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13-05-2017

Intellectual property provisions and support for US trade agreements

Authors: Iain Osgood, Yilang Feng

Published in: The Review of International Organizations | Issue 3/2018

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Abstract

Intellectual property rights are a key piece of the expanded trade agenda, and the United States has pushed hard to strengthen protections beyond WTO standards in its trade agreements. While agreement provisions governing intellectual property are commonly thought to be an important driver of corporate preferences over US trade policy, systematic empirical evidence for this proposition, especially in comparison to other determinants of trade policy, is generally lacking. To fill this void, this paper examines variation in reliance on intellectual property across US industries to explain attitudes and lobbying on US trade agreements. The effects of IP provisions on support for US trade agreements are politically substantial, though trade remains the primary determinant of preferences over trade agreements.

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http://stat.wto.org/StatisticalProgram/WSDBViewData.aspx. Last accessed: 4/11/17.

Baccini et al. (2017) finds that US PTAs increase trade of the affiliates of US multinationals. Baier and Bergstrand (2009), Baier and Bergstrand (2007), Mansfield and Reinhardt (2008), Egger et al. (2011), and Caliendo and Parro (2015) find that PTAs increase trade generally.

None of which is to say that the effects of such provisions are benign or unimportant, especially in the area of pharmaceuticals and biotechnology where IPRs have received the most scrutiny. See, for example, Shadlen (2007a, 2007b) and Pecoul et al. (1999). For discussion of the links between IPRs and development generally, see Maskus (2000) and Maskus and Fink (2005).

For comparison, the total value of all remaining industrial equipment, including office equipment, industrial machines, and transport equipment, was $6.35 trillion in 2015. Figures available from the Bureau of Economic Analysis. See https://bea.gov/iTable/iTable.cfm?ReqID=10. Last accessed: 4/11/2017.

See Lai (1998), Chen and Puttitanun (2005), and Lerner (2009)

See Gould and Gruben (1996) and Park and Ginarte (1997)

See Branstetter et al. (2006, 2011), and Glass and Saggi (2002).

See Helpman (1993), McCalman (2001), and Rapp and Rozek (1990).

See http://stat.wto.org/StatisticalProgram/WSDBViewData.aspx. Last accessed: 4/11/2017.

“How Trade Deals Boost the Top 1% and Bust the Rest.” The Huffington Post.

“TPP at the NABE.” The New York Times. Matthew Yglesias echoes this claim nearly verbatim, arguing that skeptics of trade agreements have developed an “increasingly sophisticated” four-pronged critique of trade agreements. The first prong is that: “Modern trade deals are largely more about encouraging foreign countries to adopt regulatory changes that are friendly to Hollywood and American drug companies than about reducing trade barriers.” See “Donald Trump’s trade team has based their analysis on a remarkably silly mistake.” at Vox.com. Last accessed: 4/11/2017.

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See Horn et al. (2010), Dür et al. (2014), and Young (2007).

https://www.usitc.gov/publications/332/pub4607.pdf. Last accessed: 4/11/2017. A reviewer notes that this figure, while perhaps small in comparison with gains from trade, is nonetheless large in comparison with total corporate lobbying expenses on trade agreements. The gains from these provisions likely far exceed the political costs to the producers that seek them.

IP provisions in US trade agreements with smaller trade partners may also have a prospective component: to set a higher minimum standard for future trade negotiations with partners of greater size and significance.

NAFTA also included a chapter on IPRs. This agreement is not considered in this paper because its negotiation and passage precede TRIPS.

The expression TRIPS-plus or TRIPS+ seems to have entered the academic lexicon nearly simultaneously with the entry into force of TRIPS itself (Oman and Flacks 1993; Lesser 1997).

Do such provisions work? Shadlen et al. (2005) finds that IPRs in TRIPS and in US bilateral agreements serve to deter software piracy.

We also exclude from consideration two additional provisions from the Fink and Reichenmiller (2006) breakdown that are not clearly oriented towards the protection of IPRs: the existence of side letters on public health, and liability rules for ISPs (the latter of which may weaken copyright protections but is mainly a legal protection for the internet industry).

Rules on compulsory licenses are assumed to be relevant to pharmaceuticals although that is not explicitly stated in the treaty texts. Compulsory licenses, where a country is permitted to legally override patent protections, have exclusively been applied to pharmaceutical products.

See also Abbott (2006), Krikorian and Szymkowiak (2007), and Fink and Reichenmiller (2006).

The main exception to this is South Korea, which generates significant quantities of patents, trademarks, and copyrightable designs (World Bank Group 2012). Singapore also has somewhat higher export-import ratios in patent- and trademark-intensive goods.

The corresponding estimates are 70.9% higher, 112.7% higher, and 74% lower using only intra-country variation, that is, estimating these differences using a regression model with country fixed effects.

The corresponding estimates are 44.6% higher, 132.5% higher, and 47.1% lower using only intra-country variation.

The United States ranks 15 of 140 countries for protections of IP rights in the World Economic Forum’s Global Competitiveness Index, a ranking based on the survey responses of a cross-section of business leaders. See http://reports.weforum.org/global-competitiveness-report-2015-2016/. Last accessed: 4/11/2017. Using a similar methodology, Liu and La Croix (2015) ranks the US first in the strength of pharmaceutical patent protections.

See also see Ostergard (2000), Seyoum (1996), and Rapp and Rozek (1990).

See, among many others, Schumpeter (1942), Galbraith (1952), Acs and Audretsch (1987), and Scherer (1965).

For literature on firm heterogeneity in export performance, FDI, and the politics of trade which also references the relevant economics literature see Kim (2017), Madeira (2016), Osgood et al. (2017), Osgood (2017b), and Plouffe (2017).

For NGO opposition to strong IPRs motivated by concern for consumers in both developed and developing countries, see Dür and De Bièvre (2007), Dür and Mateo (2014) and Pianta (2014).

Prohibitions on parallel importation are likely to be especially salient to this second group.

See Shadlen (2007a) for a more nuanced evaluation of the pros and cons of IPRs for developing countries.

We examine in unreported results a count of associations and our main findings are similar. We prefer the dichotomous variable because agriculture industries have many active state-based associations, and the number of associations may be caused by intra-industry division over public policy.

Note that sales data are not provided for some services industries by the Census Bureau. This reduces the available sample size to 8685 for our models.

Because the measure only varies across 4-digit industries, we investigate our findings using 4-digit NAICS industries for each agreement as the unit of analysis in our robustness checks.

We also do not consider all measures of IP-intensity in the same model, although we provide a single model with all measures in the Online Appendix (available on the Review of International Organizations’ website) which we discuss in the robustness checks.

For agriculture, mining and manufacturing firms we are able to average sales over 2010 to 2014, to smooth over idiosyncratic variation. This is not possible for services industries, so the sales in the year 2012 are employed only. All of the trade variables are also averages over 2010 to 2014.

In unreported models, we checked that this finding is not driven by the number of establishments in an industry. Our main results are entirely robust to a count of number of establishments in each industry, and all forms of IP-intensity are in fact negatively correlated with the number of establishments.

All of these counterfactuals simulations rely on models 1 and 3 of Table 5 so that we may compare IPRs as a determinant of support for trade agreements with other leading explanations.

Note that these estimates are the median expected number of firms supporting trade across all industries, and so differ from the averages in the summary statistics because the number of supporting firms variable is right-skewed.

Every US FTA, but Jordan, has featured the creation of one major ad hoc coalition to spearhead efforts at public positiontaking. For example, the Korea-US Free Trade Agreement Business Coalition, composed of firms and trade associations, formed to support the KORUS agreement. Joining such a coalition is a relatively low cost way of expressing support for a trade agreement.

Online archives for the association websites were checked for contemporaneous statements about the FTAs.

The lone exception is the Consumer Electronics Association, which has cautioned against overly strong rules on copyright violations and technological avoidance of copyright, perhaps fearing legal trouble for producer members or customers.

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Title: Intellectual property provisions and support for US trade agreements
Authors: Iain Osgood
Yilang Feng
Publication date: 13-05-2017
Publisher: Springer US
Published in: The Review of International Organizations / Issue 3/2018
Print ISSN: 1559-7431
Electronic ISSN: 1559-744X
DOI: https://doi.org/10.1007/s11558-017-9279-y

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