US Trade Team Responds To Protectionist Pressure In Reports On Trading Partners

The Obama administration’s new trade team has quickly come under pressure to focus on protecting United States interests, including enforcement of intellectual property rights, at a time when multilateral institutions urge governments to remain open for the sake of the global economy.

And in a report on trade barriers to US exports released today as well as its recently released trade policy agenda, the Office of the US Trade Representative (USTR) has responded to these pressures, claiming other nations’ protectionist instincts as their target.

USTR, now headed by Ron Kirk, releases several key documents every spring outlining its plans and targets among foreign trading partners. These reports give an indication of the level of protectionism and enforcement focus the administration has chosen to embrace. No indications appeared to be given of barriers to US promotion of technology transfer in least-developed countries as mandated under World Trade Organization rules.

Tuesday’s National Trade Estimates report highlights trade barriers for all types US products, including intellectual property rights. USTR’s trade agenda for the coming year was issued in February. These are to be followed at the end of April by the Special 301 report listing countries that USTR, based on information mainly from US industry, determines not to be adequately protecting US intellectual property rights.

Kirk said that the NTE Report and swift action by USTR will advance US economic recovery efforts, USTR said.

The 2009 NTE report, available here, covers 10 broad trade categories and offers specifics on barriers to trade in US intellectual property, and focuses on strong enforcement and protection measures.

The report found concerns about IP rights in a variety of countries, including major trading partners, with numerous references to alleged barriers to entry or access for US brand-name pharmaceuticals, drawn directly from US pharmaceutical industry claims. It was unclear whether USTR had confirmed such claims itself.

In Brazil, it found progress in IP rights and biotechnology, and “significant” progress in other IP areas. It continued to raise concern about Brazil’s process for examining pharmaceutical patent applications, criticising the country for involving its health ministry (ANVISA) in drug patent decisions. “ANVISA’s role in reviewing pharmaceutical patent applications remains non-transparent and has contributed to an increasing backlog in the issuance of patents,” the report said.

In Canada, USTR directly cited US industry complaints about competing, lower-priced generic drugs as barriers. “The US pharmaceutical industry has expressed concern with the nature of infringement-related proceedings in conjunction with the approval of copies of patented drugs,” USTR said. “The industry has also expressed concerns related to draft pharmaceutical pricing guidelines, specifically with respect to the regulatory burden that would be placed on pharmaceutical manufacturers.”

Chile was listed for having “yet to establish a consistently effective and transparent system to address the concerns of patent holders, who report that Chile has permitted the marketing of unauthorised copies of patented pharmaceutical products.”

China was a major target of criticism as usual, having “continued to demonstrate little success in actually enforcing its IPR laws and regulations.”

“Weaknesses in China’s enforcement system – criminal, civil, and administrative – contribute to China’s poor IPR enforcement record,” USTR said. One concern is China’s alleged maintenance of import and distribution restrictions.

Again citing US industry, USTR said, “Right holders have pointed to a number of continuing deficiencies in China’s criminal measures.” For example, it said, “procedural burdens, such as an inability to investigate based on suspicion of criminality, also weaken the criminal IPR system.”

In addition, USTR asserted that “IPR enforcement is hampered by a lack of coordination among Chinese government ministries and agencies, and between sub-national authorities and the central government, a lack of training, resource constraints, lack of transparency in the enforcement process and its outcomes, and local protectionism and corruption.” Another concern in China is fees associated with the “filing, issuance, and maintenance of a patent over its lifespan far exceed those in the United States,” it said.

India was seen as still a “major” problem country for IP rights, and its 2005 patent law continues to lack certain key elements on patent protection, USTR said. It also took a jab at India’s pre-grant opposition rules, and said Indian law does not sufficiently protect pharmaceutical test data. USTR also levelled criticism on India’s judicial system in relation to IP enforcement.

Russia was named for a litany of alleged problems from high rates of piracy and counterfeiting to cybersquatting website addresses not trademarked in Russia. “The United States is working to ensure that Russia takes appropriate actions to protect intellectual rights and address piracy and counterfeiting,” it said. “In addition, the United States is reviewing Russia’s status as a beneficiary country under the US Generalized System of Preferences (GSP) programme [which gives unilateral trade benefits for exporting to the US market]. Russia was also on the 2008 Special 301 Priority Watch List and was subject to an Out-Of-Cycle Review.”

Thailand, which has come under pressure in recent years for using international trade rules allowing it to produce cheaper versions of patented drugs, was criticised for industry allegations of backlog on patent applications – something of which the United States also is guilty. “US industry notes that delays in patent issuance are a significant problem,” the report said. “Patent examinations can often take five years or more, indicating that Thailand’s patent office lacks sufficient resources to keep up with the volume of applications.”

“The US pharmaceutical industry has expressed concerns regarding the issuance of compulsory licences on patented drugs by Thailand’s Ministry of Public Health,” USTR said.

Pressure from Congressional Democrats

On Monday, senior Democrats (the majority party) in the US House of Representatives sent a letter to President Obama urging the administration to more strictly enforce US rights under international trade agreements. The Democratic letter signed by 16 members was led by House Way and Means Committee Chair Charles Rangel of New York and Trade Subcommittee Chair Sander Levin of Michigan.

The 26 March letter asserts that enforcement was lacking under the free-market-oriented Bush administration, which they say contributed to the largest trade deficits on record and helped lead to the current global crisis. The congressional members called upon the current administration to “systematically improve its ability to eliminate barriers and open foreign markets to US exporters.”

Enforcement could help reduce the exorbitant US trade deficit, they argued, and the administration is encouraged to instruct USTR to “take appropriate action” with key trading partners to get results.

A 30-page appendix to the Democrats’ letter lists a wide range of recommended actions to be taken under a variety of trade agreements, including those related to IP rights – specifically copyright and some trademarks. On IP, they targeted leading trading partners Canada, China, the European Union (France), Mexico and Russia. Proposed actions include pursuing negotiations for an Anti-Counterfeiting Trade Agreement, and many suggest potential violations of World Trade Organization rules.

Canada was criticised for failure to protect US copyrighted content online and exports of copyright-evasion equipment; China for market access restrictions and a range of piracy activities allegedly valued at $3.5 billion in 2006; France for draft requirements for companies to reveal their technological protection measures; Mexico for failure to protect US movies and music; and Russia’s continued trade barriers and lack of protection for copyrighted works online. With Russia, they suggested penalties such as removing unilateral trade benefits.

Trade Policy Agenda

USTR in February presented its 2009 Trade Policy Agenda and 2008 Annual Report outlining its priorities for the upcoming year and assessing last year’s efforts in the ambit of trade. The trade policy agenda is available here.

While restating “steadfast support” for multilateral trade mechanisms, as well as its bilateral agreements with trade partners, USTR in the report voiced concern at lax IP protection in a number of countries. These reservations are to be further elaborated in the Special 301 review. Twinned to the USTR trade agenda, the Special 301 provides the most reliable indication of US positioning on trade and IP policy issues.

Looking at the 2009 trade policy agenda, the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) remains a priority as the US seeks to “aggressively pursue additional support for the ‘joint proposal’ in 2009,” referring to a different approach to a geographical indications register than proposed by the European Union.

While remaining inflexible on the issue of the registration of geographical indications for wines and spirits, USTR called for a “more pragmatic approach” from their counterparts in the EU. Moreover, the US will continue to “resolve differences through consultations and use of dispute settlement procedures; continue its efforts to ensure that developing country members fully implement the TRIPS agreement; and engage in constructive dialogue regarding the technical assistance and capacity-related needs of developing countries in connection with TRIPS agreement implementation.”

Intent on providing “adequate legal regimes and enforcement systems to better combat counterfeiting and piracy,” the report also highlights significant improvement in IP rights protection in countries which previously had been designated as errant in the 2008 Special 301 Review. The USTR will, as in past years, continue to work on the implementation of stronger IP protection regimes in countries with whom it the US has concluded free trade agreements.

Other nations and regions highlighted by USTR in the trade agenda included:

APEC
US will work with other nations in the Asia Pacific Economic Cooperation to put in place legal regimes and enforcement systems to better combat counterfeiting and piracy.

Argentina
A low level of IP protection and enforcement remains a “source of friction” in its trade relationship with the United States.

Brazil
Progress in enhancing the effectiveness of intellectual property enforcement in Brazil, particularly with respect to pirated audiovisual goods. But USTR said “shortcomings” in protection and enforcement, such as the “large backlogs of patent and trademark applications and the involvement of Brazil’s Health Ministry (ANVISA) in the examination process of patent applications for pharmaceuticals, continue to represent issues for US IPR holders.” A memorandum of understanding was concluded in 2008 between the USPTO and Brazil’s national IP office on continued technical cooperation on IP issues, such as patent and trademark examination training and information sharing.

Canada
Similarly to 2007, US intellectual property owners remain concerned about Canada’s weak border measures and general enforcement efforts.

Chile
The USTR raised concern over a decline in IP protection and in particular the weak protection afforded to patent and test data in Chile; a technical review of IP implementation measures in the bilateral free trade agreement was scheduled for the first quarter of 2009.

China
The US will continue a “robust set of formal and informal meetings and dialogues” with China and “will not hesitate to invoke the dispute settlement mechanism at the WTO” when dialogue proves unsuccessful. In addressing the manifold challenges, the US continues to work closely with industry and devotes “considerable staff and resources, both in Washington and Beijing.”

India
Continued cooperation in improvements of its IP rights regime is mediated through the US-India Trade Policy Forum’s Focus Group on Innovation and Creativity, the US Commerce Department-led High Technology Cooperation Group and the IP attaché stationed in New Delhi. The US seeks a strengthening of India’s patent regime; to remedy problems related to protection of digital works on the internet; and increased protection and enforcement against piracy and counterfeiting. It also needs to clarify the scope of patentable subject matter under its patent law, USTR said.

Mexico
Though concern exists in view of significant IP rights violations, there have been some signs of progress and change: an extensive set of IP laws has been introduced and a bill proposing to give the Procuraduría General de la República the power to prosecute intellectual property crimes ex officio is awaiting action by the Senate.

Russia
The poor enforcement of IP rights in Russia is a “pervasive problem.” In 2008, the US embassy in Moscow coordinated or participated in several IPR training programs.

Taiwan
In January 2009, Taiwan was removed from the Special 301 watch list as a result of progress on protection and enforcement of IPRs. The US has “strongly encouraged Taiwan’s passage of legislation” for the creation of specialised intellectual property courts and will monitor the implementation of this measure.

Thailand
Political volatility and instability in Thailand has marred the implementation of stronger enforcement measures. In 2009, the US will continue monitoring and evaluating existing IP agreements and will look at ways to strengthen bilateral relations.

Turkey
Improvements in enforcement measures in the area of copyright led the USTR to move Turkey from “priority watch list” to “watch list” status during the 2008 Special 301 review. The absence of an adequate system for preventing generic drugs that infringe Turkish patents of US pharmaceutical companies from receiving marketing approval in Turkey remains a source of concern.

Special 301 Review 2008
The 2008 Special 301 Special Review highlighted the counterfeiting of pharmaceuticals and consumer safety as areas of growing concern.

Pete Murphy says

01/04/2009 at 2:25 pm

Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the wealthiest nation on earth – its preeminent industrial power – into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It’s a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, exceeds $9.1 trillion. What will happen when those assets are depleted? Today’s recession is the answer.

Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.

Clearly, there is something amiss with “free trade.” The concept of free trade is rooted in Ricardo’s principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn’t consider?

At this point, I should introduce myself. I am author of a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density – rising unemployment and poverty – are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable – nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world’s population.

Ricardo’s principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It’s also available at Amazon.com.)

Please forgive me for the somewhat spammish nature of the previous paragraph, but I don’t know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

Pete Murphy
Author, “Five Short Blasts”

Comments

Pete Murphy says

01/04/2009 at 2:25 pm

Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the wealthiest nation on earth – its preeminent industrial power – into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It’s a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, exceeds $9.1 trillion. What will happen when those assets are depleted? Today’s recession is the answer.

Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.

Clearly, there is something amiss with “free trade.” The concept of free trade is rooted in Ricardo’s principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn’t consider?

At this point, I should introduce myself. I am author of a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It’s because these effects of an excessive population density – rising unemployment and poverty – are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

One need look no further than the U.S.’s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable – nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn’t a problem, but rather that it’s exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world’s population.

Ricardo’s principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It’s also available at Amazon.com.)

Please forgive me for the somewhat spammish nature of the previous paragraph, but I don’t know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

Pete Murphy
Author, “Five Short Blasts”

US Trade Team Responds To Protectionist Pressure In Reports On Trading Partners

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