Intellectual Property is Key Economic Factor in Free Trade Deal

When IP rights are protected, companies are more confident in trading with and investing in those countries, which also increases exports and economic growth at home.

President Obama’s trip to Asia this week to promote the Trans-Pacific Partnership (TPP) has significant ramifications for the future of the U.S. and global economy. Yet, the TPP negotiations between the United States and Japan leading up to his trip have stalled with little progress in sight. This setback reveals the difficulty of negotiating a free trade treaty between two countries, let alone twelve.

In the U.S., some free trade skeptics are unconvinced of the TPP’s economic merits, particularly the provisions strengthening the enforcement of intellectual property. However, it is clear that the key economic benefits from a TPP deal come from a strong legal framework that protects innovation and IP.

Our empirical analysis shows that two-thirds of the economic gains from concluding a TPP would come from IP-intensive industries. Harmonizing IP protections creates jobs, produces more exports, attracts more direct investments from other countries, and enables the transfer of technology across countries and industries, all of which helps to raise incomes and living standards across all participating countries.

The TPP would unite 12 Pacific Rim countries, which stretch from Canada to Chile and across the globe to Japan, Australia, and east to Vietnam. These dozen nations are home to more than 800 million people and have a combined gross domestic product of more than $27 trillion, or about 40 percent of the world’s economy. According to the U.S. Trade Representative’s office, a TPP agreement could add $223 billion to global income and boost U.S. exports by $124 billion by 2025. We estimate the immediate benefits from TPP will create more than 107,000 new jobs, generate $4.8 billion in wages, produce $47.5 billion in manufacturing sector sales, and add $15.4 billion to GDP in all 12 participating countries.

While free trade agreements have traditionally sought to reduce tariff barriers to trade between countries, these barriers have been mostly eliminated among TPP countries. However, nontariff barriers to trade are still a problem. The TPP focuses on the reduction of these nontariff barriers to trade, particularly weak or inconsistent IP protection, which is the most significant nontariff trade barrier in the 21st century global economy.

When IP rights are protected, companies are more confident in trading with and investing in those countries, which also increases exports and economic growth at home. Therefore, strong legal frameworks for protecting IP rights leads to higher economic growth and standards of living across the globe.

The TPP also creates considerable economic benefits to the U.S. We estimate that IP supports more than 55 million American jobs, creates $5.8 trillion in gross output, pays workers 30.5 percent higher wages, and drives more than two-thirds of U.S. exports to global markets. In a time of persistently low economic growth, a TPP that strengthens IP rights would also considerably bolster the U.S. economy and job market through increased innovation. Innovation is the fundamental source of economic growth, and the benefits of IP have been demonstrated in the U.S., other developed countries, and developing countries.

But IP is only as robust as the laws that protect the copyrights, patents, regulatory data, trademarks, and trade secrets that safeguard a business’ intangibles. The economic incentive to spend billions of dollars and as long as a decade funding costly experimental trials rapidly disappears if the originality and novelty of the product can be freely copied as soon as the innovative product is introduced to the market. Thus, the goal of treaties such as the TPP is to protect these investments in IP, giving innovators the confidence to bring their products and services to market in developing countries.

A TPP agreement that upholds the highest standards of IP protection in each country and more closely harmonizes its legal and regulatory framework creates more efficient markets unencumbered by the uncertainty that ideas will be protected one way in one country and a different way in another.

The stronger the protection of IP rights under the TPP, the greater the value of trade and investment in IP-intensive industries, the engines of economic growth, higher wages and more jobs across all TPP member economies. We cannot invest in our future and grow our economies without them.

Dr. Nam D. Pham is Managing Partner of ndp | analytics, an economic research firm and an adjunct professor at George Washington University in Washington, D.C. This piece first appeared on Ideas Laboratory