The Benefits of Intellectual Property Rights in EU Free Trade Agreements report by Fredrik Erixon, Oscar Guinea, Erik van der Marel and Philipp Lamprecht at the European Centre for International Political Economy calls for stronger intellectual property protection for the EU pharma sector and other rights interests.
The authors provide 'key takeaways' -
1: What are Intellectual Property Rights and why do they matter?
Intellectual Property gives the creator (e.g. an artist, a company doing R&D, indigenous peoples, a creative studio) an exclusive right over the commercial use of that intellectual creation for a certain period of time. IP motivates people/companies to invest in innovation by providing the opportunity to recoup the investments made. By motivating such new discoveries, innovations and other immaterial creations, IP directly leads to progress that is beneficial for society as a whole.
2: The economy-wide relevance of IP-intensive industries
IP-intensive industries constitute 44.8 percent of EU GDP and generate 38.9 percent of total EU employment. Wages are 47 percent higher on average in IP-intensive industries compared to non-IP-intensive industries. They are responsible for 68% of total EU exports and they drive investments in the EU economy (51% of all investments occur in a set of IP-intensive industries).
3: EU trade agreements: strong on niche types of IP but weaker on the broad IP types
EU FTAs are particularly strong in some niche types of IP (e.g. geographical indications), but less so in the broad types of IP of patents and trademarks, while the latter matter most economically. The EU did not copy the equivalents of EU law into its FTAs and there is much less focus on patents and trademarks in EU FTAs compared to US FTAs.
4: 55% of EU exports (of which 60% is IP intensive) are not covered by an FTA
Because of the EU’s bilateral FTA strategy, the share of EU exports covered by FTAs rose to 45% in 2018 and IP-intensive trade covered by FTAs grew fast. However, 55% of all EU exports are not covered by bilateral FTAs and 60% of these exports are IP-intensive. They do not have FTA IP protection which could be an issue for trade with countries where IP systems (including enforcement) are weaker.
5: The EU IP score and EU’s global share of IP-intensive exports declined
From 2009 to 2018, the EU IP score has declined vis-à-vis the US, China, Japan and Switzerland. The global share of EU IP-intensive exports is also eroding gradually. The fact that the decline in IP-intensive export shares is gradual is likely due to the long-term nature of R&D, which also means this trend cannot easily be turned around once it happens.
6: Sector-specific relevance of IP-intensive industries.
Most value-added for the EU economy is created by machinery (€232bn), motor vehicles (€206bn), and architecture & engineering (€158bn). Pharmaceuticals (€161k), telecoms (€156k), chemicals (€107k), transport equipment (€88k) and motor vehicles (€81k) create the most productive and highest value-added jobs. These sectors are 2-3 times as productive as non-IP-intensive industries (€51k). Machinery (€240 bn), motor vehicles (€169 bn), chemicals (€161 bn) and pharmaceuticals (€135bn) contribute most to EU exports. IP-intensive sectors export 68% of all EU exports. Telecom (€44k per person), motor vehicles (€39k p.p.), machinery (€22k p.p.) and electrical equipment (€13k p.p.) create most investments per capita in the EU in 2019.
7: Strengthening IP in EU FTAs has a significant positive economic and societal effect for the EU and EU Member States
Stronger IP provisions in EU FTAs matter: they create a level playing field, improve market access, reduce trade costs for IP-intensive products, and create predictability for long-term investments. Stronger IP provisions in EU FTAs lead – each year – to higher EU GDP (€63bn), more EU exports (€74bn), higher investments in the EU (€17bn) and higher wages for EU citizens (€245 per EU family of 4). Every EU Member State benefits. All 27 EU Member States participate in these gains.
8: Strengthening IP in EU FTAs also has positive sectoral effects in the EU and in EU Member States
The EU IP-intensive sectors that would increase exports most in case of stronger IP provisions in EU FTAs are: machinery (+4.0%), transport equipment (+3.4%) and electronics (+3.2%). In terms of production, transport equipment (+6.3%), machinery (+2.3%), electronics (+2.2%), electrical equipment (+2.0%) and pharmaceuticals (+2.0) would increase production in the EU.
9: Patents and trademarks matter most for IP-intensive EU exports
The largest positive impact on exports comes from patent and patent-related provisions, followed by the effects of trademarks. For EU FTAs, however, the patent and trademark provisions have a weaker trade-enhancing effect compared to other FTAs due to EU FTA patent and trademark provisions being weaker than those in other FTAs. By strengthening these provisions a stronger export performance and more export-oriented jobs in EU Member States would result.
10: IP and the EU Industrial Strategy: an opportunity for EU IP-intensive industries
The biggest gains in economic activity are created when new innovations such as digital technologies, new machines, innovative medicines, and green technologies are also broadly adopted. IP provisions in EU FTAs can meaningfully contribute to EU strategic resilience by promoting innovation in the EU, driving the digital transformation, green technology development and R&D into innovative medicines, especially if done in parallel to a strong regulatory framework and deepening of the EU Single Market.
11: IP in the EU pharmaceutical strategy: the EU at a crossroads
The EU has lost ground in terms of pharmaceutical innovation – the most R&D intensive industrial sector – since 1990. The EU Pharmaceutical Strategy has the potential to turn this trend around, but in spite of some positive IP elements in the strategy, it looks like this may not happen, mainly because it could introduce conditionalities on IP and incentives. This is the opposite of what the EU’s global trading partners are doing and could undermine the positive effect of strong IP provisions in EU FTAs.
12: IP effective against counterfeit goods
Counterfeiting is a violation of IP. Strong IP provisions (e.g. trademarks, patents, copyrights) that are enforced jointly by companies and governments (e.g. an EU-wide food fraud risk management system, the EU falsified medicines directive) are one of the most efficient ways to combat counterfeiting and piracy and reducing their negative economic, environmental, health and societal impact.
13: IP and biodiversity
The EU-ANDEAN FTA contains most IP provisions on the protection of ‘traditional knowledge and genetic resources’. IP helps to combat the overexploitation of natural resources, supporting the lives and livelihoods of indigenous and local communities and allowing these communities to capture larger shares of the economic benefits, while focusing on preserving the planet for future generations.
14: IP and SMEs
The protection granted from IP is vital for small- and medium-sized enterprises (SMEs). Many SMEs fail to consider their IP in early stages of development and overlook that it is one of their most valuable assets. Stronger IP provisions in EU FTAs, linked to SME chapters, could help SMEs overcome the export hurdle as more predictability and certainty are provided and investments protected. Stronger FTA enforcement too is especially beneficial for SMEs who do not have the resources for legal battles to protect their (intellectual) property.
The paper offers the following policy recommendations - like Captain Renault in Casablanca I confess to being "shocked, shocked" -
1: Stronger IP provisions in EU FTAs
The EU should strengthen IP provisions in EU FTAs to the level of protection provided for in EU law, especially, but not only, with developed countries (e.g. Australia, New Zealand, Chile). The EU has the opportunity to deepen FTAs and strengthen IP after several years when FTAs are ‘upgraded’ to the benefit of EU Member States’ and trading partner economies. Mirroring the EU IP system in EU FTAs was the ambition in 2006 of the ‘Global Europe’ strategy. If the EU would refocus on this objective in 2021, the EU economy and its citizens would benefit in various ways: economically (e.g. higher levels of welfare, investments and exports), socially (e.g. higher wages, more high-quality export jobs), environmentally (e.g. support for biodiversity, green technologies), and in terms of recapturing part of the EU’s former global leadership in innovation, and via stronger resilience for the EU economy.
2: Strengthen patent and trademark provisions in EU FTAs especially
The EU is already including strong provisions in its FTAs for geographical indications (GIs), plant variety rights (PVRs) and – depending on the trade partners – traditional knowledge. But the EU should include stronger provisions on two large types of IP: trademarks and patents. For these two types, the EU should agree provisions in line with those provided for in EU law. Currently, EU FTAs are weaker in these two types of IP than other FTAs, notably US FTAs, while these two types of IP are among the most important for the EU and EU Member State economies. The current levels of trademark and patent protection constitute the largest untapped potential of EU FTAs. The EU should lift the level of patent and trademark protection to what is already done on GIs. On trademarks, the EU could include provisions in its FTAs that would allow for the refusal or invalidation of a trademark on the grounds of bad faith, in order to disincentivise bad faith registrations by local companies infringing foreign trademarks. On patents, the EU could agree on EU-levels of RDP and SPC provisions in its FTAs.
3: Strengthen the enforcement of FTAs
The EU should strengthen IP in EU FTAs via more emphasis on enforcement of its FTAs, including for IP provisions. The appointment of the Chief Trade Enforcement Officer (CTEO) in 2020 and the entering into force new trade enforcement rules in February 20212 are important. In addition, the EU should continue its bi-annual reporting on IP frameworks in third countries, the use of bilateral IP forums to strengthen IP frameworks in third countries, and use the Access2Markets Database to collect and follow IP-related market access barriers. In addition, trading partners should not be allowed to circumvent FTA provisions by adopting mitigating domestic policies that undo the effect of the FTA after the FTA has been applied. Also, the EU should actively check how the FTA (and its IP provisions) are embedded in national laws of the partner countries, taking likely implementation and enforcement already into account when (re)negotiating an FTA, and the scope of dispute settlement provisions in EU FTAs should as a standard include trade-related disputes arising from the violation of IP. This will strengthen global IP enforcement and – for example – help address the common challenge of counterfeit / fake goods that have significant negative economic, environmental, health and reputational effects.
4: Strengthen the wording of IP provisions in EU FTAs
Effectiveness of IP provisions in EU FTAs does not only depend on more or longer protections (e.g. years of copyrights, patent term restoration or trademarks), but also on the detailed ways of wording provisions in EU FTAs. One way to strengthen IP in EU FTAs would be for the European Commission to engage in a dialogue with IP-intensive industries to discuss how provisions are applied / work in practice and how they could be reformulated to become more effective in protecting and enforcing IP on the ground.
5: Link IP in FTAs more directly to EU strategic objectives
The EU should add a requirement in its impact assessment work around EU FTAs to explore the effects of strong IP provisions in EU FTAs on achieving EU core policy objectives, especially in combination with the trade enhancing effects of the FTA. For example, how can IP strengthen the EU’s Green Deal, the Digital Transformation, support economic development of the poorest nations in the world, or increase EU strategic resilience against future pandemics? And what flanking measures could be agreed upon with the EU’s trading partners to allow the IP framework to best support these policy objectives.
6: Make IP work better for SMEs
With IP generating substantial benefits for SMEs in Europe, there is not only a need to strengthen IP provisions in EU FTAs overall with a focus on benefiting SMEs, also a clear link to SME chapters in EU FTAs needs to be made and the FTAs need to be flanked by a stronger interaction between IP offices, SME support institutions, business associations, national, regional and local governments and other relevant actors to first identify the IP needs of entrepreneurs and remove barriers to a more effective use of the IP system.
7: Support partner countries to enforce IP better
Very often, implementation and enforcement of IP in trading partner countries is weak and not up to the level of implementation and enforcement in the EU. This is not always bad will, but also simply the result of weaker systems and structures, lack of budgets, and lack of understanding of IP. We therefore recommend the EU to think of flanking capacity building projects in the area of IP – especially in case of FTAs with developing countries. These capacity building projects could focus on: 1) Helping trade partners to set-up specialised IP courts and train judges that will strengthen domestic IP enforcement; 2) Support partner countries to be clear on what has to happen with seized counterfeit goods: create ample storage space for detention of seized products and budgets for destruction of these counterfeit goods; 3) Awareness raising on what IP is and what IP enforcement entails.
8: Extend the global coverage of EU FTAs
Ideally, each country would have its own strong domestic IP system to support innovation and R&D and protect creators from illegal use of ones’ IP. This is vital for IP-intensive industries first and foremost, but also for the EU, because if EU company’s IP rights are violated in a third country, the negative consequences are also born by the EU where the investment costs were made and where falsified goods could enter. Parallel to deepening IP in EU FTAs, the EU should consider expanding the bilateral coverage of EU FTAs with strong IP provisions with Australia, New Zealand, Indonesia, Chile, but also – more challenging – with key trade partners like China and Russia where domestic IP systems are much weaker and an FTA would add much-needed legal certainty for industry. Also an understanding with the US, where EU and US could together set a global example of strong IP provisions driving R&D and innovation, should be considered.
9: Explain the benefits of IP better
Because they are important, but also conceptually difficult to understand, the EU – together with EU IP-intensive industries – should explain more about what IP is, how they work, and why it is important for the EU to have a strong IP framework. Especially the use of concrete examples in illustrating IP is important. One way would be to add more information to the “Report on the protection and enforcement of Intellectual property rights in third countries”. Another way would be to explain the quid pro quo inherent in certain IP rights. For example, patents will not be granted unless the patent application contains sufficient detail concerning the invention, permitting further research. Similarly, regulatory data protection (RDP) for innovative medicines protects marketing authorisation dossiers which in turn leads to more transparency. That transparency forms the basis for future generic and biosimilar products.
10: IP provisions in EU FTAs matter for EU Member States
Working on stronger IP provisions in EU FTAs is not only a role for the European Commission or the negotiators. Industry has an important role to play by highlighting the actual effects and benefits of IP provisions in EU FTAs and share these broadly, including illustrative examples. IP-intensive industries should invest into reporting and be transparent about the relevance of different IP provisions for them. This also applies to making clear to EU Member States what the specific Member State benefits of stronger IP in EU FTAs are in terms of production, exports, jobs and wages – and for what types of IP and IP-intensive industries these effects are most pronounced.
