Trade Negotiations Should Focus on IP Protections, Not Retaliation

The ongoing controversies regarding international trade, including the current negotiations over the North American Free Trade Agreement (NAFTA) that are coming to a head one way or the other, have increased attention on the economic importance of international trade. With the intense focus on the United States’ position in the current NAFTA talks and other negotiations, it is important to understand that economists across the political spectrum overwhelmingly favor free trade policies. At the same time, advocating for improved international protections for intellectual property rights is entirely consistent with promoting free trade.

The consensus among economists is that free trade policies are superior to tariffs and other protectionist measures in promoting economic growth and higher wages. Free trade can also lead to increasing returns to scale from larger markets, the exchange of ideas through communications and travel, and the spread of technology by exposure to new goods and production methods. Economists find that any localized economic benefits from protectionism tend to be short-lived, and in any event are greatly outweighed by the tremendous benefits spread throughout the rest of the economy.

Nonetheless, free trade policies are not nearly so popular among non-economists, on both the left and the right ends of the political spectrum. Opponents typically claim that free trade leads to fewer jobs, lower wages, and harm to domestic industries. Economists respond that if a country follows protectionist policies, it harms itself more than its trading partners, which can be seen in recent sharply negative reactions in financial markets to threats of trade wars. While it is possible that threats of retaliation can lead countries to back off from protectionist policies, such threats are risky because the country threatening retaliation will usually harm itself more than its trading partners if the threat is carried out.

Trade policies create unusual political alliances. Most Republican leaders in recent years have generally favored free trade policies. This view is shared by prominent Democrats like President Bill Clinton and many liberal economists like Paul Krugman. But President Trump campaigned against certain U.S. trade agreements, and in one of his first acts as President, he withdrew the United States from the Trans-Pacific Partnership (TPP). Fareed Zakaria, usually a harsh critic of the President from the left, recently expressed support for the current administration’s approach, stating: “Previous administrations exerted pressure privately, worked within the system and tried to get allies on board, with limited results. Getting tough on China is a case where I am willing to give Trump’s unconventional methods a try. Nothing else has worked.”

It should be noted that President Trump claims he is actually a supporter of free trade. In his 2017 State of the Union Address, President Trump said: “I believe strongly in free trade, but it also has to be fair trade.” If so, President Trump’s actions could be seen as seeking better deals from trading partners. Indeed, President Trump has indicated that he may be willing to reconsider the United States rejoining the TPP, which is a positive development.

None of this is to say that existing trade agreements, such as TPP and NAFTA, cannot be improved. This is certainly true, for example, with regard to the failure to protect intellectual property. Theft of intellectual property is rampant. A 2017 Organization for Economic Cooperation and Development report found that the global value of international and domestic trade in counterfeit and pirated goods in 2013 was between $710 billion and $917 billion, and the global loss in value of digital piracy in movies, music and software in 2015 was $213 billion.

But these opportunities to improve trade agreements do not undermine the benefits of policies favoring free trade. Strengthening measures to prevent such theft, rather than retaliation, should be the focus in negotiating multilateral or bilateral trade agreements. This certainly includes the ongoing NAFTA negotiations in which the Trump Administration thus far has not made strengthening IP protections the priority it should be. Well-defined and stronger protections in trade agreements for copyrights, patents, trademarks and trade secrets would help stimulate growth in IP-intensive industries, increase U.S. exports, and improve economic competitiveness without the economic harms that result from protectionism.

The modernization of NAFTA creates an opportunity to encourage cross-border free trade, while, at the same time, strengthening international intellectual property protections to make sure innovation and creativity are rewarded.

It's Up to President-elect Trump to Revive TPP

The Tran-Pacific Partnership (TPP), a trade agreement between the United States and 11 other Pacific Rim countries, seemingly is dead, at least for now. It will not be approved by the current Congress. Therefore, it is up to President-elect Donald Trump to revive it during his Administration.

It’s true that President-elect Trump has said that TPP is a “disaster” and he has declared that he will withdraw from the agreement on his first day in office. But other than a few bullet points on his website, the President-elect has never publicly explained why he does not like this particular trade deal, which looks to be a win for entrepreneurs, creators, consumers, and the global economy.

As I discussed in a June 2016 blog, TPP would expand global trade by eliminating roughly 18,000 tariffs that member countries have imposed on imports from the United States, lifting millions of people out of poverty around the world. By removing these trade barriers imposed by foreign countries and others imposed by the United States, TPP would allow consumers and entrepreneurs in all member countries to enjoy more economic activity and lower prices than what the status quo offers.

From an intellectual property (IP) perspective, TPP appears to require adherence to strong protections of IP rights in member countries. This would help artists and entrepreneurs around the globe to earn a return on their creative works and the labor that makes them possible. According to a September 2016 report by the Department of Commerce and the Patent and Trademark Office, in 2014, 45 million jobs (or 30% of the jobs in the U.S. economy) either directly or indirectly were generated by IP-intensive industries. In the same year, IP-intensive industries added $6.6 trillion of economic activity, which is roughly 38% of GDP.

TPP addresses all aspects of IP, including copyright, patents, trade secrets, and trademarks. The IP chapter of TPP aims to do the following:

• Improves strong and balanced protection of rights and enforcement of laws;

• Bolsters incentives for the development of, and trade related to, IP-intensive products;

• Addresses common threats, including piracy, counterfeiting, and other related infringements, as well as misappropriation (including cyber theft) of trade secrets;

• Promotes transparent, efficient, and fair regulatory systems, including for patent and trademark application and registration;

• Promotes development of and access to innovative and generic medicines;

• Facilitates legitimate digital trade, including in creative content; and

• Prevents the spread of overly-restrictive geographical indication policies, including by safeguarding the rights of prior trademark owners and rules clarifying the use of generic terms.

Establishing strong IP safeguards among countries in the Pacific Rim would diminish theft of American IP, which totals $320 billion annually. U.S leadership regarding strong IP rights protections will incentivize more investment, innovation, and economic growth at home and abroad.

A 2014 report from NDP Analytics estimates that TPP would increase U.S. exports by $26 billion, U.S. GDP by $11 billion, and American jobs by 48,000 with roughly two-thirds of these benefits coming from IP-intensive industries. This increase in U.S. exports would have direct spillover effects for the other 11 member countries, leading to an estimated $6.4 billion increase in GDP and 68,240 additional jobs. Of course, these figures do not include the increases in economic activity and job creation that will occur among member countries nor do they include the increases in U.S. imports.

Additional economic activity and development within member countries would not be the only benefit flowing from a stronger IP framework; mutual gains from trade are much higher with transactions that contain strong protections of IP rights rather than weak protections. Therefore, member countries which currently have weak IP protections according to the Chamber of Commerce’s Global IP Center International Index, such as Peru, Chile, and Mexico, will incentivize creation and innovation within their own countries. And also, other developing economies, which trade with TPP countries, will recognize the gains from trade and be encouraged to adopt similar IP rights protections.

Gains from trade are mutually beneficial but not necessarily equal. If TPP is adopted, the United States would benefit from the positive externality of robust IP rights protections in other countries and from lower trade barriers with countries in the Pacific Rim. When more countries around the world have strong IP rights protections, American creators and entrepreneurs have a greater incentive to innovate because their creations are less likely to be stolen overseas. However, developing countries, which, on the whole, would substantially upgrade their IP rights protections with the adoption of TPP, likely will enjoy an even higher marginal benefit than the U.S. because their economies have not experienced as much innovation as countries with strong IP rights protections in place. In general, and all else equal, developing countries grow faster than developed countries when there is an expansion in global trade. 

Perhaps, the President-elect views the trade agreement as problematic because he considers global trade as an “us versus them” phenomenon. In other words, he may consider global trade as a zero-sum game, when, in actuality, it is a variable-sum game. For example, even if Vietnam benefits more from TPP than the United States, this does not mean the U.S. loses. Both countries are better off, even if the marginal benefit might be greater for one country over another.

President-elect Trump should revive TPP during his administration. It is vital that this trade agreement be adopted to encourage the creation of jobs and to foster greater innovation and investment in the United States and in the Pacific Rim. Mr. Trump’s campaign primarily focused on creating jobs in the United States. TPP is a win for American workers and consumers because it would expand economic activity around the world, increasing American imports and exports.

In 2014, U.S. imports and exports from IP-intensive industries were valued at $1.4 trillion and $842 billion, respectively. Those values likely would increase if IP rights are enhanced around the world. (NDP Analytics projects that TPP will increase annual U.S. exports by up to $26 billion.)

With the adoption of TPP, President-elect Trump could help spur the economy, which is clearly a top priority. Let’s hope that Mr. Trump changes his mind about TPP.

TPP Is Beneficial for Consumers and Entrepreneurs around the Globe

The Cato Institute held an event today releasing an abstract of a forthcoming paper entitled “Should Free Traders Support the Trans-Pacific Partnership (TPP)?” Yes, free traders should support TPP and so should Congress!

TPP would expand global trade by eliminating roughly 18,000 tariffs that member countries have imposed on imports from the United States, lifting millions of people out of poverty around the world. By removing these trade barriers and others imposed by the United States, TPP would allow consumers and entrepreneurs in all member countries to enjoy more economic activity and lower prices than what the status quo offers.

From an intellectual property perspective, TPP would establish strong protections of IP rights in member countries, allowing artists and entrepreneurs around the globe to earn a return on their creative works and the labor that makes them possible. U.S leadership regarding strong IP rights protections will incentivize more investment, innovation, and economic growth at home and abroad.

See my July 2015 blog on how multilateral trade agreements create global IP protections.

Multilateral Trade Agreements Facilitate Global IP Protections

On July 9, 2015, the United Nations Foundation and the U.S. Chamber of Commerce hosted a briefing on Capitol Hill entitled “Global Impacts of American Intellectual Property.” The most significant takeaway came from Patrick Kilbride, Executive Director of International IP at the U.S. Chamber of Commerce’s Global IP Center (GIPC). He discussed the important role the United States should play in influencing developing countries to adopt stronger protections of IP rights. He pointed to GIPC’s February 2015 International Index, which scores and ranks countries based on different IP protections (patents, copyright, trademarks, trade secrets, international treaties) and enforcement mechanisms. (See my February blog for more on the index.)

Mr. Kilbride said that the best way for the U.S. to promote strong IP policies around the globe is through multilateral trade agreements. He mentioned that the most recent IP-related multilateral agreement, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), is over twenty years old. TRIPS established only minimum standards for IP and many of the leading countries within GIPC’s International Index have now surpassed these standards. Because of this, Mr. Kilbride said that it is time for a new multilateral trade agreement with stronger IP standards. He added that the current one under negotiation, the Trans-Pacific Partnership (TPP), is an important place to start.

TPP would export American IP protections to developing countries in the Pacific realm, thus incentivizing more investment and innovation within those economies. However, additional economic activity would not be the only benefit of a stronger IP framework; mutual gains from trade are much higher with transactions that contain strong protections of IP rights rather than weak protections of IP rights.

Developing countries also would vastly benefit from TPP because an expansion of trading partners increases the number of buyers and sellers in a marketplace leading to more transparency, accountability, consumer welfare, and, ultimately, economic growth. This is why Mr. Kilbride declared that the global economy would be much better off if a trade agreement with a strong IP framework could be reached with heavily populated countries such as China, India, and Indonesia.

It is important to remember that gains from trade are mutually beneficial but not necessarily equal. If the TPP agreement is reached, the United States would benefit from the positive externality of robust IP protections in other countries and from lower trade barriers with countries in the Pacific realm. However, the positive impacts for developing countries would be much greater if they adopt American IP protections, incentivizing more economic activity and expanding trade throughout the global economy. Developing countries grow significantly faster than developed countries when there is an expansion in global trade.

That being said, TPP and all multilateral trade agreements with strong IP frameworks are very beneficial for all parties involved, including, most especially, consumers who benefit from increased competition and lower prices.