Mend the Gap

By Yong Kwon

While progressive economists and free trade ideologues alike have criticized Trump’s threats of a trade war against China, they caveat and demur when it comes to discussing the White House’s belligerence around the enforcement of intellectual property rights abroad – partly because there is a pervasive sense that emerging economies are engaged in some kind of abusive behavior. But scrutiny around foreign “theft” of intellectual property must take into consideration the broader context of how the underlying system was constructed and what its architects intended. Accordingly, Center for Economic and Policy Research co-founder Dean Baker perceptively reframed the discussion: “The issue here is who set the rules and what is proper payment.”

The fact of the matter is that the neoliberal trade system today reflects power disparities between nations, providing unequal benefits while hobbling efforts to respond to global needs, including food security, climate change mitigation, and improved educational attainment. This is a salient issue for the left, which advocates for shared prosperity through equitable distribution of the means of production – not just within the borders of any one particular country, but also across the world. Here, given the sway of the United States over the World Trade Organization (WTO), the American left is best positioned among global peers to push for change – with advocacy opportunities arising during negotiations of trade agreements that require Congressional ratification and the presidential administration’s participation in multilateral ministerial meetings.

Specifically, policy recommendations to rectify the unequal distribution of productive knowledge ought to focus on moving towards less stringent global protection of intellectual property, starting with these measures:

  • Discount payment transfers from emerging markets to the West for intellectual property use, taking into account lost export gains from the latter’s trade barriers;
  • Prohibit requirements in bilateral trade agreements for countries to adopt protection over plant materials, particularly those that impede local farmers’ ownership of seeds;
  • Suspend U.S. efforts to extend protection on technologies that permit the development of clean energy generation;
  • Work to harmonize and weaken cross-cutting intellectual property restrictions around the exchange of educational materials; and
  • Use WTO resources to proactively curb over-protection of intellectual property and retroactively invalidate any agreements that contravene above positions.

An examination of how the current global trade hegemony was established validates the case for these reforms. Moreover, socializing the injustices inherent in the formation of the current trade system allows the left to attract a broad spectrum of allies with divergent interests who see the rehabilitation of U.S. soft power as an essential step towards their own goals.

The Uruguay Round of 1994 birthed the modern WTO with a serious defect. Buoyed by the Washington Consensus credo that liberalization would indiscriminately raise all boats, the industrialized economies called on emerging markets to lift their trade barriers to manufactured goods and accept stringent rules around intellectual property rights. A 2000 study showed that the United States had been the biggest beneficiary of new enforcements around patent usage, receiving a net transfer of USD 1.3 billion. India (USD 1.1 billion) and Brazil (USD 0.4 billion), meanwhile, made the largest net payments. Although long-run analysis revealed that negative effects are eventually mitigated, studies also showed that emerging markets would continue to enjoy smaller gains, suggesting that the current system prices the exchange of knowledge without the aim of closing the disparities between economies.

Meanwhile, given political sensitivities at home, the governments of the United States and Europe indefinitely relegated discussions on lifting restrictions in their own markets for agricultural products (existent in the form of both direct tariffs and subsidies) that the emerging economies could export at a comparative advantage. This left countries that aspired to rise up the global value chain facing either costly payment transfers for the use of patents or heavy scrutiny for intellectual property theft.

These outcomes from the Uruguay Round ultimately served to delegitimize globalization, resulting in its rejection by the Global South during the 2001 Doha Development Round. And the ongoing standoff has been detrimental for the common global good: connectivity serves as a conduit for spreading tools that enable improved crop output, reduced carbon emissions in power generation, and effective training of the youth for future challenges. But faced with this impasse, the United States and Europe decided to leave the underlying inequities unaddressed by forming bilateral and regional trade blocs that are designed to force emerging economies back into line – exchanging preferential access to Western consumer markets (vis-à-vis products from other emerging economies) for the reaffirmation of their commitments to key aspects of the Uruguay Round, particularly intellectual property rights.

From this perspective, Western demands for fair treatment of its goods and patents ring hollow to emerging economies – particularly as the relationship shadows their earlier experience with colonialism. In this context, China’s decision to weaponize access to its massive consumer base to extract knowledge assets from multinational corporations is understandable. But this leaves smaller emerging economies in a bind. While the cost of innovation should be shared internationally, the current system exploits vulnerable economies that do not carry China’s clout while failing to effectively distribute resources needed to secure global interests.

Given this impasse, thought leaders on the left, such as Dean Baker, Arjun Jayadev, and Joseph Stiglitz, have recommended reforms that would limit the over-protection of intellectual property, particularly in sectors affecting food security, climate change, and education. Core takeaways from their analysis are incorporated in the policy recommendations above. These are meant to be a start, with recognition that safeguarding humanity’s survival takes urgent precedence. However, if shared global prosperity remains a long-term central policy objective, the way the WTO treats trade relations between markets must be more broadly reshaped to focus on development goals, sustainability, and reciprocity that is divorced from the power projection capability of one country to the other.

Pursuant of a just international trading system and resisting the Trump administration’s efforts to stoke xenophobia by blaming economic challenges at home on international trade partners, the American left should proactively advocate for measures that limit predatory behavior around intellectual property rights by multinational corporations. While this may in the short-term reduce cash transfers to the United States, a more equitable redistribution of knowledge not only ensures that the international community can better contribute to addressing existential challenges facing the world, but in the long-run also promotes wealth, health, and dignity for the many.

I leave this post with some actionable items that the left can begin taking to achieve this global policy objective:

  • Win endorsements from labor unions and farmers: As the most politically vocal force on the Left, labor unions can influence policymakers; however, as evidenced by the appeal of Trump’s attack of NAFTA and the TPP among traditionally manufacturing communities, the body is generally biased towards protectionism. As such, the left must communicate to this core constituency that improved global capacity promises to deliver not only shared benefits (climate change mitigation, etc.), but also new markets for U.S. goods and services by reinitiating globalization. Moreover, the retaliatory tariffs recommended by the incumbent U.S. administration to punish emerging economies like China for their aggressive acquisition of intellectual property would likely cause more harm to the U.S. labor force. Farmers may also see scrutiny of U.S. trade barriers to foreign agricultural imports as a threat, but the case must be made that the enhanced ownership of seeds resulting from this campaign will also provide them with greater market power.
  • Publicly socialize alternatives to rewarding innovation: One anticipated criticism against these policy recommendations is that reducing corporate capacity to collect royalties for intellectual property will reduce the incentive to invest in research and development. However, there are alternatives to financing innovation, including through tax incentives and prizes. These options should be more widely publicized and openly discussed to preempt detractors from casting the recommended reforms as anti-innovation.
  • Build coalitions with strategic stakeholders: Beyond market participants, there are interest groups that see the rehabilitation of U.S. soft power as a prerequisite to achieving their own goals – such as environmental groups, human rights advocates, and supporters of U.S. strategic engagements abroad. By characterizing the sharing of productive knowledge as a means to bolster American credibility abroad, joint messaging and cooperation with these bodies strengthen the advocacy effort for a fairer global system.

Yong Kwon develops trade advocacy strategies for a DC-based consulting firm. He studied economic history at the London School of Economics and can be found on twitter at @ykwon88.

3 thoughts on “Mend the Gap

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