Physical products are important, but one of the biggest stumbling blocks to a revised North American Free Trade Agreement could be something that you can't hold in your hands.
It's intellectual property, a term that encompasses a broad range of resources that ensure the uniqueness and success of countless products and components.
Referring to any number of "creations of the mind," IP is protected by an extensive system of patents, copyrights and trademarks. And while it has long served as the basis of creativity, it has become an even more critical factor in global commerce in the age of the internet.
IP gets short shrift in many older trade agreements, including the original Nafta. Entering into force on January 1, 1994, that treaty dealt primarily with the flow of physical goods between the U.S., Canada and Mexico.
Now, with the Trump Administration demanding a renegotiation of Nafta, IP has leapt to the fore of difficult discussions. So difficult, in fact, that arguments over its finer details have prolonged the achieving of consensus over a Nafta 2.0.
Canada, for one, has refused President Trump’s proposal to use language in the Trans-Pacific Partnership (TPP) as a starting point for discussions about the treatment of IP in a new Nafta. (An ironic stance on the President’s part, given that he pulled the U.S. out of the yet-to-be-ratified TPP as one of his first actions upon taking office.)
Instead, Canada, which joined the TPP too late to have any input into its text, wants to use the original Nafta as a starting point for discussions about IP protection. Canada also wants to incorporate into a new Nafta language from trade treaties that it joined in subsequent years.
“At a broad level, the Canadian negotiating goal should be to retain an appropriate balance, one that fosters creativity and access while ensuring that there is room for Canadian-specific policies that sit within the flexibilities of the international IP framework,” writes Michael Geist of the University of Ottawa, in a report sponsored by Canada’s Centre for International Governance Innovation.
Private industry is concerned. Numerous U.S.-based companies and industry groups with a stake in the worldwide protection of IP have banded together under the banner of ACTION for Trade (the acronym standing for American Creative, Technology and Innovative Organizations Network). Membership includes The Authors Guild, Biotechnology Innovation Organization, International AntiCounterfeiting Coalition, Motion Picture Association of America, Oracle Corp., Pharmaceutical Research and Manufacturers of America, Qualcomm, Recording Industry Association of America, and Small Business and Entrepreneurship Council.
The group’s mission is to ensure that IP protection is treated as a critical element of U.S. trade policy, says executive director Brian Pomper. With all the talk in recent months of trade in steel, aluminum and automobiles, there’s been relatively little discussion about “the intangibles – things America is so good at,” he says.
Piracy and counterfeiting are chief concerns. But so are nominally legal actions, such as foreign countries forcing U.S. companies to license their IP at below-market rates, if they want to do business there.
“There’s a real desire to make sure that foreign governments value creativity in products in overseas markets in ways that are fair and appropriate,” Pomper says.
In foreign markets, American companies often face what they consider to be egregious gaps in the protection of IP. For example, many countries don’t have laws against video recording in movie theaters – a practice that leads to the widespread piracy of movies, albeit in the form of poor-quality copies.
More common, and entirely above board, are requirements that U.S. companies entering into joint ventures with foreign entities hand over valuable trade secrets to the latter. (And, of course, the joint ventures are often themselves the price of admission into the markets in question.)
The World Trade Organization made an early effort to protect the IP rights of its members with creation of the agreement known as TRIPS. It established minimum standards of protection for various types of IP, including copyrights, trademarks, patents, industrial designs and similar creations. It also gave members the right to impose more extensive protection on a country-by-country basis.
But the world has changed markedly since the introduction of TRIPS in 1995. The rise of the internet and digital trade created an environment whereby it has become distressingly easy to hijack proprietary products and information. “There’s a sense that we should modernize our agreements to make sure that we’re responding to change,” says Pomper.
Interestingly, his group agrees with Canada that the provisions of TPP related to IP offer insufficient protection, if for different reasons. Pomper cites that agreement’s call for a “balance” between the interests of users and developers of copyrighted material. “The copyright industry viewed that as a gigantic loophole that countries could use to drive a truck through,” he says.
ACTION for Trade prefers that any limitations on copyright protection be based on the three-step test laid out in the Berne Convention for the Protection of Literary and Artistic Works, drawn up in 1967. It gives authors “exclusive rights” to the reproduction of their work; says signatory countries can pass legislation to permit such reproduction “in certain special cases,” and defines any sound or visual recording as a reproduction.
Pomper says ACTION for Trade favors that language over the “fair use” test that’s enforced in the U.S. The Berne test, he says, “grew out of the fact that we are a common law country and most other countries aren’t – they’re civil law countries. That could be molded in such a way as to undermine copyright protection.”
The group would like to see a provision guaranteeing biopharmaceutical companies 12 years of data exclusivity for medicines. And it wants to ensure a level of transparency and due process, such as that included in the U.S.-Korea Free Trade Agreement, for the appeal of government pricing decisions.
In talks leading to major trade agreements, Pomper says, IP issues often end up being left until the end. The members of ACTION for Trade, by contrast, want them placed front and center. But whether they can build their concerns into a workable Nafta 2.0, amenable to all three participating countries, is another matter. President Trump’s desire to revisit the agreement could end up opening a can of worms for traders and IP interests alike.