Regarding your editorial “American the Difficult” (Nov. 28, 2011):   None of the three jurisdictions that you commend for the flatter and lower business taxes—Hong Kong, Singapore and Ireland—is a world power.

As a matter of individual profit maximization, lower-tax jurisdictions may be attractive to businesses seeking to escape taxes back home. But how much protection do these tiny countries provide for companies faced with expropriation, breach of their contracts, criminal prosecutions of their executives and infringement of their intellectual property? How valuable is a Hong Kong patent? A Singaporean trademark? Or an Irish copyright? How influential are their diplomats or their military?

Where would Google, Apple and Oracle be without the force of U.S. copyrights to protect their software?  How could Exxon and Chevron get along without U.S. patent protection or the U.S. armed forces that guard trade routes for tankers carrying their oil?

Through various ruses, these companies end up paying almost no U.S. taxes on the income they produce with “offshore assets” that derive their value mostly from U.S. protection.  A swift end should be brought to this tax dodge that is draining the U.S. of its ability to maintain its superpower status.

We are simply not collecting enough from American-protected businesses operating abroad.  There is even talk about abandoning the U.S. world-wide tax system and emulating the territorial tax systems of secondary countries.  If we do so, America will become a second-tier country.

©2011 D.R. Martin, LLC

International arbitration facilities available to U.S. investors for disputes with private parties and governments in Latin America. Treaties and international agreements are subject to declarations and reservations.

“New York Convention”: The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done in New York on June 10, 1958.  “Panama Convention”: The Inter-American Convention on International Arbitration, done in Panama City, Panama on January 30,1975.   “ICSIS Convention”: The Convention on the Settlement of Disputes Between States and Nationals of Other States, done in Washington, D.C., on March 18,1965.

This regards “Stealth, snubs and the art of surprise” (Editorial) and Philip Stephens, “The perils of mutual miscalculations” (Op-ed)  Jan. 14, 2011.
 
The hopes for more Chinese military transparency and mutual trust and cooperation with the U.S. are idealistic and perhaps naive.  China will act according to its stature and means.  For centuries, Western and other nations muted and stymied this sleeping power.   The Tiger is now out of a decrepit cage, and the Tamers are tired and arthritic.   Showboating China’s J-20 stealth fighter during Robert Gates’ visit is a brazen display of China’s audacity and confidence. 
 
The U.S. squandered much of its fire on the two pointless conflicts in Iraq and Afghanistan.   The U.S. still has some fight left, but there is simply no going back to unquestioned global dominance without a severe clash.  The U.S. signaled weakness in “showing restraint” in the face of the unprovoked attacks against South Korea by North Korea, China’s proxy.  Timidity shines through in the U.S.’s requests for joint military exercises and disclosure of China’s arms buildup.  Would China turn its back on Sun Tsu, its fabled military tactician, who said words to the effect that a key to military victory is deception?  
 
Regrettably, principled persuasion (war-is-bad-for-everyone) and diplomatic finesse (let’s-play-nice) work best when backed by the willingness and ability to use force. 
 
The Chinese have Sun Tzu, while the U.S. have the fictitious character of Frank Pentangeli in The Godfather: Part II.   Pentangeli’s words — “This is a street thing…  Let’s hit them all.  Now while we got the muscle.” –  were rejected for a more “sophisticated” albeit failed approach.  Those unpolished words deserve reflection. 
 
David Martin

Aside from lower corporate taxes, could it be that Canada’s government provides a fairer and more secure environment for individuals to deliver their talents in the aid of economic prosperity?

David Martin

Atlanta

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               While over a century of debate on Puerto Rico’s political status consumes the efforts of the local policymakers, the island’s last chance at economic self-determination may slip away.  

               On May 15, 2008, the U.S. Navy rejected all bids made for approximately 2,900 acres of the former Roosevelt Roads U.S. Naval Base, according to a liaison in charge of the auction process.  The planned public sale had been rescheduled for the first quarter of 2009, but did not occur.  Certain press reports indicate that the Puerto Rico government is looking for ways to obtain the land from the Navy without cost.  The year-old administration of governor Luis Fortuño disclosed an improved redevelopment proposal.  However, the plans are still too modest given the transformational potential that this opportunity presents for Puerto Rico.

                  The acreage to be sold is a fraction of the total 8,600 acres contained on the base.  By many lights, the property is the largest land assemblage in Puerto Rico under a single ownership.  Equipped with its own heavy aircraft runways, helipads and harbor, “Rosy” (as many know it) is Puerto Rico’s golden chance to build the most preeminent master-planned leisure and entertainment city in the world.   A chance to create a world-famous brand for the island, this city could be known as Puerto Rico City in English and  Ciudad Borinquen in Spanish.

                Puerto Rico City would surpass San Juan in economic importance.  Please pause for the thought.

                In December 2004, Puerto Rico’s Local Redevelopment Authority (then known as Portal del Futuro) published its Reuse Plan.   In order of mention (and ostensible priority), the plan called for the creation of a science park, industrial and commercial sites, schools, housing (including low income housing) and finally (and perhaps least) tourism facilities. 

                  Developed during former governor Aníbal Acevedo’s administration, the 2004 Reuse Plan expressly stated that the government’s interest in tourism was “moderate.”[1]  This echoed the Commonwealth’s Comprehensive Annual Financial Report for the fiscal year ending June 30, 2006, stating that the island’s economic program seeks to “refocus the economy on biotechnology, telecommunications, technology information, and related sectors.”[2]   The Plan’s lack of emphasis on leisure and entertainment was suboptimal and had to be changed.

               Thankfully, the Fortuño Administration did indeed change these plans and proposed a tourism development that is anchored by a single 2,400 hotel resort and re-use of military housing and school buildings.   While an improvement, the proposal is still far too limited in scope.

                Historically, the island tried to fancy itself as the future tropical home for high-tech and manufacturing jobs.   Some island policy makers still harbor these aspirations, although such goals are demonstrably speculative, environmentally risky, and neglect Puerto Rico’s most formidable competitive advantages.  Puerto Rico has rare, underutilized gifts as a leisure and entertainment destination:

•  A year-round temperate climate.  Try sitting poolside or playing golf in Las Vegas, Orlando or Atlantic City from November to March.   You will also take cold-weather risks in the Bahamas or even Havana where low winter temperatures regularly break fifty degrees Fahrenheit.  
• Real tropical scenery and beaches.  (Try finding these in U.S. L&E megasites)
• An artistically and athletically talented populace that competes and excels internationally in the performing arts and sports with little or no government support.
• Political stability as part of the United States with familiar federal laws and agencies.
• Proximity to the stressed-out highly paid workers on the U.S. East Coast seeking reprieve and reward for the efforts of their labor. 

                  At the end of the day, when all is said and done, leisure and entertainment are what everybody wants and will pay up for.  And there is no other place within the safety and convenience of the United States with the favorable baseline attributes of Puerto Rico. 

                   Las Vegas, Orlando and Atlantic City respectively emerged from a desert, a swamp, and a dilapidated seaside ghost town.  Macau on the coast of China, where crime gangs and execution-style killings were once commonplace, has already surpassed Las Vegas in L&E earning power, generating $7 billion in gaming revenue in 2007 versus $6.7 billion earned on the Las Vegas Strip.  In neighboring Cotai, the Las Vegas Sands Corp. invested $2.2 billion to build a larger version of The Venetian with 3,000 hotel rooms.  Sands plans to invest an additional $13 billion to build a new diversified entertainment district in Cotai.[3] 

               While Puerto Rico’s aspirations to build and host imposing manufacturing and high-tech industries are understandable, economic reality unmasks these as illusions. Such policies have done little to chip away at Puerto Rico’s unemployment rate (15.9% as of November 2009), which has hovered in the double digits for more than ten years.[4]  

                 If Puerto Rico’s unemployment rate weren’t enough to stop chasing an orgiastic future in manufacturing, consider what has happened on the U.S. mainland.  Despite its highly developed industrial complex and exceptionally educated labor force, the U.S.’s manufacturing jobs have declined from 17.1 million to 12.88 million (a yearly decrease of 3.4%), from 2001 to 2008.[5]   

                 Does it make sense then for Puerto Rico to try to follow the same path when it is further behind in infrastructure and training?  

                  Noting the negative impact of the repeal of Section 936 of the Internal Revenue Code on Puerto Rico’s pharmaceutical industry, an article published in March 2008 by the Federal Reserve Bank of New York expresses a similar skeptical view of Puerto Rico’s prospects as a major manufacturing location.  The article states in relevant part: “The hope that Puerto Rico could…become the next Ireland …may not be realistic.”[6]

                   A nearby chart shows the relentless 4.19% yearly decline (from 137,000 to 101,500) in Puerto Rican manufacturing jobs from 2001 to 2008.[7]

                     Contrast these figures with leisure and hospitality jobs that have grown at an average rate of 2.19% from 66,300 in 2001 to 73,700 in 2008.[8]  

                     Total revenue from tourism from 1997 to 2008 grew at a compound rate of 5.48% from $2 billion to $3.6 billion.[9]  The latter number represents a return of 28 times the Puerto Rico Tourism Company’s $121.9 million budget for the 2007 fiscal year.[10]   In early December 2007, Terestella Gonzalez Denton, executive director, announced $2.5 billion in future tourism projects and the construction of 3,000 hotel rooms.[11]  As a percentage of visitor spending, expected tourism investment is just 71% of the prior year’s visitor spending.

                   As illustrated in these simple graphs and figures, Puerto Rico’s manufacturing jobs continue to disappear, while Puerto Rico’s tourism industry continues to grow.  

                   It is helpful to compare these figures with Nevada’s 308,000 to 333,000 leisure and hospitality jobs, reflecting a 1.57% growth rate during the same period.[12]  From 2001 to 2006, visitor spending in Las Vegas has increased from $31.9 billion to $34.9 billion, a compound growth rate of 4.3% (the same rate as in Puerto Rico).[13]

                    For 2008, about $35 billion in additional investment was announced for Las Vegas.[14]  This represents approximately 100% of visitor spending in 2006.

                   If the L&E powers-that-be see this type of future in leisure and entertainment, why doesn’t Puerto Rico? 

                   Private investment must be allowed and encouraged on the scale of Las Vegas, Orlando, Macau and Cotai.  The MGM Grand in Las Vegas has 5,690 rooms.[15]  The largest hotel in Puerto Rico is El Conquistador with just 984 rooms.[16]  Puerto Rico’s entire hotel room inventory is approximately 14,000.[17]   Compare this with Hawaii’s 47,000 hotel rooms.[18]  Significantly, Hawaii is 2,500 miles from the West Coast, while Puerto Rico is about a thousand miles closer to the more populous East Coast of the U.S.

                   In addition to the scant number of hotel rooms, Puerto Rico’s hotels  have thin or non-existent feature entertainment and generally lack pedestrian-friendly access to one another.  In addition to a nearby airport, Las Vegas’ superior attraction lies in a visitor’s ability to easily sample and enjoy hotel properties and other venues by just walking the Strip.    

                   Puerto Rico City can have that and more.  The entire site can and should be developed into an eco-friendly L&E city on the order of Las Vegas, Orlando, Atlantic City and Macau-Cotai.  But Puerto Rico City will be better because it will not have to rely on gambling and other in-door entertainment for six months of the year. 

                    Rosy’s physical perimeter should be maintained and it should be operated as a semi-autonomous district with its own flexible and efficient regulations and laws, cooperatively financed security, computerized real property and commercial registries, and a specialized business court with proceedings conducted in English.  

                    Visitor regulation should be light and friendly.  European sunbathing already happens on the beaches of San Juan, and walking outside with a cocktail should not be a reason to get hassled.  Smoking should be permitted, so as not to cause the reported downturn in visitor traffic experienced after the partial smoking ban in Atlantic City.  In fact, Puerto Rico City can be the impetus for a Puerto Rican premium cigar industry that could help revive the moribund agricultural sector.   

                     Puerto Rico City is a place where sovereign wealth funds can do an enormous amount of good.  They can finance the expertise and capacity to build out the site with careful respect for the ecosystem and the natural habitat.   At least 15 major parcels of no less than 30 to 100 acres each should be created for mega hotel resorts designed along a pedestrian-friendly strip lined by trees, benches, amphitheaters, and water sculptures that are no less impressive than the perennial Bellagio fountain in Las Vegas.   It is essential that multiple resort properties compete with one another based on service, entertainment, and employee compensation.  The captive resort-bound visitor who feels ripped off by stratospheric pricing can no longer be part of the equation. 

                    Thus, it is vital that Puerto Rico City not be dominated by a one-resort community.  This will defeat the purpose of having a diversified and dynamic entertainment district appealing to all price points and that must continuously re-invent itself as market conditions change.  Existing island resorts and hotels should not feel threatened as Rosy will attract more visitors than it can handle by itself.  It will also serve as a catalyst for exponentially greater tourism and visitor spending throughout the island.  

                   I offer more specific proposals.  Two anchor resorts could be called “The Bacardi ® Palace” and “The Serrallés Don Q® Castle,” showcasing two world famous Puerto Rican rum brands.   Other resorts can be the “Taíno Village,” “El Morro Fortress,” “the Armada,” and “Fountain of Youth,” “La Alambra,” and the ‘real’ “Treasure Island.”   These resorts, which should be no smaller than Caesar’s Palace and The Venetian, will  promote an awareness of Puerto Rico better than any government advertising can accomplish.  All told, Puerto Rico City should contain no less than 15 major resort complexes with an average of 2,000 rooms each.   

                     Puerto Rico City’s mega-resorts should include arenas and theaters large enough for marquee shows, concerts, and sporting events, such as world championship boxing.  One of the city’s centerpieces can be an entertainment museum honoring past and present superstar entertainers and athletes the world over.

                     With the ability to fly directly to Rosy’s airport, visitors will practically be able to walk to their hotels with no need to rent a car or waste time getting to their destination.   Wealthy travelers with private jets can land at the Fajardo municipal airport, which can extend its runway to welcome the increased, high-margin traffic.  

                    Rosy’s airport, which is currently under the control of the Puerto Rico Ports Authority, must be expanded and integrated into a seamless transportation system that almost completely obviates the need for automobiles for visitors.   Rosy should require pedestrian and other non-automotive transportation and restrict any streets to emergency vehicles and safe and clean collective transportation.

                    Privately funded cooperative advertising must be relentless in educating, especially the American public, that travel to Puerto Rico is a domestic trip.  Use dollars, a U.S. driver’s license, snail mail home a postcard through the U.S. Postal Service. This is a major informational obstacle that can only be overcome by message repetition, much the same way Las Vegas hammers on the fact that one goes there for fun and relaxation and not just to gamble.    Puerto Rico’s policymakers must understand that most travelers from the United States, even the most worldly and educated ones, do not know that travel to Puerto Rico does not require a passport or visa.

                    Consistent with the 2004 Reuse Plan, the ecologically sensitive areas should continue to be preserved in the interest of conservation and as an additional eco-touristic attraction.  Apart from the futility of trying to compete for manufacturing jobs, the disastrous environmental effects of chemical and heavy-equipment based industries in China and India should convince Puerto Rico that clean and green L&E is the way to go. 

                    As the industrialization of the world continues its relentless pace, the most precious and valuable commodity will be a clean, safe and comfortable environment to escape the pressures and strains of the modern world.  With powerful offshore breezes and Caribbean sunlight, Rosy is perfectly suited for wind and solar energy.  Rosy would be an ideal starting place for Bill Clinton’s renewable energy proposal for Puerto Rico. (See http://www.youtube.com/watch?v=TjSIirJ8M8Q.)  

                      Because it is not a productive asset, private housing should be minimized in this unique entertainment enterprise zone.   

                   Rosy should contain a state-of-the art hospital and emergency treatment facilities with medical staff fluent in major languages.  Retail stores should offer duty-free shopping for all.  The 2004 Reuse Plan correctly proposed a building out of the harbor and marina facilities for yachts and small cruise ships.  This will ignite aquatic sports and boat travel to Vieques, Culebra and the Virgin Islands.   

                    The transfer of Ramey Air Force Base on the west coast of the island in the early 1970’s is a blue print of what not to do.  Like the other former military installations, the grounds of Ramey were once immaculate and in apple pie order.  With the transfer, the base perimeter was removed and disorder trellised its way onto the site.  Military housing was practically gifted to the local residents.  While a noble ideal, a regional campus of the deficit-spending University of Puerto Rico was created.   The Rafael Hernández airport retains the Spartan look of a military airfield with no curb appeal for tourist passengers.  The former officers’ club (now a low-key and underused restaurant) stands wistfully overlooking the Mona Passage.   The remaining areas of the base have been unappealingly chopped up and fenced off into various federal and local agency sites.  

                   The same fate should not await Rosy. 

                   The site should be opened to all, but immaculately maintained.  Rosy’s airport must be polished into a gem.  The former military housing should be torn down.  The grounds should be sold or leased to major resort operators, retailers, and service providers running the gamut of price choices in a pedestrian-friendly setting.  Except for a hospitality academy, the areas set aside for educational use should be eliminated.  More educational spending will not cause world-class scholars and researchers to forgo MIT and Stanford.  It is much more likely, however, that the wealthy owners of their groundbreaking technologies will come to Puerto Rico City to spend their millions and billions to enjoy themselves in cleanest, safest and most exciting L&E city in the world. 

                   Over the next 50 to 75 years, Puerto Rico City can be the new cornerstone of the island’s economy and provide free-market wealth and abundance to the People of Puerto Rico.  All the government has to do is allow it to occur.   Let’s cancel any plans to ask Congress for handouts.  This is our chance.   

[2]  Published August 7, 2007 (p. 10) and found at http://www.hacienda.gobierno.pr/downloads/pdf/cafr/FINANCIAL_REPORT_2006.pdf

[3]   ‘What Happens in Vegas Goes to China,” The Wall Street Journal, June 13, 2007.

[4]   U.S. Bureau of Labor Statistics.  http://www.bls.gov/eag/eag.pr.htm (Viewed on March 22, 2008).

[5]   U.S. Bureau of Labor Statistics http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=CES3000000001&data_tool=XGtable (Viewed Feb. 9, 2010).

[6]  Braum, et al “Trends and Developments in the Economy of Puerto Rico,” Current Issues and Trends, Federal Reserve Bank of New York, Vol. 14, No. 2 (March 2008).

[7]  U.S Bureau of Labor Statistics http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU43000003000000001&data_tool=XGtable  (December figures) (viewed Feb. 9, 2010).

[8]   U.S. Department of Labor, Bureau of Labor Statistics.   http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU43000007000000001&data_tool=XGtable  (viewed Feb. 9, 2010)

[9]    Puerto Rico Tourism Company, figures for 2007 and 2008 preliminary.  Report found in statistical section of Comprehensive Annual Financial Report for the Commonwealth of Puerto Rico for the fiscal year ending June 30, 2008.   http://www.hacienda.gobierno.pr/downloads/pdf/cafr/FINANCIAL_REPORT_2008.pdf  (viewed Feb. 9, 2010).

[10]   Caribbean Business, April 17, 2008 (p. 32)

[11]   “Puerto Rico Holds First Tourism Investment Conference and Launches Properties Catalogue,” Reuters, December 4, 2007.  http://www.reuters.com/article/pressRelease/idUS143835+04-Dec-2007+PRN20071204 (Viewed on March 25, 2008).

[12]    U.S. Department of Labor, Bureau of Labor and Statistics.  http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMS3200000700000001&data_tool=%22EaG%22   (Viewed on March 22, 2008).

[13]   The Center for Business and Economic Research, University of Nevada, Las Vegas. http://cber.unlv.edu/tour.html  (Viewed on March 22, 2008).

[14]   “Is a Comeback in the Cards for the Storied Tropicana,”  The Wall Street Journal (2007 or 2008).

[15]  Insider Viewpoint  http://www.insidervlv.com/hotelslargestworld.html  (Viewed March 22, 2008).

[16]  GBD Online Report.  http://www.gamingdirectory.com/Registered/GamingPropertiesReport.cfm (subscription service) (Viewed on January 19, 2008).

[17]  Puerto Rico Tourism Company and Planning Board – Unaudited Statistical Section of Comprehensive Annual Financial Report for the Commonwealth of Puerto Rico for the fiscal year ending June 30, 2008.   http://www.hacienda.gobierno.pr/downloads/pdf/cafr/FINANCIAL_REPORT_2008.pdf  (viewed Feb. 9, 2010).

[18]  http://www.hawaiihotels.org/  (viewed March 12, 2010)

TO U.S. INVESTORS

By

© 1995 published in International Financial Law Review 48 (March 1995) (Euromoney Publications PLC)  

sub nom David R. Martínez

    On October 20, 1994, the US-Argentine bilateral investment treaty came into effect, offering U.S. investors brighter prospects in Argentina. The treaty, which has an initial term of 10 years and applies retroactively to pre-existing investments, provides enhanced safeguards to U.S. businesses.

   What are the main features of this treaty and how it will encourage U.S. investment? First and foremost, the treaty requires that U.S. investments in Argentina receive the better of national treatment or most-favored nation status. This is the same standard of protection given to U.S. investors in Mexico under the North American Free Trade Agreement.

   Exceptions to national and most-favored nation treatment are listed in the Protocol attached to and made a part of the treaty. The exceptions apply to investments in certain border areas, air transportation, shipbuilding, nuclear energy centers, insurance, mining, and fishing.

   Investments under the treaty are defined broadly to include every kind of investment owned or controlled directly or indirectly by U.S. enterprises or persons.

   Under the treaty, Argentina undertakes not to hinder the management, operation, maintenance, acquisition, expansion or disposal of investments by “arbitrary or discriminatory measures.”

   Subject to local immigration regulations, the treaty recognizes the right of U.S. investors to enter Argentine territory to establish, expand and maintain their investments, where substantial capital or resources have been or will be committed.

   Another safeguard to U.S. investment provided in the treaty is the freedom to engage top-level managers without regard to nationality. This enables U.S. companies to appoint executives and other personnel from within their own ranks.

   U.S. investors are also exempt from the need to satisfy performance requirements as a condition of establishing, expanding or maintaining their investments. One performance requirement specifically removed was the obligation to purchase local goods and services. In the Protocol, however, Argentina reserves the right to maintain, but not increase, performance requirements in the automotive industry.

   The treaty also promises effective means of enforcing rights regarding investments, investment agreements, and investment authorizations in Argentina. This provision should supply a basis for inter-government dialogue on any shortcomings in Argentina’s judicial system and the need for reform.

   The specter of expropriation has often haunted U.S. investors venturing abroad. The treaty tackles the issue directly by providing that Argentina may not expropriate investments except for “a public purpose” and in “a non-discriminatory manner.” Also required is prompt, effective and adequate compensation.

   In addition, the treaty recognizes a U.S. investor’s right to make investment transfers freely. Transfers include profits, dividends, interest, capital gains, royalty payments, management or technical assistance fees, and proceeds from the sale or liquidation of all or part of an investment. Generally, transfers are to be made in freely usable currency at the prevailing market rate of exchange with respect to spot transactions in the currency to be transferred.

   According to criteria of the International Monetary Fund, there are five “freely usable” currencies: the U.S. dollar, the Japanese yen, the German mark, the French franc, and the British pound. The rule of free transfers does not, however, bar Argentina from requiring currency transaction reporting and the withholding of taxes.

   In a landmark break with the past, the treaty allows U.S. investors to submit investment disputes with the government to binding arbitration outside the country. Investors are no longer required to exhaust domestic remedies before seeking arbitration. With this change, Argentina now affords U.S. investors free access to arbitration for investment-related disputes.

   The treaty is the first of its kind concluded between the U.S. and a Latin American country under the Enterprise of the Americas Initiative, which seeks hemispheric economic integration and development. If the objectives of the Summit of the Americas are reached, the rest of Latin America will afford comparable investment protections by the year 2005.

   Attracted by positive economic conditions and other business-friendly reforms, U.S. investment in Argentina grew significantly before the treaty. The added protection offered by the treaty should make Argentina even more attractive

On January 1, 1994, Andean Pact legislation began protecting industrial secrets for the first time. Applying to Bolivia, Ecuador, Colombia, Peru, and Venezuela, Decision 344 replaced Decision 313, passed in 1992, which had governed various forms of industrial property but not industrial secrets. Regulated in separate chapters of Decision 344 are patents, utility models, industrial designs, marks, trade names, and denomination of origin. Chapter IV of Decision 344, covering industrial secrets, stipulates that information is an industrial secret to the extent that:

• The information as a whole, or in the precise configuration or composition, is not generally known or easily accessible to persons who normally deal with this information;
• The information has real or potential commercial value by being secret; and
• The person, who legally controls the information, has adopted reasonable measures to maintain its secrecy, under the circumstances. 1
  

  Furthermore, the information must concern the nature, characteristics, and uses of products, production methods or processes, or the means or ways of product distribution or marketing or the rendering of services.²

Trade Secrets Must be Written

A peculiar requirement for industrial secrets under Decision 344 is that they “appear recorded in documents, electronic or magnetic media, optical disks, microfilms, films or other similar elements.”³ The legislation does not specify when the secret information must appear recorded. This raises questions about the security of verbal disclosures of secret information maintained only in the owner’s mind at the time of the disclosure. This, in turn, encourages the documentation of any trade secrets to perfect protection.Excepted from industrial secret protection is information which is in the public domain. The public domain includes information that must be disclosed by legal provision or by judicial order. Information that must be disclosed in applications for government approval of certain transactions is not deemed to be in the public domain.⁴ Such compulsory disclosures may occur, for example, in agreements transferring technology, which Decision 291 of the Andean Pact requires to be registered with the government of the relevant Andean Pact country.⁵ 

Concerns Over Industrial SecretsSeparately, Decision 344 acknowledges the right of parties to a technology transfer contract to agree on the confidentiality of industrial secrets. The parties, however, must specify the information that is considered confidential.⁶ This poses a concern for technology transfer contracts that must be registered with the government. Neither Decision 344 nor Decision 291 imposes an express duty upon the government to protect from public access industrial secrets disclosed in registered technology transfer contracts. The drafters of Decision 344 explicitly required the government to prevent such access in the special case of experimental data revealed with applications to market pharmaceutical and agrochemical products.⁷ To remove any doubt, the drafters should have spelled out government duties regarding public access to registered technology transfer contracts in general.

Restrictions on Disclosure by Employees

A separate article restricts persons with access to industrial secrets by virtue of employment, title or position from disclosing the secret information, provided that they were advised of the information’s confidential nature.⁸ The manner in which the person must be advised of the confidential nature is no described. Presumably, this advisory could appear in employment contracts, policy manuals, security passes signs, etc. In contrast with requirements mandated for technology transfer contracts, there is no express level of specificity for the advisory on confidentiality when a person is privy to information by virtue of employment, title or position. This is another area needing clarification.A person who “licitly has control” of an industrial secret shall be protected against unauthorized disclosure, acquisition or use of the secret by third parties when this would violate fair trade practices.⁹ The manner of protection is not defined. Unlike the chapters on patents and marks, the chapter on industrial secrets of Decision 344 does not expressly authorize the recovery of damages. This may create significant uncertainties for a plaintiff seeking relief under this legislation. Furthermore, the absence of specific liability for damages may lessen the deterrent effect of this new protection.The member countries of the Andean Pact can remedy the shortcomings of this statutory scheme with separate domestic legislation. Decision 344 authorizes them to pass laws granting stronger protection to owners of industrial property.¹⁰ While Bolivia, Colombia, Ecuador, Peru, And Venezuela could further improve investor confidence with legislative refinements to this chapter of Decision 344, formal recognition of industrial secret protection by this multilateral legislation is a great step forward.¹ Article 72, Decision 344 of Andean Pact – Common Regime on Industrial Property, published in the Gaceta Oficial del Acuerdo de Cartagena on October 29, 1993 (author’s translation). ^{2 Article 72, Decision 344.3 Article 75, Decision 344.4}

^{Article 12 of Decision 291 of the Andean Pact – Common Regime on the Treatment of Foreign Capital and Marks, Patents, Licenses and Royalties, published in Gaceta Oficial del Acuerdo de Cartagena on April 4, 1991.6}

^{Article 76, Decision 344.7}

^{Article 78, Decision 344.8}

^{Article 77, Decision 344. 9}

^{Article 72, Decision 344.10}

^{Article 143, Decision 344.}