommy and Chang Li Lin (editors) (2004) The United States Singapore Free Trade Agreement: Highlights and Insights Singapore Médecins Sans Frontières (2004) “Access to Medicines at Risk Across the Globe” 125 Oxfam International (2005) Kicking down the door Briefing paper no 72 Smith, Sanya (2007) Intellectual property chapter in United States FTAs Smith, Sanya (2005) Market access: where’s the beef? (Draft paper) United States (2002) Trade Promotion Authority Act of 2002 United States Trade Representative (2006) Foreign Trade Barriers United States Department of Agriculture (2007) Rice Outlook, 12 Feb 2007 U.S Singapore Free Trade Agreement: Text of the Agreement World Trade Organisation (1994) The results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts World Trade Organisation (2005) Trade Policy Review Malaysia: Report by the Secretariat 126 i ... References 126 PROPOSED MALAYSIA-UNITED STATES FREE TRADE AGREEMENT (MUFTA): IMPLICATIONS FOR MALAYSIAN ECONOMIC AND SOCIAL DEVELOPMENT Third World Network INTRODUCTION This paper... FTA allows for a broad definition of investors and investments, “high” standards for the right of establishment, national treatment, prohibition of performance standards, freedom for funds transfer,... designated international courts D The need for space and flexibility for investment and development policies and the effects of an investment agreement Foreign investment is a complex phenomenon