October 3, 2014 11:46AM

Should Intellectual Property Be in Trade Agreements?

After I complained recently that arguments for including intellectual property (IP) in trade agreements needed to specify what level of protection is desirable, Tom Giovanetti responded by asking for my view on a more basic question: Should IP—regardless of the level of protection—be in trade agreements at all? My colleague Bill Watson has previously set out a political argument for removing it, which is that achieving free trade is becoming very difficult when IP issues get inserted into trade negotiations. Let me add to his argument the following: If IP is in, then there is really no boundary to what can be in, and the result is trade agreements that look like "global governance" agreements.

Returning to Tom's question, I should say at the outset that Tom doesn't really say explicitly why IP should be in trade agreements. He doesn't explain how IP rules fit within the general concept of trade liberalization, or what scope he sees for trade agreements. What are his limits for what should be covered in trade agreements? I'm really not sure. Instead, the main focus of Tom's argument for including IP in trade agreements seems to be that the United States exports lots of IP-related goods, and therefore it is in the nation's interest to have IP rules in there.

With this argument, it seems to me that Tom is trying to portray strong IP protection as something that helps U.S. industry at the expense of its foreign competition. This doesn't have a very trade-liberalizing feel. Moreover, looking at the bigger picture, what stronger IP protection does is help U.S. industry at the expense of consumers (U.S. and foreign). In terms of appropriate IP policy, it seems to me, the focus should be on giving incentives to innovate, but not to the detriment of consumers. Some argue that stronger IP protection promotes innovation, but others contest this.

Turning back to trade agreements, Tom's argument misses a fundamental point: What is the purpose of trade agreements? For decades, this purpose was fairly clear: to provide a framework of mutual restraints on protectonist trade barriers, such as tariffs, quotas, and discriminatory laws and regulations.

But in the 1980s and early 1990s, the scope expanded. Suddenly, any issue that had some effect on, or relationship with, trade was being put forward as a candidate for inclusion in trade agreements. The business community pushed for IP rules and provisions that offer compensation for expropriation, and left-leaning NGOs responded with demands for rules on labor and the environment. They all won, in the sense that all of those issues are now standard parts of trade agreements.

Here's the problem, though: While these policy areas do affect trade, so does every policy to some extent. If these policies are included, is there any line as to what should be in, or do we just regulate everything through global trade rules? That seems like a big mistake to me.

Let me offer two examples of how far this could be taken. The examples come from different sides of the political spectrum, to make the point that no matter what your politics are, and what role you see for international law, you shouldn't clutter up trade agreements with other issues.

Tom's posts seem very focused on exports, so let's think about policies that could lead to an increase in exports, focusing on industries where the United States is very competitive. Here's one:

U.S. firearms manufacturers will export some $4.4 billion worth of guns and ammunition to other countries this year. The biggest customers are Canada, the United Kingdom, and Australia, who accounted for nearly 40 percent of exports in 2012 (it's mainly law enforcement and military agencies doing the buying, as private gun ownership is heavily regulated in those nations). IBIS World expects exports to keep surging in the coming years, with ammunition and ordnance being an especially popular item overseas.

No doubt, those export numbers are limited by tough gun control laws in other countries. One could argue, and many libertarians do, that such laws are too strict and should be liberalized. So should trade agreements have provisions guaranteeing gun rights, in order to increase U.S. exports of guns? You certainly could make that argument, using the inclusion of IP protection as a model.

Shifting to the other side of the political spectrum, another area where U.S. exports are strong is goods and services related to health. As a result, U.S. industry would benefit if people in other countries used more of those goods and services. To further that goal, it could be argued that foreign governments should subsidize or mandate certain medical care, perhaps through a right to health (not a libertarian view, obviously!). This would be another way to boost U.S. exports.

Are those examples realistic? Of course not. No one is proposing anything remotely like this. Neither one would be politically viable.  

Perhaps, then, Tom would say this is the factor that limits the scope of trade agreements: You can't just throw anything in there. It has to be able to generate political support, which IP protection can.

Or could, anyway. These days, it's becoming quite challenging to get IP protection in trade agreements. The critics are starting to overwhelm the supporters. The politics are changing. Conceptually, gun rights, health care rights, and IP protection are very similar as they relate to trade. The question of including them in trade agreements is just about how the politics play out.

Just to be clear, I don't have much of an opinion on international agreements in gun rights or health care. If people in those fields, from whichever side of the spectrum, think there are benefits to having a treaty, they can try to work out an international consensus on the issue. I'm just saying, if you put everything into trade agreements, you get one big global governance entity, and I don't think that's the right path. So, any such treaties should be separate from what's going on in the trade arena.

There's also a broader issue: Even if you believe IP should be included in trade agreements, the reality is that you can't get just IP in there. If the business community gets its tougher IP protections, the left-wing critics will have to get something of their own in order for there to be a deal. What they want is enforceable labor and environmental rules. Thus, IP is part of a bigger package. So even if you favor strong IP rules, you may not want governments bringing complaints that labor and environmental rules are too weak, but that's a price you will pay. Furthermore, another price you pay by demanding stronger IP protection is less trade liberalization. If you use up your political capital on IP, you get less in terms of reducing tariffs.

Summing up, the basic point is this: If you think of trade agreements as covering issues related to trade, or areas that could increase U.S. exports, there's just no limit to what could be included. The agreements lose their focus as agreements to reduce protectionism, and become tools for global governance. We have already gone down that road quite a way, and turning back is proving difficult. But in recent years, the prospects for success based on this model have dimmed. It may be time to rethink the current approach.