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Information Technology Landscape in Nations

Legal: The legal environment present in a technology park is an important investment consideration.  Factors involved in a legal analysis of a particular technology park include: the type of legal system present in the country where the technology park is located; the similarity of that legal system to the U.S. legal system; the country's participation in international intellectual property agreements; and the park's tax policies.

Legal issues are an important facet of many technology park projects, involving such complex subjects as business incorporation, taxation, immigration, labor law, intellectual property and conflict of laws.  While the majority of technology parks are governed by the same legal system present in the country where the technology park is located, there are some interesting exceptions.  It is often helpful to think of a technology park as a mini-government unto itself that has the authority to relax or change legal requirements.

As many countries advertising technology parks are trying to attract U.S. technology businesses, adaptation of a country's legal and governmental systems to match U.S. standards is a common tactic.  An example of adaptation includes linkage of a country's currency to the U.S. dollar (seen in Panama¹ and Bermuda²).

The type of legal system followed in a given country is an important consideration for foreign investment.  The U.S. legal system follows a common law scheme where concepts such as due process of law, transparency and precedent are critical.  Precedent means that the results of previous cases set standards for how subsequent cases are decided.  The advantage of such a system is that one can predict (to a limited extent) the outcome of a given case based on how cases were decided in the past.  Interestingly, the four primary IT centers outside the United States: India, Ireland, Israel and Singapore, all are based on common law systems.³

Because changing the legal system of an entire country is a tall order, many technology parks have been able to attract foreign investment by relaxing certain restrictions within the technology park only.  For example, the Zhongguancun Science and Technology Park in China has passed regulations which exempt park residents from certain restrictions in Chinese business law.⁴ Some of the changes include:

• A business can engage in any activities not prohibited by legislation (contrary to general business law in China).
• There is no company pre-approval process and no annual reviews for certain entities (but wholly foreign-owned enterprises are still subject to these requirements).
• The allowance of a new business entity called a "high and new technology enterprise" where foreign investment is less than 25% of registered capital.  These enterprises are administered the same as domestic enterprises.
• The provision of tax-incentives: tax holidays and tax deductions for high-tech enterprises, resulting in an income tax rate of 15% for businesses in the Park
• The allowance for capitalization in installments of start-ups with less than 1 million in registered capital (contrast to China's business law requiring registered capital paid in full at time company is established).
• The allowance of limited partnerships.⁵

One legal requirement U.S. technology businesses are not likely to compromise on when making an investment decision is strong intellectual property protection and enforcement mechanisms.  Whether a country is a signatory of international intellectual property treaties is an important consideration.  There are four key treaties in this area.  Three are administered by the World Intellectual Property Organization: the Paris Convention for the Protection of Industrial Property (patent);⁶ the Berne Convention for the Protection of Literary and Artistic Works (copyright);⁷ and the Madrid Agreement Concerning the International Registration of Marks (trademark).⁸  The intellectual property agreement that is gaining the most enforcement strength, however, is the TRIPS agreement, brokered through the World Trade Organization.⁹  This agreement requires WTO member countries to upgrade their IP protections in order to continue to receive favorable trading status.  Perhaps not surprisingly, Israel, India, Israel and Singapore have complied with nearly all of these agreements and emerging economies such as China are complying as well.  Admission dates for these countries to various international treaties are indicated in the table below.¹⁰

Country Paris Convention for Protection of Industrial Property (Patent) Berne (Copyright) Madrid (International Registration of Trademarks) TRIPS (date country became a member of the WTO) United States May 30, 1887 March 1, 1989 Legislation just passed U.S. Congress January 1, 1995 India December 7, 1998 April 1, 1928 -- January 1, 1995 Ireland December 4, 1925 October 5, 1927 October 19, 2001 January 1, 1995 Israel March 24, 1950 March 24, 1950 -- April 21, 1995 Singapore February 23, 1995 December 21, 1998 October 31, 2000 January 1, 1995 China March 19, 1985 October 15, 1992 October 4, 1989 --

Once a country has worked out a legal scheme for its technology park that is attractive to foreign investors, many countries then sweeten their offering with various economic incentives, primarily through tax holidays and tax exemptions. The following gives a sampling of incentives available in technology parks throughout the world.

• Residents of the Rennes Atalante Science & Technology Park in Rennes, France can receive up to a 5-year exemption from France's business tax if they meet certain requirements.¹¹
• Cities designated as areas of economic protection by the European Economic Community, such as Valencia, Spain, qualify to award businesses subsidies of up to 50% of the investment amount.¹²
• Businesses that locate in university research parks in the U.S. state of Louisiana can receive a 30% reduction in state corporate income taxes for a period of up to 10 years.¹³
• Businesses that locate in Enterprise Zones in the U.S. state of Virginia, such as the Cape Charles Sustainable Technology Park, and meet certain requirements qualify for an 80% reduction in state corporate taxes in the first year and a 60% reduction thereafter for a period of up to ten years.¹⁴
• Certain software companies that locate in Hyderabad, India can receive numerous financial benefits including: income tax holidays, exemptions from customs and excise duties, and accelerated depreciation on computer equipment.¹⁵

Other non-financial incentives might include faster processing of government documents and permits (as seen in India)16 and relaxation of immigration requirements (as seen in Panama).17  A country has to balance, however, the benefit of the investment with the cost of the tax benefit.  If a country's tax incentives are extremely generous, the country must attract sufficient business to generate enough revenue to remain profitable.  Financial incentives also pose difficulties because they are not a sustainable advantage.  Once a country's tax benefits expire, the country risks losing its foreign investors to the next tax haven.  Puerto Rico is a currently struggling with this issue.¹⁸

REFERENCES

1. Panama Info, "Frequently Asked Questions," http://www.panamainfo.com/english/generalInfo/articles/frequentlyAskedQuestions.shtml#f aq0007, visited December 13, 2001.

2. Bermuda Online, "Bermuda money is in local dollars and cents, at par with the U.S. dollar," http://www.bermuda-online.org/money.htm, visited December 13, 2001.

3. See CIA World Fact Book pages on India, Ireland, Israel and Singapore,  http://www.cia.gov/cia/publications/factbook/index.html, visited December 13, 2001.

4. Ren, Yunan, "ZGC: Dreamland for High-Tech Businesses in China," http://www.perkinscoie.com/resource/intldocs/dreamland.htm, visited December 13, 2001.

5. Id.

6. For treaty text, see http://www.wipo.int/treaties/ip/paris/paris.html, visited December 13, 2001.

7. For treaty text, see http://www.wipo.int/treaties/ip/berne/berne01.html, visited December 13, 2001.

8. For treaty text, see http://www.wipo.int/madrid/en/legal_texts/madrid_agreement.htm, visited December 13, 2001.

9. For treaty text, see http://www.wto.int/english/docs_e/legal_e/27-trips.pdf, visited December 13, 2001.

10. Sources: "Contracting Parties of Treaties Administered by WIPO," http://www.wipo.int/treaties/general/parties.html#1, visited December 13, 2001.  World Trade Organization, "Members and Observers," http://www.wto.int/english/thewto_e/whatis_e/tif_e/org6_e.htm, visited December 13, 2001.

11. Rennes Atalante, "Setting up a business in Rennes Atalante," http://www.rennes-atalante.fr/frame05a.htm, visited December 14, 2001.

12. Thuermer, Karen E., "Spain Ushers in a New Era of Economic Opportunity," http://206.183.24.47/EM_Archives/ND_1997/global_spain.html, visited December 13, 2001.

13. Louisiana Department of Economic Development, "Louisiana Research and Development Parks Program," http://www.lded.state.la.us/test/new/Univfact.htm, visited December 13, 2001. 

14. Cape Charles Sustainable Technology Park, "Incentives," http://www.sustainablepark.com/incentives.html, visited December 13, 2001.

15. Software Technology Parks of India, Hyderabad, "Guide," http://www.stph.net/cguide/guide.html, visited December 13, 2001.

16. Id.

17. International Technopark of Panama, "Incubator," http://www.ciudaddelsaber.org.pa/en/technopark/incubator/, visited December 13, 2001.

18. Puerto Rico Herald, "Analysts React to Section 956 Proposal," http://www.puertorico-herald.org/issues/2001/vol5n30/CB956-en.shtml, visited December 13, 2001.