Unilateral tariffs risk retaliation aimed at intellectual property

In considering the current frenzy over unilateral tariffs, looking back just a few decades is helpful. Recall the outcome of the Uruguay Round (1986-1994) of negotiations that led to the World Trade Organization (WTO) being set up to underpin the multilateral trading system.

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A core feature of the Uruguay Round was its expanded coverage of services and intellectual property, as against the General Agreement on Tariffs and Trade 1947 (GATT), which dealt only with goods. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which codified universal IP protection, was agreed upon after long and difficult negotiations. 

Many developing countries had contested the inclusion of intellectual property in these trade talks; they agreed only reluctantly in exchange for tariff concessions on textiles, agriculture and other goods.

Another core feature was the ‘single undertaking’ principle, which made certain agreements on goods, services, intellectual property and dispute settlement uniformly and indivisibly binding on all WTO members. This merged cross-sectoral benefits into a single package, in contrast to the balkanization of trade negotiations before the Uruguay Round. Crucially, this framework enables a game-theory dynamic to guide negotiations and repeat encounters among WTO members, allowing losses in one sector to be traded for wins in another. 

It also opens the possibility of cross-sectoral retaliation for uncorrected breaches of norms, such as by suspending intellectual property rights to retaliate against continuing violations by a member, via a mechanism provided for under the WTO’s Dispute Settlement Understanding (Article 22).

As an example, consider the US-gambling dispute that concerned the discriminatory blocking by the US of online gambling sites hosted in Antigua. When the US failed to correct that discriminatory measure (despite losing before a WTO panel in 2004, Antigua received approval to impose cross-retaliatory measures by suspending the intellectual property rights of American entities. In 2012, Antigua even announced a plan for a website that would sell American works to Antiguan citizens without compensation for American right-holders. However, that cross-retaliation proposal was never put into effect, and Antigua has continued to reject US settlement offers as being grossly inadequate.

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In another instance, the US-Subsidies on Upland Cotton dispute, Brazil challenged certain subsidies extended by the US to its cotton growers that were found to be prohibited. When the US failed to lift that measure (despite losing before a WTO panel in 2004), Brazil received approval to suspend TRIPS obligations and announced cross-retaliation aimed at American pharmaceutical patents. That was targeted retaliation, and while the US did not revoke the disputed measures, the parties nevertheless went in for a monetary settlement in 2014.

The threat of cross-retaliation involving intellectual property will likely become pronounced as countries assess possible responses to unilateral tariff impositions. The potential use of countermeasures is already prominent, given an ineffective WTO Appellate Body.

For example, in 2021, the European Union adopted an amended ‘Enforcement Regulation’ (Regulation 2021/167), enabling the use of countermeasures—including the suspension of TRIPS obligations—to enforce favourable rulings obtained at the WTO or under a free trade agreement, or against a party preventing effective dispute settlement. 

In 2023, the EU adopted an ‘Anti-Coercion Regulation’ (Regulation 2023/2675), enabling direct countermeasures (without recourse to dispute settlement) to counter economic interference and coercion. It explicitly provides for the suspension of intellectual property rights of holders from the coercing country and corresponding suspensions of TRIPS obligations.

Even without specific domestic enabling regulation—and outside the WTO framework—countries might independently consider cross-retaliation as a countermeasure under international law (that is, under the law of state responsibility) to counteract unilateral tariffs that breach trade obligations. However, while intellectual-property cross-retaliation has been used in the past, there exist practical limitations.

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First, the reputational and political stakes involved may be high, especially for developing countries.

Second, under the WTO framework, the suspension of intellectual property protections must be calibrated to be “equivalent to the level of the nullification or impairment” caused by the breaching party.

Third, under general international law, countermeasures need to be based on specific parameters, temporary (to continue until the breach is addressed) and undertaken in a manner that permits an effective resumption of suspended obligations.

As countries assess potential responses to unilateral tariffs, they may want to carefully recall the underpinnings of a tautly negotiated multilateral trade equation.

The authors are, respectively, a lawyer and founder of Sanan Law; and an associate professor at National Law University, Delhi.