”They who Ripe where They have not Sown”
Mauri G Gronroos, D.(Econ):
Summary of the January 22nd, 1999 of an Academic Dissertation in Economics and International Law:
WTO TRIPS Art 39: The Extent of Trade Secret Protection and the New Theory of Growth
The Neoclassical Growth Theory of Robert Solow operates mainly with two factors of production, labor and capital. Although relevant back in the Fifties and Sixties, the combinations of these classical inputs, have today only little power of explanation. In fact, the neoclassical theory explains only two thirds, perhaps only one half of economic growth. The missing factor is called the Solow Residual.
Paul Romer of Stanford University, Palo Alto, understood in late 80´s to descend from the macroeconomical level into the microeconomic world. According to his research, growth occurs mainly when companies compete - and even more important: the companies compete today more and more with ideas and innovations. Romer´s theory is known as the New Theory of Growth or ”Endogenous Growth Theory”, because it suggests that the new ideas must a) be developed in-house and b) be kept confidential. If an innovation – say, the telephone – is used by everybody, it brings by no means any competitive advantage. It is only a part of one´s common infrastructure.
The World Trade Organization (WTO) Agreement has an Annex, the TRIPS –Agreement. The aim is to harmonise the intellectual capital legislation in all Member States. The most controversial and less-known article is Article 39: Protection of undisclosed Information. It means that all Member States have to set up a legislation to protect companies´confidential information, the trade secrets.
So far, only 20 countries or so, have a proper legislation to protect the trade secrets. Now, over 110 countries must create the laws and legal practice to protect this crucial factor of production. The problem is that the Article 39 leaves a wide spectrum of alternatives: from a minimum protection to the most rigorous laws to hold up any spill-over of the information from the companies.
If a Member State denies a proper protection of trade secrets, it will not get any high tech investors to the country. On the other hand, if a Member exaggerates the protection, there will be no spill-over and thus no diffusion of technology, and the country will perhaps never convergence with the modern industrialized countries.
This research gives suggestions how to formulate an adequate Strategic Theory of Trade and how to get the best out of the globalization. It also clarifies what it is all about in the Information Age: what is Knowledge, what is Data and Information. How to use these as a powerful tool to create an even better future for ourselves and for our nations.
WTO –TRIPS Art 39:
The Extent of Trade Secret Protection and the New Theory of Growth
The Research Objective
Information has become an increasingly important factor for productivity and competitiveness. Because of this, it ought to be possible to protect it in the same way as other tangible or intangible enterprise property. So far, however, it has been possible to protect confidential information within an undertaking as a trade secret in only about twenty countries.
Since 1995 a total of 138 countries have joined the World Trade Organization - WTO, one of the purposes of which is to harmonise protection of intellectual property rights in all of its Member States. Any country joining the organisation thereby also undertakes to comply with the TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement.
According to Article 39 of this agreement, the States Parties thereto have agreed to compile legislation guaranteeing minimum protection to undisclosed information within undertakings. This minimum protection may be expounded by extended legal interpretation, meaning that in addition to semantic and logical interpretation, comparative research may be performed by examining the views on trade secret protection adopted by the two leading legal systems: German civil law and Anglo-American law.
The TRIPS agreement, however, allows Member States to introduce legislation whereby trade secrets are afforded broader protection than the required minimum standard. Jurisprudence alone cannot resolve the problem which thereby arises of whether it is more beneficial for an individual State to guarantee only the minimum standard of protection required by the agreement or to provide a broader, nearly absolute protection corresponding, for example, to that of a patent.
Researchers may use the method of law and economics to seek an answer to this question. This means explaining the basic ideas of the current global economy and the special characteristics of international competition. Then, a critical examination of prevailing economic theories is possible to seek the most effective option using the instruments which these theories provide.
In Search of a National Strategy
It is the view of this research that the new theory of growth has superior explanatory power than the neoclassical theory of growth worked out largely against a background of traditional free trade. According to the new theory of growth, it is possible to achieve a rate of economic growth which is faster than that of other States only by making adequate investments in knowledge and information. An individual WTO Member State may use this observation as the basis for a national Strategic Theory of Trade which seeks to help it to achieve the greatest possible benefit from the globalising world economy.
If a country has a high level of education and the ability to make sizeable investments in research and development, then it is clear that the strongest possible trade secret protection should be guaranteed for the ideas and information which are so produced. If, on the other hand, a country has a low level of resources to devote to education and research, then it may seek to benefit from what has been termed the spill over effect or the diffusion of technology. This means that where there are no unnecessary obstacles to the spread of knowledge and information, these will have an impact on their surroundings and will increase the productivity and economic growth of the entire community.
The New Theory of Growth
Although knowledge and information are terms of common parlance, they have no established definitions and are used in a parallel or overlapping manner, especially between different scientific disciplines. Here, however, it will be appropriate to use the definitions which are at least becoming established in the language of jurisprudence in the Nordic countries. According to these definitions, knowledge is tied to individuals in that it refers to human skills or abilities which are difficult to pass on. Information, on the other hand, may be stored and transferred with ease. Human knowledge and abilities must thus first be encoded as information and only then may they be communicated to others. A recipient may then turn the information back into knowledge.
Knowledge and information are, in turn, requirements for creating ideas. These ideas may then lead to innovations, which are of crucial importance to this research. Innovations are technical or economic novelties or reforms. Although a patentable invention is naturally also an innovation, there are many other ideas which enhance the competitiveness of an undertaking, concerning such things as production concepts, product development, organisation, marketing or finance.
In the middle of the 19th century Adam Smith's Wealth of Nations contributed to the first ever change in economic policy. Smith's classical school of economics derived from personal liberty and freedom of trade and its principle factor was called the invisible hand. This was the idea that if trade were to be entirely independent of State patronage and individuals could freely seek to maximise their own benefit, then the law of supply and demand would ensure that all goods are produced in the most efficient manner to meet the demand. To this model David Ricardo later added his principle of comparative advantage, whereby each country should concentrate on producing those goods which it produces with greater efficiency than other countries. Another of Ricardo's insights was the law of diminishing returns, which holds that productivity always declines regardless of how much work and capital are invested in production. These observations are now regarded as valid and they form part of the current economic theory.
A Missing Factor
In reality, there was no growth in the global economy before the end of the 19th century. Researchers began to take a serious interest in economic growth only after the Great Depression of the 1930s. At this time people began to understand that social well-being could not be sustained if the gross national product failed to grow or if it were to shrink.
The deregulation and globalisation of the world economy was influenced by such theories as the neoclassical theory of growth developed by Robert Solow in the 1950s. This theory concentrates on explaining the importance for economic growth of an increasing labour force, capital inputs and savings. While Solow observed that, in addition to these factors, economic growth is affected by technological progress, he treated the later as an exogenous factor in the growth model. In other words, he felt that while major inventions such as the steam engine, the railway and the telegraph stimulated national economies to higher levels of growth, they were in principle available to all. It was, moreover, not possible to influence the creation of such inventions which arose by chance. Mainly for these two reasons technological progress could not be adapted to the growth model.
According to neoclassical growth theory, investments of labour and capital are subject to the law of diminishing returns, meaning that economic growth in the wealthier countries would eventually slow down. Growth in the poorer countries, on the other hand, would accelerate if they had large labour reserves and could obtain capital. This would lead to a gradual convergence, i.e. to a situation in which the per capita gross national products of all countries would tend to the same level. It is quite obvious that no such convergence or catch-up has occurred, or that it is extremely slow.
Long-term growth in the developed industrialised countries has long been more rapid than that of the developing world. There certainly seems to be a missing variable in neoclassical growth theory. This missing factor is known as the Solow residual. Since this residual has subsequently been observed to account for one third, or even half of all economic growth, it is hardly surprising that efforts have been made to supplement neoclassical growth theory.
Innovations as the Engine of Growth
One leading researcher of the present day is Paul Romer, who has published his preliminary findings under the name of the New Theory of Growth or the theory of endogenous growth. One of the leading concepts of this empirical economic theory is that ideas and innovations have a greater impact on growth than was hitherto supposed. Moreover, it is possible to foster their emergence by promoting the accumulation of knowledge and information within the economy.
According to the new theory of growth, a country will be most successful in an unfettered global economy if it invests in increasing available knowledge and information through education and product development. Knowledge and information are thus not merely exogenous commodities which are available to everyone, but can be competitive resources within a particular country and its companies. If investments are to be made in realising such a competitive edge, then it is obvious that such resources must not be given away for nothing. For this reason Romer emphasises that adequate legal protection must be assured for intellectual property rights and for human capital.
Diffusion of Technology
Enterprises in the industrialised countries have been moving into new markets at an accelerating pace. In the beginning the reason for this was the exploitation of cheap labour and raw materials. Products were manufactured in countries in which wage levels were low and these were then sold in western markets.
As world trade has gradually become less restricted it has been noticeable that there is considerable new purchasing power in these countries. Quite new, extensive markets have opened up in many places as trade barriers have been removed. It is difficult to exploit these markets, however, without some kind of market presence. One reason for this is the well-known fact that nearly half of the ideas used in product development come from the market, from customers, from competitors or otherwise from an enterprise's immediate surroundings. Another factor is that it is not otherwise possible to arrange competitive production and transport. A further phenomenon of recent years has been the use of the educated élite in the developing countries in R&D work.
The transfer to the developing countries of operations involving a great deal of knowledge and information promotes learning in these countries. This phenomenon is known as diffusion of technology. It is a process which could be investigated empirically for instance in connection with the Marshall Plan programme implemented in Europe in the 1950s. Besides receiving aid and loans from the United States, European businesses sent task forces there to study new working methods and obtain technical advice. Over twenty thousand such task forces had been sent by the end of 1957. In retrospect it may be observed that the increase in productivity deriving from the new information and tacit knowledge acquired by these task forces was considerably more important than direct financial aid.
The World Trade Organization
After the Second World War the United States was the world's leading nation, producing a major proportion of the world's goods. American enterprises obviously sought to exploit the demand created in post-war recovery markets for their superior industrial products. In 1947, at the behest of the United States, a General Agreement on Tariffs and Trade (GATT) was concluded with a view to ensuring international free trade. Although GATT functioned satisfactorily, the United States was not happy with the new system. The GATT regulations allowed a great many exceptions, compensation for lower customs duties by import quotas, favourable terms for former colonies or regional free trade zones (EFTA, EEC). The Agreement also lacked an instrument for imposing sanctions on those countries which failed to comply with the agreed regulations.
By the 1980s the structure of trade in goods had changed radically. Products began to be increasingly intangible, with a much higher ratio of software to hardware. It was increasingly easy to copy such products. While copying an automobile might be difficult, it is a simple matter to copy a compact disk, computer program or video cassette. Illegal copying and counterfeiting of brand name goods – pirating - started to become veritable industries in many countries. No action was taken to discourage copying, or only trivial sanctions were applied.
With the United States rapidly achieving ascendancy in the market for products based on information technology, it was clear that this country wanted to revise the regulations governing this area. At the end of the 1980s the GATT Member States were thus invited to meet, at what came to be known as the Uruguay Round of GATT talks, for further discussions on deregulating world trade and on certain new issues including harmonisation of legislation to protect intellectual property rights in all of the Member States. The Uruguay Round led to the establishment of the World Trade Organization late in 1994 – after almost eight years of negotiations.
Article 39 of the TRIPS Agreement
Besides protecting conventional rights to intellectual property, the United States also submitted a negotiating proposal concerning the protection of confidential information within an enterprise as a trade secret. This proposal met with steadfast opposition because the subject was alien to most of the negotiating parties and many negotiators were anyway of the opinion that the issue had nothing to do with intellectual property rights.
At this point the Swiss delegation compiled a compromise proposal. Since the WTO requires its Member States to ratify both the Paris and Bern Conventions, it was proposed that the 1883 Paris Convention, and specifically its Article 10bis concerning unfair competition, should be extended to cover trade secrets, too. In a way this cut the ground from under the feet of those countries which had opposed the new issues. Even though there might be differences of opinion concerning whether a trade secret is a form of intellectual property, it is hard to argue with the idea that the unauthorised use or disclosure of confidential information belonging to others is unfair. Article 39 of the TRIPS agreement thus took the following final form:
SECTION 7: Protection of undisclosed information
1. In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), Members shall protect undisclosed information in accordance with paragraph 2 and data submitted to governments or government agencies in accordance with paragraph 3.
2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, or acquired by, or used by others without their consent in a manner contrary to honest commercial practices (See footnote 10) so long as such information:
a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
b) has commercial value because it is secret
c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
3. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilise new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.
Footnote 10: For the purpose of this provision, ”a manner contrary to honest commercial practices” shall mean at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in acquisition.
This article is considerably shorter than the original proposal submitted by the United States. It also employs expressions which are not generally used in this form in those countries which have enacted legislation proper to protect trade secrets.
Interpretation of international Conventions
Generally speaking, a given law may be interpreted either objectively or subjectively. The first of these approaches departs from the words and sentence structures of the statute. Subjective legal interpretation, on the other hand, arises when one seeks to investigate the aims of a given legislative provision. The general conception is that objective interpretation is the primary method, which may be supplemented by investigating the purpose of the law for example in the preliminary works of the law. Article 39 of the TRIPS agreement was not preceded by the usual preparation or other commentaries, meaning that besides its semantic and logical interpretation one must resort to historical arguments to be found in the doctrines prevailing in those countries which actively participated in creating this very article.
The German Doctrine
The norms protecting trade secrecy in German civil law traditionally form an important element of legislation against unfair business practices. Even though the roots of the idea lie in France, the doctrine proper may be viewed as having evolved in Germany since the end of the 19th century. German legislation has in turn served as a model for many other countries, mainly Switzerland, Austria and the Nordic countries.
At the end of the last century there was a sustained economic boom in Germany combined with the freedom of trade which took effect in 1871. Freedom of competition was the leading idea of these days. It was even regarded as entirely alien to German law that any competitive business practice might be unfair. Competition, however, soon began to take unsavoury forms and fears were expressed that German industry might soon lose its reputation for honesty. A law to prevent unfair competition was therefore enacted in 1896 and was then amended to its present form in 1909 (UWG vom 7.6.1909).
UWG is mainly sanctioned by consequences in civil law, with the notable exception of offences against trade secrets (Geschäfts- und Betriebsgeheimnisse). German law provides no guidance whatsoever regarding the information which may fall within the scope of trade secrecy. Definitions of this kind generally depart from and centre on when certain information meets the requirements of secrecy. The most important of these is that the keeper of a trade secret, the undertaking, must have an interest in maintaining the said secrecy. In other words, the information must be of some commercial value because it remains secret and thus available only within the undertaking concerned. Secondly, the undertaking must desire to maintain the confidentiality of the trade secret. This generally means that the confidential information must be known by only a restricted group. Moreover nothing which can easily be discovered, for example by examining a finished product of the undertaking, can qualify as a trade secret.
Where these conditions have been met the courts have vested an exceptionally broad range of information with protection as a trade secret, covering customer databases and terms of payment, precontracts and the details of sales organisations.
The Former Employees´ Rights
The ban on disclosure or use of the trade secrets of an enterprise applies to its employees, to subcontractors and to others who work with the enterprise such as consultants, lawyers or accountants. Nevertheless, when former employees set up in business or find work with other employers they are free to use their knowledge of the trade secrets of their former employers. An employer may, however, make an agreement with the employee on restraint of trade for a limited period or on respect for confidentiality. The validity of the latter need not be limited in time but it must be reasonable in scope.
The roots of American trade secret law lie in early 19th century English law. Any examination of trade secret protection in the United States must allow for early common law cases, the 1939 Restatement of Torts, the Uniform Trade Secrets Act which is in force in forty states and the 1996 Economic Espionage Act.
The general principles of early common law are set out in the Restatement of Torts collection published by the American Law Institute. Section 759, comment b of the 1939 collection defines a trade secret as follows:
”A trade secret may consist of any formula, pattern, device, or compilation of information which is used in one´s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it”
The Focus on Confidentiality
American law previously had some problems in endeavouring to define a trade secret as a form of property in an undertaking, and especially in determining when it may be held that such proprietary status has been lost. These efforts at formulating a definition have subsequently been abandoned and attention has focused mainly on whether it can be held that the information was obtained in a confidential relationship. American law also stresses the obligation of the enterprise to advise its employees and other partners that they are handling confidential information.
In 1979 the National Conference of Commissioners on Uniform State Laws published a legislative proposal for a Uniform Trade Secrets Act, which was recommended for adoption in all state legislatures. While this proposal clarified some opaque concepts in the Restatement of Torts, its most important effect was obviously that it has harmonised the protection of trade secrets in all of the forty states in which such a law has taken effect.
United States law has recognised only civil sanctions for breaches of trade secrecy. The most common of these have been awards of damages and an injunction prohibiting further improper use of information obtained. However, the rapid rise in industrial espionage during the 1990s led to a decision to introduce criminal sanctions. The 1996 Economic Espionage Act (EEA) seeks to prevent theft, misuse, transformation, duplication or destruction of trade secrets by imposing severe penalties. The maximum penalty may be ten years' imprisonment or a fine of five million dollars. In cases of international industrial espionage the maximum penalty rises to fifteen years' imprisonment or a fine of ten million dollars.
Minimum Protection of a Trade Secret
Article 39 of the TRIPS agreement focuses on article 10bis of the Paris Convention concerning unfair competition. It makes the article more specific in that it settles the long debate about whether offences against trade secrets are matters of unfair competition. From the point of view of those countries which did not previously hold this view, the scope of article 10bis is thus extended.
Article 39 of the TRIPS agreement does not use the expression "trade secret" but rather the new concept of undisclosed information. In fact the introduction of new concepts is noticeable elsewhere in the TRIPS agreement, too. The reason may be that since the notion of a "trade secret" was unknown in more than one hundred WTO Member States it was considered desirable to introduce a new expression common to all. The expression "trade secret" is nevertheless routinely used in official WTO bulletins.
Not a Form of Property
Paragraph 2 of the article seeks to circumvent the debate which has gone on, especially in the United States, concerning trade secrets as a form of property. The paragraph states that if information is lawfully within someone's control, then he must be able to prevent its unauthorised disclosure or use. WTO publications explaining this point also repeatedly point out that confidential information need not take the form of property.
Paragraph 2a expresses the principle, established in German civil law and in Anglo-American law, that a trade secret cannot be generally known to those who work in the industry concerned. This is an important principle, as a trade secret is probably rather seldom something which nobody knows. In other words it suffices that it should not be commonly known within the applicable domain.
Paragraph 2b emphasises the point that a trade secret must have commercial and not merely sentimental or other value and that this commercial value would be lost if a competitor were to learn the secret.
Paragraph 2c requires in turn that the keeper of confidential information has taken reasonable steps under the circumstances to maintain its secrecy. In this respect article 39 is largely reminiscent of United States law, which generally requires that concrete measures have been taken to maintain secrecy. German law, on the other hand, emphasises the desire to maintain confidentiality, which in practice may be regarded as amounting to the same thing. Even when all of the other conditions have been met, it has not been possible to obtain protection for a trade secret when no adequate steps have been taken to preserve its confidentiality. Here German and Nordic practice seems to be even more absolute: a former employee is entirely free to exploit the trade secrets of his previous employer unless explicitly otherwise agreed.
The footnote (10) to the article defines competitive actions which are always contrary to honest commercial practice. In the first place there is breach of contract, which probably refers to contracts in restraint of trade and nondisclosure agreements. This may also be thought to apply in the case of implied contracts under American law, in which a contract of confidentiality is deemed to have arisen between contracting parties. However, since such contracts are alien to German civil law in this respect, they can hardly be intended here. Breach of confidence, on the other hand, is the principal unfair competitive practice in the American model.
The footnote further adds that the keeper of a trade secret must also be afforded protection in cases where it should have been clear from the circumstances that the secret was obtained by dishonest means.
A narrow or a broad Protection
It may be concluded at first glance that article 39 seeks nearly absolute protection for trade secrets. This, however, is not the case. It is important to note that investigations show that the former employees of an undertaking constitute the greatest risk to its trade secrets. It is customary in American law that if it can be held that a trade secret was obtained in a confidential relationship, then it may not be disclosed even after the employment relationship has ended. In German civil law - and in the law of those countries which have used German law as a model - a worker may generally exploit the confidential information of a former employer after the employment relationship has ended. Article 39 actually leaves it up to the Member States to decide whether they will adopt the American or German approach.
The article also refers to breach of contract. As no further details are given in this respect, it would seem that the Member States of the WTO may freely determine the character of such contracts. If the intention is to refer to agreements in restraint of trade or confidentiality, then the decisive factor becomes that of the scope and duration which may be freely agreed for such contracts. This naturally has a fundamental impact on the extent of protection of a trade secret.
Minimum Protection or more
No statute is a law unless sanctions are applicable in cases of non-compliance. In this respect article 39 gives the Member States a very broad margin of discretion. Offences against trade secrecy may result in no more than damages and injunctive relief. On the other hand, a Member State may criminalise the unauthorised disclosure or use of a trade secret and apply severe penalties, as in the latest United States legislation (EEA 1996).
It can now be seen that while article 39 of the TRIPS agreement is broadly clear, it gives the Member States of the WTO an exceptionally broad margin of discretion in respect of the extent of protection to be provided for trade secrets. The question of whether to enact only the minimum standard of protection required by the agreement or some much more extensive legislation to protect trade secrets which the agreement also allows is one which cannot be answered by jurisprudence alone. Other criteria must therefore be applied.
The Strategic Theory of Trade
138 States have so far joined the World Trade Organization. Many other countries such as Russia and the Ukraine have applied for membership and it seems clear that in future years a large number of countries will become involved in international trade co-operation on the terms of the WTO. This organization differs from its predecessor, the GATT agreement, which is today only a part of the WTO agreement, in that it is almost impossible for a nation to enjoy any special dispensation from the agreed terms. Breaches of the agreement are also subject to sanctions. Further, it is a political fact that the United States - as the largest single Member State and initiator of the Uruguay Round – might even be prepared to take unilateral retaliatory measures against any countries which it considers to have violated the Convention.
The regulations are thus a given factor and it is now the business of each individual Member State to compile a national strategy which will provide the greatest benefit from participation in international trade within the WTO framework. Such a strategy is referred to as a Strategic Theory of Trade and its purpose is to provide an operating policy whereby each individual country, in its own individual circumstances, may achieve the objectives which it has imposed for itself in the globalising economy.
The Law and Economics
Jurisprudence has traditionally been closely related to ethics and sociology. The major questions of right and wrong or of the impacts of legislation on matters such as criminality and poverty have been closely associated with the concept of fairness, which is one of the cornerstones of jurisprudence.
Efficiency vs. Fairness
Economics, on the other hand, has often been viewed as something alien to jurisprudential circles. There are two main reasons for this. One of the goals of economics is to maximise efficiency, which has sometimes been seen to conflict with the requirement of fairness. The other reason seems to be that economies are subject to an almost limitless number of variables. When economists research some phenomenon it is therefore often necessary to exclude as many variables as possible. This is known as the ceteris paribus condition: "all other things being equal". Legal decisions, however, seek to allow for all of the factors which have bearing on the matter, which means that the methodology of economics may sometimes seem to be oversimplified and inadequate.
Objections may be raised to these arguments, however. While it is true that the quest for efficiency is one of the objectives of modern economics, this does not mean that any means are justified in seeking efficiency under normal economic conditions and that fairness can be set aside. Fairness is the business of legislation but it is equally important to see that efficiency does not mean the same as the theoretical concept of maximisation of profits. It is a known fact of economic science that maximisation of profits is possible only in the short term. Since enterprises generally plan their operations over the long-term, the principal objective can only be optimisation of profits. This means seeking the greatest possible efficiency in allocating the factors of production. Where continuous operations are involved, allowances must be made for such factors as job satisfaction, fair pay, satisfaction of stakeholders and so on. Viewed in this way, efficiency does not necessarily conflict in any way with the requirement of fairness.
As far as the ceteris paribus condition is concerned, the aim is to exclude those factors which have no significant impact on the phenomenon being studied. The same thing is done in jurisprudence. The only difference is that the legislature decides on the factors to be excluded from the equation so that the judge no longer usually needs to do so.
When the methods of economics are used alongside those of jurisprudence, the approach may be descriptive or normative. The first of these approaches describes what some state of affairs is like. When a new tax law is enacted, for example, the economic impacts which are thereby occasioned may later be monitored. Individual cases at civil law may also be monitored normatively. Using the basic instruments of economics in contract law, for example, one may seek to investigate the kind of legislation which would most effectively enable contracts to be made. Examples of such technical criteria include Pareto Superiority, the Kaldor-Hicks criterion and the so-called Coase Theorem devised by Ronald H. Coase. One leading school of law and economics, the Chicago School, works mainly with these concepts.
An Institutional Approach
Law and economics may also function on the macroeconomic level, however. Here institutional law and economics provides a practical approach. It investigates how institutions affect one another. Institutions are the social rules which structure interpersonal interactions. They consist of formal rules, such as legislation, but also of informal ways whereby people deal with one another. It is thus the business of institutional law and economics, for example, to assist in understanding the kind of alternative economic consequences which may be caused by a given legislative amendment. If its impact can be predicted, then legislation may be influenced at the drafting stage.
When finally it is understood that the institutional approach emphasises the process-like character of institutional interaction and stresses the importance of modern technology as a factor in improving efficiency, stimulating growth and increasing affluence, then a point of contact with the research problem appears. An answer may be sought to the question of what kind of domestic strategic theory of trade will ensure the greatest possible benefit to an individual WTO Member State engaging in global trade.
The Diffusion of Technology
It is one of the basic assumptions of this research that all of the countries which have joined the World Trade Organisation are seeking economic growth. Neoclassical economics, as observed earlier, gives no adequate answer to the question of how to realise sustained growth. According to neoclassical economics, economic growth depends primarily on inputs of labour and capital. These, however, are subject to the law of diminishing returns and so some way must also be found to improve efficiency. The new theory of growth seeks to supplement this model by proposing that the most important factor affecting growth is the accumulation of new ideas and innovations within the economy.
One critical question which arises is that of how the WTO Member States which lack the resources to invest in education and in product development will fare in international competition. This, in other words, is the question of how, with limited or non-existent resources, it is possible to increase the amount of knowledge and information to levels enabling social efficiency and growth. The answer lies in the diffusion of technology.
The diffusion of technology is the process whereby knowledge and information spread through a community and improve its competitiveness over the long term. This leads to the following conclusions:
1. Investments in high technology should be favoured
2. Efforts must be made to improve the educational level of the workforce
3. Escalation of information must be encouraged. This will occur through communication and free information interchange.
In the light of the latest research these three conditions have been taking on a new importance as efforts are made to even out differences between living standards in various countries. The first two conditions are generally well-known and the industrialised countries in particular have sought to preserve their competitiveness using such means. Less attention has been paid, on the other hand, to the third principle. It has rather been regarded as some kind of law of nature, in other words it has been assumed that when as many people as possible are working with information, then this information will automatically also be of benefit to its immediate social surroundings and will turn them into a competitive information society.
Here we return to one of the basic insights of this research. Maximum benefit can be derived from the deregulated global economy not merely by knowing the economic theories which underpin the ideal of free trade, but by understanding what is and is not possible for an individual nation State within the framework imposed by international law. Thus one may seek to draft national legislation with a view to maximising national benefit.
The Extent of Trade Secret Protection
The industrialised, information-rich nations are naturally seeking to enlarge their intellectual property rights in all of the countries in which they do business. They are seeking to apply the principle of dynamic comparative advance, meaning that when the global economy is as free as possible then the strong nations will be those which can be first to exploit their superiority. They will then probably also preserve their leading position for the longest time.
What, then, will happen to those countries which have no competitive edge? Neoclassical growth theory really offers them little hope, merely suggest that they should invest in education, in product development and in producing knowledge and information. Without resources this is, however, well nigh impossible.
Those countries which are unable to create knowledge and information through their own efforts may benefit from the deregulation of global markets by furnishing foreign enterprises with labour and raw materials at competitive prices. Although this will increase the use of labour and capital inputs, it will probably not result in the desired efficiency and consequent economic growth. Instead, based on this research it seems that such countries should encourage the accumulation of knowledge and information by making communication as open as possible. It is therefore clear that such countries should guarantee only the minimum protection for trade secrets which is required by the TRIPS agreement and should seek to encourage the dissemination throughout their societies of the knowledge and information which accompanies foreign investments.
©Mauri G Gronroos, D.Sc. (Econ.), Likolammenkatu 4 A, FIN-33300 Tampere, Finland, E-mail: email@example.com, fax: +358-3-3433 445. All rights reserved. Fair use allowed if the source is given.