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investment.⁶² When Thailand amended its patent law in 1992, the expansion of patents to pharmaceutical inventions has not made Thailand more attractive to foreign investors. So far, multinational pharmaceutical companies have not established the potential full range of operations in Thailand. The investments of multinationals are still limited to the final stage of medicine production. Those companies have continued to supply the Thai market by importing products from overseas plants and by formulating and packaging products in Thailand, regardless of the level of IP protection in the country. Therefore, the introduction of the new IP regime under the proposed FTA with the United States would not be likely to significantly influence the desire of foreign companies to set up an R&D unit or a factory for the production of active ingredients in Thailand. Potential pharmaceutical FDI is limited due to a number of the country's inadequacies for these sorts of activities mentioned earlier.

Excessive IP protection does not necessarily mean an inflow of FDI, and low levels of protection do not necessarily keep away foreign investment either. This is evident through the entrance of many foreign pharmaceutical companies into Thailand before the first patent law was adopted in 1979. The fact that a number of multinational drug companies had established investment activities in Thailand while their home country governments were calling for improvement of patent protection worldwide seems to contradict the argument that insufficiency in patent protection leads to a decline in foreign investment.

Oddi argued in the late 1980s that the absence of patent protection in a developing country might actually be a significant factor in attracting foreign investment.⁶³ He refers to the situation in Argentina as an example. A large number of foreign pharmaceutical companies entered Argentina to invest in the manufacture of generic products. It is believed that the weak patent protection on pharmaceuticals was the main factor in making the country a manufacturing base of the pharmaceutical companies. This is consistent with the more recent work of Professor Carlos Correa who found a significant flow of FDI into the country despite the absences of pharmaceutical patenting.⁶⁴ This view is shared by Lall and Bibile, who conclude that that the exclusion of pharmaceuticals from patent protection was a significant factor leading Italy to become a base for export-oriented production of generic medicines.⁶⁵

Patents and technological development

Technology is a basic requirement for the industrial growth and economic development of developing countries. While the acquisition of modern technology in developed countries may be through locally undertaken R&D, developing countries generally acquire technology through two channels: domestic R&D and import of technology from abroad.⁶⁶ The current section considers whether or not patent protection for pharmaceuticals would stimulate local R&D and encourage foreign technology owners to transfer technology to developing countries.⁶⁷

Research and development

Modern technologies are mostly developed in a small number of industrialised countries. In general, developed country governments are not directly involved in R&D, but may encourage private research by providing various incentives. In order to stimulate local R&D, many countries provide privileges to research-oriented firms. The privileges include, direct government funding, investment tax credit, patent protection and legal protection of trade secrets, amongst others.

In Thailand, the government has recognised the importance of modern technology and has encouraged the development of local technology by financing a number of research programmes in various universities and public research institutes. It also provides financial support for research to private firms. Moreover, the profitability guaranteed by the patent system is designed to be another significant incentive for the development of indigenous technologies in the country.⁶⁸

In spite of several incentives, Thai Government policies designed to stimulate local R&D have proved unsuccessful. Thailand spends a smaller share of Gross Domestic Product (GDP) on R&D than many other countries. While R&D expenditures of industrialised countries are generally more than 2 per cent of GDP, the amount of research spending in Thailand in 2002 was US$277 million,⁶⁹ or 0.22 per cent of GDP.⁷⁰ This amount was smaller than those spent by newly industrialised countries, including Korea, Taiwan and Singapore, which were at 2.92, 2.56 and 2.12 per cent of GDP respectively.⁷¹

Regarding R&D in the private sector, Thai companies spent US$138 million on R&D in 2002.⁷² The Thai private sector accounted for 42.07 per cent of the total R&D cost of the country. This is relatively low by international standards, compared to approximate private sector R&D spending of 70 and 61 per cent in developed countries and newly industrialised countries respectively.⁷³

Statistics also reveal that Thailand has a smaller number of full-time research personnel than other countries. While the number of researchers in Thailand in 2001 was at 7.4 per 10,000 population, the number of research personnel in Taiwan, Korea, China, the United States, and Singapore were in the range of 40 to 80 per 10,000 population.⁷⁴

R&D activities are not significant in view of the number of companies operating in Thailand. Private firms, both local and foreign, rely largely on imported technology for all production activities. Although R&D is carried out in some private firms, these research projects are confined to the development of low standard technology such as product and process improvement.⁷⁵ The lack of R&Dcan be explained by three factors: (i) most firms produced standardised products which require only simple technology; (ii) Thai companies consider the development of technological inventions to be costlier and slower than the import of ready-made technologies; (iii) the country's acute shortage of scientists and engineers.

The country's lack of innovation is reflected in the number of patents granted by the Department of Intellectual Property (DIP). Between 1996 and 2005, DIP received 77,309 applications for patents. In the period, 14,677 patents were issued.⁷⁶ A closer examination reveals that Thai nationals substantially fewer less patents than foreigners. Out of 14,677 patents, Thai-owned patents represent only a small proportion. While 10,536 patents or 71.79 per cent were granted to foreigners, 4,141 patents or 28.21 per cent went to Thai nationals.⁷⁷ The situation is even worse when the number of patents for inventions alone is considered. From 7,294 patents granted for inventions, 6,865 patents or 94.12 per cent were given to foreigners, only 429 patents or 5.88 per cent of all patents were accounted for by local inventions.⁷⁸

Footnotes

62. The view is shared by Professor Edith Penrose. See E.T. Penrose, "International Patenting and the Less-Developed Countries", Economic Journal, Vol.83, 1973, p.775.

63. A.S. Oddi, "The International Patent System and Third World Development: Reality or Myth?" Duke Law Journal, 1987, p.849.

64. See C.M. Correa, "Reforming the Intellectual Property Rights System in Latin America", World Economy, 2000, pp.851-872.

65. S. Lall and S. Bibile, "The Political Economy of Controlling Transnationals: The Pharmaceutical Industry in Sri Lanka (1972-76)", World Development, Vol.5, No.8., 1977, at p.688. See also F.M. Scherer and S. Weiburst, "Economic Effects of Strengthening Pharmaceutical Patent Protection in Italy" (1995) 26 I.I.C. 1009-1024.

66. For analysis of the TRIPS Agreement in regard to the transfer of technology in developing countries, see S.K. Verma, "TRIPS--Development and Transfer of Technology" (1996) 27 I.I.C. 3.

67. The benefit of the patent system in encouraging R&D and transfer of technology is emphasised by R.T. Rapp and R.P. Rozex, "Benefits and Costs of Intellectual Property Protection in Developing Countries", J.W.T., Vol.24,No.5, 1990, p.95; and H.P. Kunz-Hallstein, "The Revision of the International System of Patent Protection in the Interest of the Developing Countries" (1979) 10 I.I.C. 652. For policy discussion on the transfer of technology in Thailand, see TDRI, The Barriers to and Strategies for Technology Acquisition (Thailand Development Research Institute, Bangkok, 1991).

68. TDRI, ibid., p.14.

69. APEC Industrial Science & Technology Internationalization Database Trendsetters, 2005. www.apecisti. org/isti/abridge/cic/cicrde00.htm

70. IMD World Competitiveness Yearbook 2004.

71. ibid.

72. APEC Industrial Science & Technology Internationalization Database Trendsetters, cited above.

73. IMD World Competitiveness Yearbook 2004.

74. National Research Council, "National Survey on R&D Expenditure and Personnel of Thailand", Bangkok, 2004.

75. TDRI, Intellectual Property and Impacts of Trade Agreements on Thai SMEs, cited above.

76. Department of Intellectual Property, Ministry of Commerce, Bangkok, 2006. www.ipthailand/org/en/index.php?option=com docman&task=cat view&gid=22&Itemid=36

77. ibid.

78. ibid.