Pirates on the High Seas: The Evolution Of U.S. IP Policy

Pirates on the High Seas

The United States and Global Intellectual Property Rights

Bénédicte Callan

1998

The Evolution Of U.S. IP Policy

In The 1980s American intellectual property policy evolved from ad hoc to a coordinated policy of forcing change in trading partners whose standards were considered below par. The acts committed by IP infringers were really no more egregious than in the past, but U.S. interests and conditions in the world changed to make them unacceptable, and the world changed, allowing America to take action. Over the course of the 1980s, the United States redefined lax global IPRs as a threat to its economic strength, and created a multitrack strategy to combat piracy at multiple levels.

Americans began to treat international IP disputes with the gravity reserved for unfair trade practices once they became conscious of the dangers inherent in economic globalization for U.S. competitiveness. Americans have since become accustomed to hearing about the "global economy" and thinking that the United States has a privileged but precarious position as an economic superpower. But in the early to mid-1980s, Americans were very anxious about four macroeconomic problems: new international trade patterns, U.S. balance of payment problems, an overvalued dollar, and slow growth rates. Deep fears about the ability of the U.S. economy to compete led many in government to believe that liberal economic policies were hampering U.S. firms. Open U.S. markets were thought to be a mistake if foreign markets were less open or trade policies not symmetrical. The 1980s, therefore, gave birth to a protectionist backlash. Selective reciprocity—the belief that liberalization should only be offered on a tit-for-tat basis—came to characterize much of U.S. trade policy, including that on intellectual property. ₁₂

The most disturbing macroeconomic trend was the skyrocketing deficit in the balance of payments, which reached well over $100 billion per year in the mid-1980s, due mostly to a surge in imports of manufactured goods, particularly automobiles and parts, industrial supplies and materials, and consumer goods. ₁₃ In addition, the United States became acutely aware during this period that it no longer reigned unchallenged as global economic leader. U.S. trade as a percentage of world trade was dropping, during a period in which the importance of international trade was growing. The decline was natural, as Japan and Europe had recovered rapidly after the war, but the emergence of newly industrializing countries like Taiwan and Korea as strong exporters was worrisome, and the United States became much more sensitive to the perceived "unfair trade" practices of its partners.

In addition, the United States found itself slipping in some key high-technology sectors. ₁₄ In industries like semiconductors, microelectronics, and machine tools, the rapid loss of world market share sparked a debate about the future of American growth and competitiveness and exacerbated tensions in trade relations with Asia. ₁₅ High-technology trade had become very important to the United States: recent figures show that in the advanced industrialized countries, over half of total trade flows are in high-technology sectors. ₁₆ Furthermore, the growth of high-technology trade is faster than the total rate of growth for all trade. Losing market share in such large and growing export sectors was cause for concern. Technology-intensive products and entertainment were an island of export strength in an era of poor American economic performance, and they were directly threatened by weak intellectual property rights abroad. Since intellectual property is an important component of most high-technology products, American firms lobbied to raise the level of protection afforded abroad.

By the end of the 1 980s, not only did the United States have strong motivations to protect American intellectual property on a global scale, but for the first time in half a century, it was also at liberty to do so. Glasnost and perestroika—the elements of Soviet liberalism that ultimately led to the end of the Cold War—freed American economic diplomacy from the shadow of grand security concerns. It was no longer necessary to overlook the economic peccadilloes of U.S. trade partners for the sake of a stronger military alliance. Trade consequently moved up the ladder of U.S. national priorities. In addition, American timing was fortuitous. The early 1 980s were a period of deep economic turmoil marked by oil and banking crises that hobbled many developing countries. ₁₇ In response, countries chose to adopt more liberal economic policies to escape the crisis. From 1985 to 1995, foreign direct investment in a range of developing countries rose from between 100 percent and tenfold. ₁₈ While the investments provided capital and technology, they also made governments—especially in Latin America—more vulnerable to American IP demands. The coincidence of American activism with such important shifts in the international economic order made power IP politics possible.

The United States Trade Representative (USTR) under the Reagan administration first articulated a "multitrack" approach to trade. The idea was to expand multilateral discussions, while continuing to engage countries in bilateral agreements and intensifying unilateral pressures. ₁₉ In intellectual property this entailed an American shift away from the World Intellectual Property Organization (WIPO—responsible for oversight of the major international intellectual property conventions—where discussions of IPR harmonization had stalled due to WIPO’s single-issue focus and proclivity to weigh developing nation concerns heavily. ₂₀ Instead, the USTR, at the prodding of American industries, pushed a novel IP initiative onto the agenda of the GATT Uruguay Round. The United States continued to engage in bilateral discussions, especially with Japan, but as the largest importer in the world, it also decided to toughen its unilateral IP demands.

Most emblematic of the new IP vigilance was the Trade and Competitiveness Act of 1988. The amended Section 301 requires the USTR to investigate countries that "have a history of violating existing laws and agreements dealing with intellectual property rights." ₂₁ Countries whose observance of intellectual property rights are subpar are put on a "watch" list, which opens bilateral discussions. The worst offenders—called priority foreign countries—can be subject to retaliatory sanctions if bilateral discussions do not lead to a change in practices. Much to the chagrin of other nations, Section 301 has been a powerful stick for shaping foreign IP practices, especially those that rely heavily on exports to the American market. Of the countries named "priority foreign countries," only Brazil did not act to change IP practices to the U.S. government’s satisfaction, resulting in the imposition of trade sanctions. ₂₂
(See Table 1 for a listing of all priority foreign country cites and investigations under Section 302(b)(1) of the Trade Act.)

Table 1. Section 301 and 302 Intellectual Property Investigations

		Resolution
Argentina	1988	agreed to better pharmaceutical patent protection, case withdrawn
Brazil	1985	on informatics policy and related IP protection, case withdrawn
	1987	sanctions imposed because of lack of pharmaceutical IP protection, sanctions lifted when product and process protection agreed to, 1990
	1993	agreed to enact a new patent law, case withdrawn
Chile	1988	pharmaceutical patent complaint withdrawn by initiating party
China	1991	agreed to improve general IP protection, case withdrawn
	1994	memorandum of understanding signed, case withdrawn
	1996	negotiated enforcement, case withdrawn
India	1991	for general intellectual property protection, case remains open
	1996	WTO Dispute Settlement (DS) Panel on pharmaceutical and agrichemical patents, case remains open
Pakistan	1996	WTO DS Panel on pharmaceutical and agrichemical patents, reached agreement
Portugal	1996	request WTO DS on TRIPs patent term, reached agreement
S. Korea	1985	agreement reached on stronger IP protection
	1987	pharmaceutical patent complaint withdrawn by initiating party
	1988	two pharmaceutical patent complaints withdrawn by initiating parties
Taiwan	1992	agreement reached on stronger IP protection, monitoring compliance
Thailand	1990	agreed to amend and enforce copyright laws, monitoring compliance
	1991	inadequate pharmaceutical patent protection, U.S. delaying action
Turkey	1996	WTO DS Panel, box office tax, case open

Source: USTR Website—http://www.ustr.gov.

Countries have changed their behavior to avert sanctions or simply to avoid being cited on the watch list by the USTR. The United States also linked intellectual property to the Generalized System of Preferences (GSP) and other benefits for developing countries ranging from International Development Bank loans to the funding of joint scientific projects. ₂₃ These "sticks," combined with the persistent prodding of state and private delegations, forced the issue of stronger IP protection on U.S. trade partners.

In the mid-1990s, the United States continues to press hard for intellectual property protection despite the fact that the economic outlook is arguably much rosier, at least from a U.S. perspective. Domestically, the United States enjoys a "dream economy" of low inflation, low unemployment, reasonable growth, and a growing stock market. Internationally through 1996, the dollar had become more competitive, the current account deficit was improving (as a percentage of GDP), and exports were growing at a brisk rate. ₂₄ Still, defensive efforts continued to protect the most vibrant "knowledge-intensive" industries and to facilitate their ability to compete worldwide. Most of the impetus, however, comes from three main sectors: software, pharmaceuticals, and entertainment. ₂₅ The argument put forward by these sectors is that without strong intellectual property protection abroad, the technology industries would have trouble recouping high development costs and would probably invest less in research. A slightly different logic applies for the print, music, and film industries. Since protection abroad is usually not necessary to guarantee domestic investment, U.S. support of copyright protection is a matter of propping up profits and stemming losses in one of the United States’ strongest export sectors. ₂₆ For better or worse, these industries continue to define international IP policy within the USTR, often without much domestic debate and in the absence of any larger trade policy context. ₂₇

The U.S. commitment to raise world IP standards is thus designed to buttress the comparative advantage of American firms in a more global economy by all possible means. As long as American comparative advantage lies in knowledge-intensive products, processes, and designs, and as long as these are easily appropriated and disseminated abroad, the United States will have a significant stake in shaping the global management of intellectual property.

I would argue, however, that the mid- 1990s are not the mid-1980s, and the United States does have a choice about whether it wants to continue its activist bilateral policies or adopt a more comprehensive, transparent, and equitable global IP policy. I believe the latter creates a more solid platform from which to build new multilateral agreements on intellectual property. Aggressive unilateralism has reached an impasse, which provides an opportunity to redefine the goals and methods of U.S. policy.

Endnotes

Note 12: One of the classic texts exploring the economics of selective reciprocity as a trade strategy is Paul Krugrnan, ed., Strategic Trade Policy and the New International Economics, Cambridge, MA: MIT Press, 1986 Back.

Note 13: see U.S. Department of Commerce, US. Foreign Trade Highlights; Washington, D.C., 1995, pp.11–15. Back.

Note 14: For a history of high technologies in the U.S.; see Richard R. Nelson and Gavin Wright, "The Rise and Fall of American Technological Leadership: The Postwar Era in Historical Perspective,"Journal of Economic Literature, vol. 30 (December 1992), pp. 1,93l–64. Back.

Note 15: For a review of high technology trade disputes, see Laura D’Andrea Tyson, Who’s Bashing Whom? Washington, D.C.: Institute for International Economics, 1992. Back.

Note 16: Maskus, "Regionalism and the Protection of IPRs." Back.

Note 17: This point is made by Susan Sell, "Intellectual Property Protection and Anti-trust in the Developing World," International Organization, vol. 49, no. 2 (Spring 1995), pp. 3l5–49. Back.

Note 18: See Carlos M. Correa, "Intellectual Property Rights and Foreign Direct Investment," International Journal of Technologv Management, vol. 10, no. 2/3 (1 995), pp.173–99. Back.

Note 19: For further discussion of the multitrack policy, see Sylvia Ostry, Governments and Corporations in a Shrinking World, New York: Council on Foreign Relations, 1990, pp.25–30. Back.

Note 20: WIPO was created in 1967. It administers the Berne Convention, the Rome Convention, the Geneva Convention, and the Paris Convention. Organizationally, WIPO’s one-nation, one-vote organization favors the less-developed countries, which are more numerous. Back.

Note 21: Definition from I.M Destler, "American Trade Politics," Washington, D.C.: Institute for International Economics, 1995, p.318 Back.

Note 22: In 1987 Brazil was named priority foreign country for its lack of pharmaceutical patents. Retaliatory tariffs affecting $39 million Brazilian exports per year remained in place for two years. For a general discussion of the success of the use of Section 301, see Alan 0. Sykes, "Constructive Unilateral Threats in International Commercial Relations: The Limited Case for Section 301," Law and Policy in International Business, vol.23, no.2(1992), pp.263–331. Back.

Note 23: The Generalized System of Preferences is a set of preferential market access measures for developing countries. The Caribbean Basin Initiative and the Andean Trade Preferences Act also linked to intellectual property protection. Back.

Note 24: The United States has regained some self-confidence and optimism about economic prospects, now that the Europeans are mired in double-digit unemployment and the Japanese are just barely pulling themselves out of a four-year recession. Back.

Note 25: While these industries continue to produce trade surpluses for the United States, the surplus in advanced technologies has been declining since 1991. See National Science Board, "Science and Engineering Indicators, 1996, "Washington, D.C.: National Science Foundation, 1996. Back.

Note 26: The International Intellectual Property Alliance (IIPA) calculates that copyright-protected industries accounted for $238.6 billion in value added to the U.S. economy, or 3.74% of the gross domestic product. From 1991 to 1993 the industries grew at more than twice the rate of the U.S. economy, and employment growth in copyright industries grew four times the national employment growth rates between 1988 and 1993. Foreign sales grew 11.7% in 1993, to an estimated $45.8 billion, second only to sales of motor vehicles and parts. More than half is due to software sales, 1 8% to motion pictures, 16% to records and tapes, and 8% to print. See Jon Schaffer, "Copyright Protected Industries Outpacing Other U.S. Sectors," February 16, 1995. United States Information Agency website—http://www.usia.gov/topics/ip/ipr58.htm. Back.

Note 27: When there is debate about the appropriate format of domestic IP protection, however, the debates are heated. Examples of issues still unresolved in the United States include the patenting of genetic sequences and the breadth of copyright protection to be extended to on-line information and databases. In the latter, the U.S. Patent and Trade Office is pitted against the Library of Congress, the National Education Association, and the Internet service providers. See Denise Caruso, "Global Debate over Treaties on Copyright," The New York Times, December 16, 1996, p. D1. Back.