Anthony J. Pennings, PhD

WRITINGS ON DIGITAL STRATEGIES, ICT ECONOMICS, AND GLOBAL COMMUNICATIONS

TPP and the Role of Intellectual Property in the US Export Economy

Posted on | November 7, 2015 | No Comments

With the Trans-Pacific Partnership (TPP) trade deal under discussion, it’s useful to look at some of the changes in the world economy, and specifically the US export economy and the increasing role of intellectual property (IP). As it stands, I’m not for the trade deal, but I feel it’s important to parse through the details of the deal to understand what kind of economy we have developed, who benefits, who struggles, and what we can do going forward. In this post, I look at the trade context that the TPP is being negotiated in, particularly the status of IP.

What exactly is the TPP? It is a trade, investment, and juridical pact covering roughly 40 percent of the world’s economy that was negotiated between the US and 11 other Pacific Rim nations:

Australia Brunei Canada Chile
Japan Malaysia Mexico Peru
New Zealand Singapore Vietnam


Taiwan, the Philippines, and South Korea have expressed some interest in joining the TPP. China is being polite, but recognizes that it is a central target of this agreement. It is currently awaiting US Congressional approval. (Update: President Trump has recently signed an executive order to end the US involvement in the TPP)

It’s unclear what kind of impact the TPP will have on very relevant issues like agriculture, labor rights, public health, and sustainable energy. TPP’s stance on Internet freedom and net neutrality are particularly important areas in need of public scrutiny. Also, the trade dispute settlement system suggests some real threats to American national sovereignty. These issues raise important questions about the type of society Progressives want to create, including aspects of the global economy that should be enhanced and sustained.

US exports nearly tripled since the World Trade Organization (WTO) was created, although the US continues to run trade deficits, primarily due to oil imports from a number of countries. From slightly less than $800 billion in 1995, U.S. trade exports amounted to about US$2.28 trillion in 2013.[1] Almost half of that was in intellectual property or “IP” industries, based on figures from the WTO.

We like to criticize China’s dominance in manufacturing exports, but its percentage of world manufacturing export revenues is about 18% while the US share of intellectual property export revenue is nearly 40.0%. That is a significantly large share of the IP market. While Europe is a close second, the figures are somewhat misleading, as it includes international cross-border transactions between European countries. Imagine if all the transactions between US states were counted as exports.

Of the world’s reported US$329 billion in IP export revenues, some $129 billion is captured by US interests. Food and Agriculture is still the US’ largest export category at $162 billion. Automotive is next at $125 billion, followed by Finance & Insurance at $110 billion, Information Technology goods at $108 billion and Aerospace at $105 billion.[2]

It’s useful to break this IP figure down. Perhaps surprisingly, the largest category of IP is patents, accounting for US$45 billion. Royalty payments for patent use have gone up substantially as commerce and production has globalized. A close second is the export of software at $43 billion; this includes about $3 billion in video games. A distant, but significant third at $17 billion, is the traffic in trademarks, the legal right to use a logo, name, phrase, song, or symbol.

Tied for third is the major copyright category Film/TV/Music/Books at $17 billion. A note is in order here as the WTO calculates movies and music as part of “audiovisual services,” but Progressive Economy has added them into the IP statistics as copyrights are an important component of IP. Intellectual property issues are coordinated internationally under agreements with the World Intellectual Property Organization (WIPO) based in Geneva, Switzerland.

For better or worse, American trade dynamics have changed over the last 50 years, especially with its Pacific neighbors. While manufacturing is important, it has been difficult for the US to compete with low-cost labor in other parts of the world. On the other hand, the US has been going through a knowledge and technological revolution largely based its ongoing use of militarization as a national system of innovation.

The modern era of globalization was a result of commercializing the fruits of the Cold War and Middle East invasions. Computers, the Internet, space-based satellite systems and fiber optic cables for communications, came out of government subsidized research and initial utilization by the military-industrial complex. These and other technologies like big data processing, geolocation recognition, mobile technologies and remote sensing have come together create new global circuits of production, logistics, and strategic communications that have transformed creative, financial, and manufacturing industries.

Modern capitalism is optimized to provide shareholder returns, not employee benefits or national production. Labor and national interests need strong democratic will formation and participation to ensure a flow of resources to citizens as well as education, infrastructure, military and other social needs. Economists will argue that the US has a comparative advantage in intellectual property, but employment opportunities are largely in high tech/creative clusters like San Francisco, Los Angeles, Boston, Austin, and New York.

As the trade figures show, globalization is creating a “rentier” economy. Wealth is flowing more to the owners of resources rather than the producers of goods and services. While land owners have long been the beneficiaries of rental income, owners of intellectual property have seen increasing profits from royalty and licensing fees. Global supply chains, an important cost factor in the products Americans like to buy, draws heavily on the use of key intellectual properties to reduce costs and increase profits. Patents, copyrights, trademarks and even business methods have become a new global force, shaping the world’s political economy for the rentiers’ benefit.

One of the policy issues to be addressed is that profits on intellectual property can be sheltered by selling the rights to a series of subsidiaries (“Double Irish” or “Dutch Sandwich”) in tax havens like the Cayman Islands.

Intellectual property can be a serious contributor to US economic welfare but is not a panacea for a country that is desperately struggling in the global economy that it created. It may be that the Democrats need TPP to secure funding and electoral votes from California, but the US, in general, needs to do a lot of homework on TPP. It especially needs to assess how it wants to structure its international trade so that it can help tackle long-term domestic issues like climate change, debt reduction, energy independence, and food security.

Notes

[1] Exports in 1995 were about $800 (794,387) billion and grew to US$2.3 trillion in 2014 according to the US Bureau of Economic Analysis. It also grew from about 5% of GDP to nearly 15% of GDP.
[2] The Progressive Economy website is a project of the GlobalWorks Foundation.

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AnthonybwAnthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he was on the faculty of New York University for 15 years. Previously, he taught at he taught at Hannam University in South Korea, St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

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    Professor and Associate Chair at State University of New York (SUNY) Korea. Recently taught at Hannam University in Daejeon, South Korea. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, media economics, and strategic communications.

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