Decouple Trade and IP Protection

Many of us who support free trade and private property rights tend to look favorably on regional and bilateral treaties that claim to further these goals. There is a vast network of bilateral investment treaties, or BITs, for example, designed to promote foreign direct investment by Western firms into developing nations by limiting the host state’s ability to expropriate the investments. 

These BITs aim to strengthen the property rights of international investors in the host state so as to make investment less risky. There are more than 2,500 BITs in force worldwide; the US itself currently has BITs in place with 39 countries. BITs and other measures can benefit both host states and international investors by strengthening local property rights, as I explain in International Investment, Political Risk, and Dispute Resolution.

In addition to investment treaties that concern the property rights of foreign investors in host countries, there is also a global network of bilateral and multilateral free trade agreements ostensibly aimed at promoting trade between nations. Many of us favored so-called free trade agreements like NAFTA even if we would have preferred more radical approaches. Regional, multilateral, and bilateral trade agreements are viewed as incremental improvements even if thousands of pages of regulations could be easily replaced by a couple of sentences or, better, unilateral abolition of import tariffs.

But over time it has become apparent that “free trade” agreements often serve as a pretext for exporting Western intellectual property (IP) law—mainly US-style patent and copyright law—onto the rest of the world. This is what I call IP imperialism. Here’s how it works. First, we are told that intellectual property rights are legitimate, and in fact are part of the reason for the relative success of the industrialized countries in the West. (It’s not. For more on this, see You Can’t Own Ideas: Essays on Intellectual Property.) 

Next, developing countries are chided for not having strong IP law enforcement. They are even accused of “stealing” know-how and technology from Western capitalist firms as if there is something wrong with manufacturers in a developing country using the most efficient known production techniques.

Finally, the West, primarily the US, uses its leverage to pressure developing nations to adopt and strengthen IP protections and adopt international IP treaties, primarily for the benefit of US corporate interests, namely pharmaceuticals (patent) and Hollywood and music (copyright). This has led to various IP treaties on copyright, patent, trademark, and so on, which most states and the world are party to (including China, Russia, North Korea, and so on) and which require member states to protect IP in their national legislation. And there is continual agitation by the Western powers to add even more IP protections and to pressure other countries to adopt them.

In addition to international IP treaties, the US and other countries pressure developing countries to strengthen local IP protection by including IP provisions in multilateral, regional, and bilateral free trade agreements. The US does not deny this; it admits it. As stated by the United States Trade Representative:  

“USTR’s Innovation and Intellectual Property (IIP) uses a wide range of bilateral and multilateral trade tools to promote strong intellectual property laws and effective enforcement worldwide, reflecting the importance of intellectual property and innovation to the future growth of the U.S. economy. … Key areas of work include: … the negotiation, implementation, and monitoring of intellectual property provisions of trade agreements … ”

But the ostensible purpose of a free trade agreement is simply to lower tariffs and barriers to international trade. Such an agreement really should have nothing to do with the property rights in force in the other country (unlike BITs, which do concern the protection of property rights of foreign investors in the host country). Notice that free trade agreements never dictate to the developing country that they must respect their citizens’ property rights, not engage in eminent domain, not engage in confiscatory taxation, and so on. So then why do these “free trade” agreements require IP rights to be protected in the developing country?

In any case, this is what the US and other countries do. Their free trade agreements invariably contain a section requiring developing nations to strengthen their local IP law. For example the agreement may require the other state to increase its copyright term even beyond what is required by the IP treaties.

As an example, the Trans-Pacific Partnership was being negotiated for years between the US and various Pacific Rim economies, until it was scuttled after Donald Trump won the US Presidency in 2016. Of course, although this supposed free trade agreement has nothing to do with the local property rights of member states, it naturally included an entire chapter requiring member states to ratchet up their local IP protections.

The Berne Convention on copyright requires member states to protect copyright for at least 50 years after the author’s death (for perspective, copyright used to last for only 14 or 28 years); in the US, copyright protection now lasts for 70 years after the death of the author. The TPP proposed to require member states to follow suit. During negotiation of the TPP, Canada considered strengthening its copyright law. Finally, in 2022, as a result of terms in the United States–Mexico–Canada Agreement, which replaced NAFTA, Canada got on board and finally extended its copyright term to 70 years after death. In 2018, as a result of the TPP negotiations, Japan also extended its copyright term for some works.

This kind of pressure works, even on other advanced economies not as beholden to IP special interests as the US government is. And developing nations of course grudgingly go along as well. They sometimes complain, even if those complaining accept the legitimacy of IP but merely want more “balance” or “flexibility.” See, for example, a paper by Anselm Kamperman Sanders, “The Development Agenda for Intellectual Property: Rational Humane Policy or ‘Modern-day Communism’?,” in Intellectual Property and Free Trade Agreements (pdf), which notes:

More in particular, the mounting pressure from developing nations to view intellectual property not just as a means to guarantee the interests of rightholders, but also to bring about economic development and welfare for the whole of global society.

…In the fall of 2004 Argentina and Brazil submitted a formal proposal to the WIPO relating to the establishment of a new development agenda within WIPO The proposal addresses the ‘knowledge gap’ and ‘digital divide’ that separates wealthy nations from developing nations and calls for a case-by-case assessment of the role of intellectual property and its impact on development.

Whereas in the previous years the prevailing trend has been to harmonise international legal norms through the World Trade Organisation’s (WTO) Agreement on Trade Related Aspects of Intellectual Property (TRIPS Agreement), there is now a clear call for increased flexibility.

…these provisions place the protection of intellectual property rights in the context of a balance of rights and obligations of producers and users of technical knowledge. 

…these provisions recognise that WTO Members are entitled to a certain degree of flexibility when it comes to the protection of public health and nutrition, and the promotion of public interest in sectors of vital importance to their socio-economic and technological development. (pp. 3–4)

In other words, the WTO is supposed to protect IP but balance the harms that strict, Western-style IP enforcement puts on developing countries, by giving them flexibility, such as the ability to issue compulsory licenses (which blunt the harshness of patents), access to technology transfers, etc.

However,

the Western world is undermining the Development Agenda by introducing so-called TRIPS-plus obligations through the WTO system and bilateral Free Trade Agreements (FTAs) and Bilateral Investment Treaties (BITs).

…The Development Agenda is about finding flexibility in the implementation of TRIPS obligations but also about balancing the monopoly of the intellectual property rights holder with the interests of third parties and of society as a whole. Flexibility is, however, something that sits uneasy with the current trend in intellectual property policy. This trend has been one of maximizing rights to stamp out piracy and one of harmonization to provide a one-size fits all level playing field of rights. (p. 4–5)

No surprise. Sanders then quotes Bill Gates, who “In a recent interview … even went so far as to say that restricting intellectual property rights is tantamount to communism.” As Gates said:

Q. In recent years, there’s been a lot of people clamouring to reform and restrict intellectual-property rights. What’s driving this, and do you think intellectual-property laws need to be reformed?

No, I’d say that of the world’s economies, there’s more that believe in intellectual property today than ever. There are fewer communists in the world today than there were. There are some new modern-day sort of communists who want to get rid of the incentive for musicians and moviemakers and software makers under various guises. They don’t think that those incentives should exist.

And this debate will always be there. I’d be the first to say that the patent system can always be tuned—including the US patent system. There are some goals to cap some reform elements. But the idea that the United States has led in creating companies, creating jobs, because we’ve had the best intellectual-property system—there’s no doubt about that in my mind, and when people say they want to be the most competitive economy, they’ve got to have the incentive system. Intellectual property is the incentive system for the products of the future.

It’s a shame that Sanders and others can only dimly see the real problem: that IP law is unjust. Even those who sense something is wrong with the provisions foisted on developing countries by bilateral and multilateral trade agreements (see, e.g., www.bilaterals.org) criticize the wrong things about free trade agreements. It’s not the free trade part that is the problem. But they all sense something is unfair.

In any case, Gates’s comments are ironic on many levels. First, he used to understand that patents impede innovation. As he said back in 1991, “If people had understood how patents would be granted when most of today’s ideas were invented, and had taken out patents, the industry would be at a complete standstill today.” But now Microsoft is just a huge rent-seeking IP bully.

Second, his underlying assumption is that patents are pro-West, part of capitalism, and that socialism is opposed to patents. This is not true either. Most countries, including socialist ones, have IP law, even if the “capitalist” West keeps pushing them to strengthen IP protections.

This should not be a surprise since IP is inherently statist, an artificial manufacturing of pseudo-rights even as it systematically violates property rights. IP rights are not part of capitalism; it is one of modern “capitalism’s” socialistic aberrations. The West should not foist its destructive IP laws onto developing countries and certainly should not link it to free trade.