Mega-Regionalism - Presentation Takeaways

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Presentation Takeaways

Mega-Regionalism -- New Challenges for Trade and Innovation Workshop
East-West Center, January 20-21, 2016

1.1. The TPP -- Potential Gains and Impediments
Michael G. Plummer - The Johns Hopkins University, SAIS, Bologna

  1. The TPP is intended to be a "21st Century, Gold Standard" agreement, updating international commercial policy rules and embracing a comprehensive approach to liberalization. While the complicated nature of the negotiations and the impressive diversity of economies required compromises in negotiations that may fall short of a "gold standard", the agreement does take on an impressive set of issues and some parts of it are even more ambitious than expected (e.g., three-fourths of non-zero tariffs will drop to zero upon entry into force and 99% of tariffs will ultimately be eliminated).
  2. The Economic benefits of the agreement are expected to be large (Petri and Plummer 2016): for the US, which is the largest winner in absolute terms, real income would rise by $131 billion above the baseline once the TPP is fully implemented, and US exports would rise by 9.1 percent. Both labor and capital gain, but the Former's gain is greater than the latter. The biggest winners in relative terms are Vietnam (8.1% of GDP) and Malaysia (7.6% of GDP). The agreement does lead to some negative effects on non-partners; China is the biggest loser ($18 billion), but since this is just 1/10 of 1 percent it is fairly negligible.
  3. The model does not forecast changes in employment, but each economy will inevitably require job shifts as part of the specialization process, suggesting an important role for public policy in expediting the process and ensuring protection for the most vulnerable. The large efficiency gains from the TPP suggest that each economy can easily afford active government policies in the area. Moreover, the labor chapter of the TPP, which is actionable, constitutes an important step forward in protecting worker's rights in some key TPP ountries.

1.2. Trading Up -- The Trans Pacific Partnership (TPP) -- Promoting Waves of Innovation
Doug Lippoldt - HSBC London

Priority theme: The strengthening of intellectual property rights works provides market exclusivity or other benefits to rights holders. In order to ensure market dynamism, it is important to complement the intellectual property rights with an appropriate competition regime that ensures the ability of new competitors to enter markets and to ensure fairness in competition. It would be useful to explore the appropriate balance in policy settings between these two policy domains. What aspects are important for a just and economically favorable outcome? What can we say empirically? What are key lessons from experience around the world, with potential for application in the TPP area?

  1. TPP will liberalise market access for traded goods and services across an area representing 40% of global GDP, while closing gaps in intellectual property protection in a balanced manner. This combination will boost incentives for innovation.
  2. Innovative firms using various business models (e.g., proprietary or open innovation) will find new opportunities thanks to the improved market openness. For example, there may be new gains available from specialisation and increased exploitation of economies of scale. Businesses will also face increased competition and may find advantages in the market place through product differentiation.
  3. TPP may provide building blocks for increased economic development. Developing countries like Chile, Malaysia, Peru or Vietnam may gain access to a large pool of innovation via the opening of markets and may benefit from technology transfer. Developed countries like the US and Japan will be able to market each innovative product to more customers, thereby incentivising further innovation.

1.3. Global Value Chains in East Asia
Shigeyuki Abe - Center for Contemporary Asian Studies, Doshisha University, Tokyo

  1. While GVCs are important, parts and components have been increasingly procured locally from the viewpoint of Just-In-Time (Kanban).
  2. East Asia is the champion of GVCs in the world. The GVCs have been created by locating labor using process in labor cheap countries. As East Asia started to use third country labor, such new GVC creation will become less urgent.
  3. TPP has stronger impacts on consumption than on new GVC expansion.

Priority themes and research questions:

  1. GVCs in more detailed products (not satisfied with OECD type approach, 39 sectors being too broad)
  2. Exchange rate effects on location of GVCs, in particular hollowing in Japan.
  3. Immediate research question: to explore the usage of third country labor in Japanese MNCs in Thailand

2.1. Beyond Value Capture -- Exploring Innovation Gains from Global Networks
Dieter Ernst - East-West Center, Honolulu

  1. We need case studies and econometric research on the distribution of innovation gains from trade agreements among countries at different stages of development.
  2. How does a firm's position in GNs affect its ability and scope of innovation? And how does a firm's innovation capacity shape its position in these networks?
  3. What policies might be best suited to upgrade a country's position in GNs, in which combination and in which order?
  4. Are stronger and more harmonized IPR regulations necessary for the growth of GNs?
  5. What is the impact of "standard-essential patents" (SEPs) for the distribution of innovation gains within GNs?
  6. How important and feasible is effective harmonization of international standards, especially for inter-operability standards and certification?
  7. Are mega-regionals (such as TPP or TTIP) likely to foster knowledge diffusion and the dissemination of innovation gains from GN integration?
  8. What changes in mega-regionals are needed so that GNs can become more effective as channels of knowledge diffusion, especially for smaller companies in developing countries?
  9. Are opportunities for TPP members greater than for non-members to capture innovation gains from global networks?

2.2. How Stock Buybacks Make Americans Vulnerable to Globalization
William Lazonick - UMass Lowell/The Academic-Industry Research Network, Cambridge

  1. For Americans, the problem with TPP is not simply that the trade and intellectual property agenda have been shaped by major U.S. corporations. In principle, the success of these corporations in selling goods and services abroad should redound to the economic benefit of the American people. The real problem is that, in the name of "maximizing shareholder value," these U.S.-based corporations are not working in the interests of most Americans even at home. The massive stock buybacks that U.S. corporations do to manipulate their stock prices help concentrate income among the richest households -- those of corporate CEOs among them -- while at the same time eroding investment in middle-class employment opportunities. In dealing with the financialized corporation, Americans have business to take care of at home.
  2. Critiques of U.S. business behavior and U.S. government policy in the global economy should start with dismantling the laws and norms that support the financialized business corporation. Stock buybacks are at the center of the American inequality problem because corporate resource allocation is at the core of the economy. For anyone concerned with restoring sustainable prosperity in the U.S. economy, a ban on stock buybacks is the place to start. The movement for a ban on buybacks will in turn put a focus on the highly damaging ideology that business corporations should be run to "maximize shareholder value." With representatives of the interests of households as workers, taxpayers, consumers, savers, and investors on corporate boards, U.S. business corporations can begin to transform their resource allocation regimes from "downsize-and-distribute" to "retain-and-reinvest," putting the United States on a path to stable and equitable economic growth.

Future research:

  • Over the next few months, a main focus of my writing will be on the dysfunctional business model for drug discovery, development, and delivery that prevails in the United States, with adverse impacts on access to medicines on a global scale.

3.1 Climate Change -- Challenges for Trade, Innovation and Governance
Staffan Laestadius - Department of Industrial Economics and Management, Royal Institute of Technology, Stockholm

  1. Globalization is basically based on a non-sustainable and growing input of fossil energy. So has been the case for about 200 years with a rapid increase after WW2 -- i.e. the period we normally identify as the most dynamic part of globalization and increase of world trade.
  2. Climate change mitigation -- assuming that we take the 2°C target seriously -- will necessitate a >4% annual reduction of greenhouse gas emissions for decades ahead. During recent decades, international transport has increased emissions 2-3 % annually.
  3. We have no idea (and no research so far) on how this may impact global division of labor, global production networks, global trade, and volume of material production.
  4. Will there be a new division of labor-related "comparative footprint advantages" leading to optimal (regional) trading solutions which are more sustainable?
  5. Basically nothing about these dilemmas are identified or mentioned in the recent WTO agreements, nor in the recent TPP or ITIP. Their environmental chapters deal with totally different topics.

3.2 Trade and Investment Barriers in Solar and Wind Global Production Networks
Derek L. Hill - National Science Foundation and the Federal Renewable Energy Laboratory, Arlington

  1. We should inform and educate policymakers about where value-added is in solar global production networks
    • There is quite a bit of value in downstream activities such as sales, project development, installation, etc.
    • These are local activities only possible within your country, while manufacturing can move anywhere
    • Countries want to get into manufacturing and that may not be where the best value is
  2. More research is needed on value-added and jobs captured by developing countries in solar and wind global production networks
  3. International community should do more comprehensive and timely monitoring of "green industrial policies" that may pose problems or create distortions
  4. Is there research or insight from global production networks in other industries on facilitating trade, investment, and innovation that can be applied to solar and wind GPNs?
  5. Will TPP have any impact on trade and investment barriers in solar and wind GVCs?
  6. How should innovation be measured?
  7. Are patenting and other IP rights having an adverse or beneficial impact on solar and wind GVCs?

3.3 Patents and Technology Transfer through Trade and the Role of Regional Trade Agreements
Keith Maskus - University of Colorado Boulder

  1. We have no solid evidence about whether TPP and regional trade agreements with strong IPR chapters have exceptional impacts on innovation and technology transfer. More research is needed.
  2. There are some positive policy steps designers of RTAs could take to enhance flows of technology within the agreement, such as changes in patent rules and increasing flows of skilled labor.
  3. It is important to work toward more open access to the results of basic science.
  4. Other technology-related policies in TPP may be more important for innovation than intellectual property rights.

Intended audience: international organizations, NGOs, policymakers

4.1. Learning from Past Mistakes -- The US Patent System and International Trade Agreements
Robin C. Feldman - University of California Hastings College of Law, San Francisco

  1. With the increasing importance of mega-regional agreements in the area of innovation and intellectual property, it is important that we learn from past mistakes. In particular, we should try to learn from the two areas of US law that are creating challenges.
  2. First, the rapid emergence of modern non-practicing entities, those who core activity involves licensing or litigating patents, is creating problems for the US system. The costs and risks of US litigation, combined with the complexity of the system, is creating opportunities to bargain, even when the patent is weak or is aimed at a company that is not infringing.
  3. Second, the US pharmaceutical system has struggled with strategic behavior that blocks or delays introduction of generic drugs, either through patents or non-patent exclusivities. Again, the complexity of the regulatory and litigation systems create opportunities for suboptimal behavior.
  4. As we develop regional and global intellectual property frameworks, the focus should be on streamlining complexity and on the creation of new products, rather than the creation of new intellectual property games and stripped markets. In this era of mega-regionalism, we should export the strengths of the US intellectual property system and not its flaws.

4.2. Harmony and Disharmony in International Patent Law
Colleen V. Chien - Santa Clara University School of Law, Santa Clara

  1. The gap between the agreed-upon provisions within trade agreements and the on-the-ground implementation is large, because of how they are formed and the reality of domestic policymakers who are not at the table responding to dynamic and evolving needs in implementation.
  2. Thus, negotiators and members of the public should keep these in mind when considering the impact of these provisions.
  3. Thus, measures of the strength of IP regimes by economists should account for those gaps and regard those who do not with caution.

Audience: general press, law and econ academia

4.3. Shadow Patent Systems: Technology, Economics and Geopolitics
Brian Kahin - University of Washington, Seattle

  1. The digital economy has added new strategic dimensions to the use of patents.
  2. Some of the business effects are far removed from traditional stylized thinking about how the patent system works.
  3. While the TPP may have little direct impact, it adds new uncertainties related to the expanding use of investor-state dispute settlement by large multinationals and the disadvantages for smaller, domestic-scale competitors.

Intended audience: international innovation policy community.

4.4. The Role of Sovereign Patent Funds
Mark Wu - Harvard Law School, Cambridge

  1. A small number of countries have set up government funds to acquire and license patents. However, there is a large amount of heterogeneity in terms of the structure and operations of these funds. The same heterogeneity also exists in terms of the type / level of government involvement.
  2. In theory, there is the possibility that a sovereign patent fund could undertake behavior that results in greater protectionism and/or reduces overall welfare. At present, it is unclear to what extent these funds are actually behaving in ways that are troublesome. Many of these funds are too new for us to have clear insights yet about their impact.
  3. The present trade rules do not necessarily allow us to address potential problematic issues, should they arise. However, additional research is needed to determine the exact nature of what form of additional rules are necessary.

5.3. Dual Use of standardization strategies: Promoting Regional Integration and/or Global Markets
Konstantinos Karachalios and Karen McCabe - IEEE-Standards Association, Piscataway

  1. Standards are important determinants of international trade flows. What defines an "international standard" however remains a challenge. Standards need to be developed outside the nation-centric model so that they can meet regulators' requirements, increase competition, and provide choice for consumers.
  2. Standards can support policy actions, including trade and competition policy, technical regulation, consumer safety, and environmental protections. And as governments are under pressure to assist domestic firms -- and with the decline of tariffs -- the use of non-tariff measures such as standards may increase.
  3. We need research on how environmental protection measures get incorporated into trade agreements.
  4. We need research on the implications of the TPP chapter 8 which calls for parties to consider methods to provide additional transparency in the development of technical regulations, standards and conformity assessment procedures.
  5. Research needs to address emerging mega-issues, i.e. the vast emerging standardization needs for mega-systems of IoT, 5G, smart cities, etc.
  6. Standards now operate in an increasingly complex environment which forces us to rethink the role of standards in global trade agreements.

5.4. Patents, Standards and Borders
Jorge L. Contreras - College of Law, University of Utah, Salt Lake City

  1. The ability to produce standardized products efficiently is necessary to compete in global technology product and component markets.
  2. SMEs and firms from less-developed countries are systematically disadvantaged in global standard-setting organizations due to a lack of a large patent portfolio and experience within SSOs.
  3. Four responses are currently possible in response to this exclusion: (i) do nothing/maintain status quo, (ii) protectionist measures, (iii) increase patenting by SMEs/LDC firms, and (iv) increase participation by SME/LDC firms in international SSOs.
  4. Incentives must be provided, either by governments, NGOs, or SSOs, to increase participation by SMEs/LDC firms in SSOs.

5.5. Standard Essential Patents and the Distribution of Gains from Trade for Innovation
Florian Ramel, M. von Laer; K. Blind -Technische Universitaet Berlin, Department of Innovation Economics, Berlin

  1. Data-driven research is very important.
  2. To date, there is a severe lack of data-driven research regarding SEPs.
  3. There is a need to disentangle GPNs and GINs to learn more about the role of SEPs.
  4. The relevance of mega-regional agreements for SEPs is limited. When there are provisions for competition policy in the agreements, however, SEPs should be taken into account. Governments seem to only slowly recognize the relevance of SEPs at the moment.

Intended audience: academics, government officials, antitrust investigators

6.1. The Information Technology Agreement, Manufacturing and Innovation -- China's and India's Contrasting Experiences
Dieter Ernst - East-West Center, Honolulu

  1. The US (with its main allies) can no longer shape alone the outcome of pluri-lateral agreements like the Information Technology Agreement (ITA).
  2. China's trade negotiators seem to have learnt how to compromise without undermining the scope for upgrading the country's semiconductor and solid-state lighting industries. Due to its weak electronics industry, India doesn’t seem to hold anything comparable to China's trump cards.
  3. The majority of developing countries have had no say. Will this deprive these countries from speedy access to critical learning opportunities and productivity-enhancing generic technologies?
  4. Rapid technical change in IT will require another expansion of the ITA product list in the near future. Are there ways to simplify the current tortuous negotiation process?
  5. What changes are necessary in domestic regulations as well as in industrial and innovation policies to reap the potential benefits of ITA trade liberalization?
  6. How does a country's manufacturing and innovation capacity in a particular industry affect its approach to and its position in pluri-lateral and mega-regional trade agreements?

6.2. From Catching-up to Forging Ahead -- Lessons from China's Experience
Xue Lan - Tsinghua University, Beijing

  1. China's S&T policy has been based more or less on a linear model focusing on R&D institutions. Innovative capabilities of Chinese firms are still lagging behind. Considerable efforts are needed to transition from a pure S&T policy to a more market-oriented innovation policy?
  2. In order to move from catching-up to forging ahead, China's innovation policy requires much more than just R&D programs. Of critical importance are sophisticated policies on IPR, tax incentives, finance, human resources development, and promotion of entrepreneurship.
  3. Policy coordination needs to be strengthened beyond the Ministry of Science and Technology, and involve key policy making bodies that cover education, trade, investment, etc.

6.3. Beyond Government Control of China's Standardization System -- History, Current Status and Reform Suggestions
Wang Ping - China National Institute for Standardization (CNIS), Beijing; and Liang Zheng - Tsinghua University, Beijing

  1. From the reform and opening-up of China up to now, the standardization system of China has changed significantly, from a pure top-down system led by government to a top-down government-centered system mixed with some bottom-up approach. Affected by the western world, currently, technical committees should be established for standardization in different areas, which means that different stakeholders should be involved in, and the standard setting process must conform to the principle of "transparency, openness and consensus."
  2. The standardization system led by Chinese government was instrumental for the technical progress in China. The "dual-adoption policy" (Chinese standards adopting international standards and the standards from advanced countries) during the preliminary stage of reform and opening-up increased the role of technology diffusion of standards (technology spillover effect), and the strategy of standards supporting independent innovation during the fast development of the economy proved effective and successful. The impetus was primarily positive.
  3. After the economic slowdown, the drawbacks of the standardization system caused mainly by the multi-decision-making bodies of the government have become more and more prominent. The policy suggestion is, government should step back for the most part from voluntary consensus standardization and give the space to cultivate private sector standardization in China.

6.4. China's Global Ambitions to Standardization -- Impact on Trading Partners
Klaus Ziegler - China Representative, DIN German Institute for Standardization, Beijing

  1. Internal competition policies of each partner have a major impact on trade negotiations -- including standards -- this needs more attention.
  2. Institutional resistance remains a key factor hindering implementation of trade initiatives. What measures would help to reduce this impact -- especially in Asia where governments have a much stronger positions than in the West.
  3. One new Mega-Trade-Agreement in the making is the 1 Belt 1 Road initiative -- there is no Western research on this

7.1. Innovation, Trade and IPRs: Implications for Trade Negotiations
Carlos Braga - Fundacao Dom Cabral, Sao Paulo

  1. The growing role of non-practicing entities in the IP space in the USA (Robin Feldman's paper). To what extent the rules on IPRs in the context of mega-preferentials will export these practices to other countries (e.g., other TPP members)?
  2. Will the multinational-led model of development (outward orientation with strong protection of IPRs) become the norm for developing countries in the coming years?
  3. What are the systemic implications for the multilateral trade system of the proliferation of preferential agreements? Are they bound to translate into an erosion of the relevance of the WTO?

7.2. Promoting Win/Win Development of Global Supply Chains
Susan Helper and Tim Krueger - Case Western Reserve University, Cleveland

  1. There are 3 schools of thought about the impact of GVCs in particular (and trade agreements in general) on innovation, wages, and sustainability:
    a. the "multinational-led development view," which is largely positive, arguing that GVCs are a way for developing countries to receive learning and investment from MNCs, the best way to develop.
    b. the "race to the bottom" view, which is largely negative, arguing that the winners of contracts to supply multinationals tend to be those that cut corners, depressing wages, investment, and attention to the environment.
    c. the "reform" view, which argues that GVC impacts are not inherently good or bad; their impacts on innovation, wages, sustainability, etc. depend on supportive institutions.
  2. Policies that are likely to achieve good outcomes in these areas maintain a balance between developing new capabilities and allowing firms to select from among existing capabilities. Such policies may include targeting spillovers directly, and investing in "knowledge overlap" and "relational contracts" between actors in the chain (rather than a strict division of labor and/or arm's-length markets).
  3. In future research and policy-making on the topic, a key question to ask is, which assets should be protected? The different perspectives variously highlight ideas, workers, property, environment?

7.3. Supply Chain Positioning and Innovation: Taiwan’s Challenge
Chen Tain-Jy - National Taiwan University, Taipei

  1. Whether trade facilitates innovation is a big question. There are counter-examples indicating trade protectionism, rather than openness, facilitates innovation.
  2. More specifically, whether increasing protection of intellectual properties induces more innovation is a big question. It may increase the volume of trade in technologies, but this is not equal to innovation. It may increase the volume of FDI, but this again, is not equal to innovation. Lengthening the data protection period (like in pharmaceutical products) is certainly not conducive to innovation.
  3. The emergence of non-practicing entities (NPEs) indicates that patents have been over-invested. I have the feeling that we need to study more data before we can conclude that freer trade or more IP protection is conducive to innovation.

Priority theme: How will TPP reshape supply chains across the Asia Pacific?

7.5. Labor Implications of TPP
Ron C. Brown - University of Hawai'i Law School, Honolulu

  1. The TPP chapter on labor, though controversial and not generally supported by organized labor, is progressive and a "game changer," particularly in its three TPP-side agreements with Vietnam, Malaysia and Brunei which will dramatically elevate their domestic labor rights.
  2. What are the economic impacts on the workforces in the U.S. and the affected countries, especially for the lesser developed parties? And what about the economic and human rights benefits to workers? (Is it measurable?)
  3. With reference to the services chapter of the TPP and combined with the labor chapter -- what can be the contribution of TPP to the standardization/harmonization of credentials of skilled professional workers? How will it affect labor mobility among the parties? How does it interact with immigration policies of countries as well as sovereignty issue? How will TPP affect unskilled workers and their labor mobility, if at all?

Group takeaways and priority themes from Chen, Ernst, Wang, Xue, and Ziegler:

  1. How do external factors, such as TPP and ITA, affect the innovation capabilities of member or non-member economies?
  2. To what extent can international standards and IP protection regimes become public goods for local economies that are lacking in these institutions?
  3. What is the role of government policy in shaping local innovation trajectories?

Collection of priority themes from in-person discussion for future meetings:

  • Gains to consumers
  • Geopolitical implications of TPP
  • Effect of TPP on supply-chain structure
  • More on developing countries in and out of the agreement
  • More detailed discussions on rules of origin
  • Competition policy
  • More on labor
  • More environmental discussion
  • More about domestic politics and opposition to TPP
  • The meta-question: What is missing from TPP?
  • Transparency in development of trade agreements
    • More about actual design and negotiation of trade agreements
    • Corporate governance and corporate capture of trade negotiators
  • "Beyond trade agreements" -- diminishing marginal utility of trade agreements as trade barriers near zero
  • Cross-cutting themes across papers
    • Does whether the TPP passes or not matter for innovation in the Asia-Pacific?
    • Do the IP chapters matter much for innovation?
  • Verticals
    • Climate change
    • Infectious disease
    • Telecom
  • Focusing on public debates
    • Such as pharmaceuticals/public health
  • Mobility of skilled labor and knowledge across borders
  • Political economy of interest groups in TPP
  • A major effort to collect, organize, and then analyze standards-related data

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