Trade, Intellectual Property and Investment in the Globalizing Economy: The Interrelated Roles of FTAs, IP and the United States
© Springer-Verlag Berlin Heidelberg 2015Christoph Antons and Reto M. Hilty (eds.)Intellectual Property and Free Trade Agreements in the Asia-Pacific RegionMPI Studies on Intellectual Property and Competition Law2410.1007/978-3-642-30888-8_6
Linking Trade, Intellectual Property and Investment in the Globalizing Economy: The Interrelated Roles of FTAs, IP and the United States
Southwestern Law School, Los Angeles, USA
Robert E. Lutz
1.2 Asian Business Culture and the Challenges of Intellectual Property Rights (IPRs) Protection to the United States
This chapter introduces readers to the United States’ trade policy-making system and the constitutional, executive, legislative and judicial institutions that participate in the process, as well as the many (and changing) political policies involved. It clarifies the complexities involved in the recently concluded and future Free Trade Agreements, and introduces non-U.S. readers to the political realities associated with the U.S. internal/domestic process of “fast-track” or “Trade Promotion Authority”. It also identifies some of the future intellectual property issues in Asian FTAs and suggests some possible consequences.
KeywordsColombia FTA“Fast-Track”FTAGATSGATTKorea–US FTAMFNPanama FTATPP (Trans-Pacific Partnership)“Trade Promotional Authority”Trans-Atlantic Pact (‘TAFTA’)TRIPSTRIPS PlusU.S. CongressU.S. ConstitutionU.S. FTAs
R.E. Lutz: BA (Political Science) (University of Southern California), JD (University of California, Berkeley), Professor of Law; Member of the NAFTA Advisory Committee on Private Commercial Dispute Resolution, Former Chair of the ABA Task Force on International Trade on Legal Services, and Former Chair, ABA Section of International Law.
1 An Introduction to Asia, the United States, and the Protection of Intellectual Property
1.1 United States and FTAs
The recent history of the United States and free trade agreements (FTAs) manifests a political, economic and social ambivalence towards such preferential trade agreements. On the one hand, they are viewed as a necessary tool to establish long-term trading relationships with certain friendly countries in regions of the world where political and economic connections are linked to US economic and military security. Related to these goals are the competitive advantages—vis-à-vis the European Union, for example—conferred by successfully committing countries in areas possessing special resources to long-term trading relations. On the other hand, at a time of economic difficulties and uncertainties, the consequences of supporting internationalization of the trading process tends to be characterized as ‘sending jobs out of the country’ (‘outsourcing’) and allowing domestic industries to face brutally unfair competition from low-cost labour sources and ‘pollution safe havens’ abroad.
This split of sentiment reveals the complexities of US trade policy-making and law-making, which is the general subject of this chapter. When coupled with the focus on Asia and, specifically, intellectual property rights protection in that region, the US positions and directions are less clear, and certainly complex. My attempt in the following is to assist others, especially those from outside the United States and less familiar with its law making processes, to know more about the process and substance of the US approach. To do so, the chapter will:
explain the challenges of creating trade policies regarding Asian trade;
discuss fundamentals regarding the US legal framework for trade policy development and law making; and
address the US experience with FTAs and the likely use and character of them in the future, especially with respect to Asia and the currently ongoing negotiations of the Trans-Pacific Partnership (TPP) with an emphasis on intellectual property protections.
1.2 Asian Business Culture and the Challenges of Intellectual Property Rights (IPRs) Protection to the United States
Historically, Asia has been a difficult venue for US business reliant on intellectual property rights (IPR) protection. Billions of dollars in losses occur annually as a result of the pirating of IPRs in the pharmaceutical, biotechnology, chemical and electronics industries, which generally depend on patents for protection. Similarly, the software, film, TV, music and print industries—dependent on copyright for IPR protection—also suffer huge losses from piracy. These industries are characterized by products that are relatively easy to copy and require high initial investments.
The prospect of great commercial success in Asia must be weighed against the limited IP protection infrastructures in most Asian countries. While idea-intensive industries need legal-enforcement structures that police and prosecute IPR violators in order to encourage investment by innovating foreign companies (for example, from the United States), IPR protection seems low on the Asian priority list of domestic law reform because of its financial costs and administrative burdens. In addition, traditional culture may impede the adoption of greater protections for IPR—in general, the IP culture prevalent in most developing countries (the bulk of Asian countries) provides for rapid diffusion of commercially useful ideas and traditionally has not protected such ideas from unauthorized imitation.
Notwithstanding these Asian cultural proclivities and current legal responses, IP protection remains high on the US trade agenda. The strongest US export industries are those that are technology and information intensive, which rely heavily on innovation and information for their comparative advantage.
2 The Making of US Trade Policy
The making of US trade policy, especially with respect to issues of IPR protection, must take into account the above-mentioned factors, while also contending with unique and changing domestic political, economic, legal and social concerns, which complicate the development of a policy that comprehensively takes all these considerations into account. The patent-protected industries of pharmaceuticals, biotechnology, chemicals and electronics and the copyright-protected industries of software, film, TV, music and print industries are the US industries most affected and those that have carefully monitored and pressured US negotiators and the political process to address their concerns in various trade negotiations. As mentioned above, both categories are characterized by the fact that the products are easy to copy and require high initial investment expenses.
To fully appreciate the domestic political and legal process for developing US trade policy, the fundamentals of the US legal framework are now described.
2.1 Fundamentals of the International and US Legal Framework Re: trade Policy
2.1.1 International Rules
The international rules governing FTAs1 derive from the World Trade Organization’s General Agreement on Tariffs and Trade (GATT)2 and the General Agreement for Trade in Services (GATS).3 Article 24 of GATT and Article 5 of GATS allow WTO members to avoid ‘most favoured nation’ obligations by agreeing to preferential treatment of ‘substantially all the trade’4 that does not result in increasing tariffs on imports or barriers to services trade from non-members of the FTA.5 The origin of this exception to MFN, according to Professor John Jackson,6 is the United Kingdom’s post-World War II concern for maintaining its Commonwealth trade relations and the US interest in protecting some of its existing trade relations.7 In a broad sense, the allowance of regional trade agreements (RTAs) as an exception to the MFN obligation is generally viewed as a stepping stone toward international free trade; by establishing free trade among countries in a particular region, and repeating this in various regions internationally, there will ultimately be large areas of free trade making possible the linking of them to form an international free trade regime.
Today, however, with a ‘noodle’ effect created by the interlocking and interrelated nature of FTAs and customs unions,8 serious concerns have been expressed that the multilateral benefits in a global approach to international trade are being overtaken and minimized by regionalism and bilateralism via the vehicle of FTAs.9 Further, with the apparent failure of the Doha Round negotiations to come to some agreement after 10-plus years of negotiations,10 many countries—including the United States—are seeking long-term trade relationships outside the multilateral WTO, principally by way of plurilateral and bilateral trade arrangements which most commonly use the FTA framework to obtain exemption from the WTO obligation of ‘most favoured nation’.11 The Trans-Pacific Partnership, described below, and the newly announced Trans-Atlantic Trade Agreement talks12 evidence the United States’ trade strategy to rely on the FTA approach for some time to come.
2.1.2 US Framework
The Constitution of the United States provides for shared authority of the executive and legislative branches with respect to matters that involve the regulation of foreign commerce.13 Implementation at the national level of the international obligations—particularly regarding trade matters—normally requires domestic federal legislation, because of the non self-executing nature of such obligations.14
Thus, what is known as ‘fast track’ or ‘trade promotion authority’ (TPA) has been employed to avoid the very difficult situation of having a treaty negotiated and signed by the Executive Branch, only to have it amended during the US legislative approval stage, requiring if possible re-negotiation with the treaty partners.
TPA is the authority Congress grants to the President to enter into certain reciprocal (free) trade agreements…, and to have their implementing bills considered under expedited legislative procedures [without amendment], provided he observes certain statutory obligations in negotiating them.15
For many of the last 30 years,16 Congress has essentially delegated its constitutional authority to regulate foreign commerce within the parameters it sets for the President to negotiate specific international trade agreements (for example, Congress sets specific congressional objectives and consultation requirements with respect to the Executive’s negotiation of the treaty)17 and requires that the authority to use the TPA is periodically re-authorized which usually includes revisions in the trade negotiation objectives.18 Once satisfactorily negotiated (from the perspective of the Executive Branch and, presumably, responsive to the congressionally set objectives), Congress (that is, both the House of Representatives and the Senate) under TPA agrees to expeditiously consider trade implementing legislation and to vote on it without amendment.19
Because of this constitutional split of authority when it comes to trade agreements, bipartisan political support during the legislative process is crucial and inter-branch coordination (between the executive and legislative branches) is required.20 Accordingly, during highly politically-polarized moments or complex economic times, the process of finding agreement about trade is often difficult. Consequently, when the TPA—under which the United States negotiated and signed its FTAs with Colombia, Panama and South Korea—expired on 1 July 2007, President Obama was for several years without TPA to seek Congressional approval and implementation of those FTAs.21 Congress, however, exercised TPA authority and procedures in passing implementing bills for those bilateral free trade agreements on 12 October 2012.22
As the United States continues its extensive negotiations regarding the Trans-Pacific Partnership and embarks upon its initiative with the European Union (the Trans-Atlantic Trade Pact), it does so without TPA.23 A commentator has remarked:
The expiration of TPA raises the central questions of whether, when, and in what form TPA renewal might take. Much of the early discussion centers on whether Congress may consider a new broad authority, which could lead to a lengthy and complicated debate, or may prefer a targeted renewal focused on specific negotiations such as the TPP [Trans-Pacific Partnership].24
At the executive branch level, there are also a number of agencies that play prime roles in the development and implementation of policy. For example, the Department of Homeland Security—because of its central roles in regard to US security, customs and immigration—plays a pivotal role. In addition, the International Trade Commission and its Section 337 process, the Departments of State, Justice, and Commerce, as well as the US Trade Representative, especially via the Super and Special 301 processes, are involved.25 No description of the US trade policy making network is complete without mention of the roles played by lobbyists for major industry sectors, and the contributions of courts in the judicial branch, which (among other aspects) police inbound trade by resolutions of infringement.
2.1.3 Past and Recent History of the United States and FTAs
For the United States, the modern history of its applications of FTAs begins in the early 1980s with the US–Israel FTA in 198526 and that with Canada in 1989.27 But in the race with the European Union and others (for example, China) to establish trade relations with a wide range of valuable trade allies and those which offered strategic benefits,28 the United States embarked aggressively on negotiating a group of preferential treatment agreements, mostly FTAs since the constitution of the WTO in 1994. In the ensuing years, the United States negotiated regional/multilateral agreements and bilateral ones with many countries until recently. Bilateral agreements were concluded with Australia (entered into force in 2005), Bahrain (2006), Chile (2004), Jordan (2010), Morocco (2006), Oman (2009), Peru (2009), and Singapore (2004). Multilateral/multi-party agreements were achieved with Canada and Mexico (NAFTA 1994), and with the Central American countries—Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua (DR-CAFTA) (in force with El Salvador, Guatemala, Honduras, and Nicaragua in 2006; with the Dominican Republic in 2007; and with Costa Rica in 2009).29
The US International Trade Commission reports that total merchandise trade (imports and exports) between the United States and its FTA partners was USD 1.2 trillion in 2011. This accounts for 34.2 % of total US merchandise trade with the world.30 Exports to FTA partners account for 39.5 % of total US exports; and US imports of goods from FTA partners in 2011 account for 31.1 % of global US imports.31
126.96.36.199 Recent US Experience: Panama, Colombia and South Korea
Most recently—a number of years after negotiating FTAs with, respectively, Panama, Colombia, and South Korea—the US Administration transmitted draft legislation to Congress to implement the agreements and bring them into force. The Colombian FTA negotiations were completed in 2006, and the negotiations for the Panama and South Korean Agreements were concluded in 2007. But it was not until 3 October 2011 that the President transmitted draft legislation for all three, which was approved by the U.S. Congress on 12 October 2011 and signed into law by the President on 21 October 2011.32
While the United States has engaged in various FTA negotiations with other countries—such as Ecuador, Malaysia, the Southern African Customs Union (SACU, consisting of Botswana, Lesotho, Namibia, South Africa, and Swaziland), Thailand, the United Arab Emirates, and the countries involved with the Free Trade of the Americas—those remain stalled.33 Other forms of preferential trade treatment are also employed; for example for multilateral trade, the African Growth and Opportunity Act (AGOA), the Andean Trade Preference Act (ATPA) and the Caribbean Basin Initiative (CBI),34 are employed. Preferential trade is also conducted bilaterally by way of bilateral investment treaties (BITs), bilateral intellectual property agreements (BIPs) and, with respect to specific products and 128 countries, through the ‘Generalized System of Preferences’ (GSP).35
3 Current and Future Free Trade: IP and Other Issues
3.1 Background: United States and IP
As the United States embarks on an aggressive strategy to enlarge its sphere of trade influence in Asia via FTAs, particularly via multilateral regional agreements, the negotiation of increasingly stronger IP commitments has become central to the US initiatives regarding FTAs, BITs, BIPs, and so on. Promoted by US industries that would most benefit from stronger IP protection abroad, the United States has launched numerous initiatives, the most recent and significant of which is the Trans-Pacific Partnership Agreement negotiations.36 In addition to IP arrangements in its bilateral and multilateral FTAs and other trade agreement efforts, the United States recently undertook to join other primarily developed countries to more effectively address large scale violations of intellectual property rights by entering into the Anti-Counterfeiting Trade Agreement (ACTA).37