Freedom Line Blog

This week, the Biden Administration’s United States Trade Representative (USTR) Katherine Tai appeared before the Senate Finance Committee and House Ways and Means Committee, offering an important opportunity to rally opposition to the administration’s agreement with a misguided proposal in the World Trade Organization (WTO) to suspend patent protections for Covid vaccines, treatments and other therapies created by U.S. pharmaceutical innovators (through what’s known as the Agreement on Trade-Related Aspects of Intellectual Property, or “TRIPS”).

Don’t let the esoteric nature of the treaty fool you – this is an extremely dangerous proposal to attack U.S. patent rights.  As The Wall Street Journal observed, “this may be the single worst presidential economic decision” since the Nixon Administration.

That assessment is well-founded.  Strong patent protections provide the foundation for U.S. pharmaceutical innovation, and explain why the U.S. leads the world by accounting for an astounding two-thirds of all new drugs introduced worldwide.  The Covid vaccines and treatments at issue provide just the latest example.  Contravening that obvious causal relationship, however, some WTO members demand that the U.S. surrender those vital patent and other intellectual property (IP) protections for Covid vaccines, diagnostics and other treatments.  Worse, some misguided politicians here in America who should know better echo those potentially destructive demands.

That would tragically and needlessly undermine the very policies that prompted pharmaceutical innovators to devise and develop the vaccines already providing relief to the world, and leave us less capable of addressing current and future diseases and pandemics.  Ironically, President Biden himself has historically supported patent and other IP rights, including sponsorship of the 1980 Bayh-Dole Act that proved so invaluable in promoting innovation, and which The Economist magazine labeled “possibly the most inspired piece of legislation to be enacted in America over the past half-century.”

It’s also important to note that more rational actors like the European Union, United Kingdom, Canada, Switzerland and Japan oppose the proposed TRIPS patent suspension.   In contrast, WTO members India and South Africa, which back the effort targeting U.S. patent rights, have even joined international rogues China and Russia to create their own joint “vaccine center.”  That betrays the bad faith of their broader effort.

India and South Africa have joined with China and Russia (and Brazil) to establish a joint BRICS vaccine center.

The proposed TRIPS waiver targeting U.S. drug innovators and patent protections is also unnecessary, because treatments are already being provided to impoverished nations across the world, and patent rights are already being licensed at abnormally low prices or even free of charge.  To the extent that difficulties in immunizing impoverished populations remain, as emphasized by the Africa Centres for Disease Control, the problems center on local logistical distribution problems and vaccination hesitancy among the unvaccinated, not supply shortages.  Indeed, biopharmaceutical manufacturers already possess the ability to produce 20 billion vaccine doses in 2022.

More broadly, lawmakers and American consumers must consider the dangerous signal that suspending patent rights for pharmaceutical innovators would send, and the long-term disincentives that would follow if pharmaceutical patent rights were weakened rather than protected.  Pharmaceutical innovation demands billions of dollars in sunk costs of investment and testing, not to mention potential product liability lawsuits for any error.  To suddenly signal that those costs and risks won’t be sufficiently and fairly rewarded through ensuing patent protections would have catastrophic effects over both the short and long terms.  That will increasingly become the reality if we accept policies that deprive innovators and investors of the incentives to create drugs that save millions and even billions of lives.

American patent protections are the leading reason why we continue to produce the overwhelming share of new drugs worldwide, including the Covid vaccines themselves.  The WTO and Biden Administration must recognize and respect that reality, and Congress must act to stop this potentially catastrophic WTO proposal.

CFIF has joined a broad coalition of fellow conservative and libertarian free-market organizations in opposing any proposed “Buy American” mandates on medicines, because they would place unnecessary sourcing requirements upon medicines and medical imputs purchased with federal dollars.  That is the last thing that Americans need at the moment, not least because it doesn’t single out China in the way that some falsely assume, and the just-released coalition letter is worth reading in its entirety here.

In that vein, however, this image helpfully illustrates some of the logic behind the letter:

The Peril of a “Buy American” Order

At CFIF, we’ve unceasingly highlighted the foundational role of intellectual property (IP) rights – patents, copyrights, trademarks and trade secrets – in what we know as “American Exceptionalism.”

No nation matches our legacy of IP protection throughout the decades and centuries.  Our Founding Fathers specifically inserted IP protections in Article I of the Constitution, even before the First Amendment or other Bill of Rights protections.

As a direct result no nation in human history remotely matches our legacy of scientific inventiveness, artistic innovation, global influence, power and prosperity.

And today, IP-centric industries account for about 40% of the total U.S. economy, and 45 million jobs – nearly 30% of the U.S. labor force.  For perspective, that U.S. IP economic sector outsizes the entire economies of every other economy on Earth with the sole exception of China.

Recently, we’ve particularly highlighted the role that patent rights play in medical innovation, which has obviously taken on increased importance amid the coronavirus pandemic.  Believe it or not, America accounts for an astounding two-thirds of all worldwide pharmaceutical innovation, due in large part to the IP incentives that allow innovators to receive the fruits of their difficult and costly labor.  That continues today, more than ever.

But in the IP realm, copyright plays just as vital a role in America’s legacy of innovation, influence and prosperity.  After all, just ask yourself what nation today or throughout history even approaches our artistic influence from music to cinema to television to any other form of artistic creation.  That’s the direct result of strong copyright protections for innovators in the U.S.

Unfortunately, other nations not only don’t respect copyright and other IP rights to the degree that we do, they actively seek to undermine U.S. protections.  As the latest example, the nation of South Africa, which hasn’t adequately or effectively protected U.S. copyrights.  And making matters worse, the South African legislature recently passed two proposed laws that further weaken copyright protections and sent them to the South African president for signature.

Fortunately, the Trump Administration is standing up for U.S. copyright and must remain so.

By way of quick background, the U.S. government practices what is known as the Generalized System of Preferences (GSP) program, which allows for duty-free importation of various goods from developing nations that we designate as beneficiaries of the program.  In April of last year, as part of our annual review of GSP beneficiary nations, the International Intellectual Property Alliance (IIPA) formally requested that the U.S. government specifically analyze South Africa’s status under GSP eligibility criteria because of South Africa’s longstanding inadequacy in terms of copyright protection for American copyrighted works.  In October, the administration accepted that petition and commenced a review, including a public hearing that occurred on January 30 of this year.  As the U.S. government rightly reconsiders South Africa’s GSP eligibility, petitioners ask that its legislature reconsider the two proposed bills and remove the defective anti-copyright provisions.

If that corrective action by South Africa’s government does not occur, the U.S. should in fairness withdraw South Africa’s continuing enjoyment of the GSP program’s benefits.

Unfortunately, some groups here in the U.S. seek to undermine American copyright laws, and are acting to pressure the Trump Administration and government officials to give South Africa a free pass.

That mustn’t be allowed.  Our protection of copyright and other IP rights is a primary – if not the primary – reason for America’s unrivaled legacy of innovation and prosperity.

The Trump Administration has strengthened America’s IP legacy after eight years of decay under Barack Obama.  For example, the administration strengthened IP protections during renegotiation of the North American Free Trade Agreement (NAFTA) in the new U.S.-Mexico-Canada Agreement (USMCA).  That included stronger patent protections for pharmaceuticals, as well as higher enforcement against counterfeit copyrighted and other goods.  It is doing the right thing with regard to South Africa as well, and it mustn’t allow domestic or overseas interest groups to pressure it into doing otherwise.

Particularly at a time like this, we cannot allow other countries to undermine our legal rights globally, whether South Africa or others.

CFIF recently highlighted the importance of strengthening intellectual property rights as part of ongoing trade negotiations in a piece entitled “Intellectual Property:  NAFTA Renegotiation Priority #1.” Days later, Senator Pat Toomey (R – Pennsylvania) echoed that call in his Wall Street Journal commentary.

This week, celebrated economist Stephen Moore added his voice in a brilliant commentary entitled “Trade Deals Must Protect Intellectual Property Rights”:

American investments, ingenuity and entrepreneurship have made intellectual property one of our nation’s most important assets.  IP-intensive industries, including software, biotechnology and entertainment, now support nearly one-third of all U.S. jobs.  But too often, our foreign trading partners take unfair advantage of our IP innovations to enrich themselves at our expense.”

Moore proceeds to highlight the pharmaceutical sector as one particularly abused by foreign governments, and notes the enormous cost of IP theft to the U.S. economy by nations like China, then stresses the ominous danger if we fail to act:

Intellectual property is every bit as vital to our economy – if not more so – than steel or aluminum.    America leads the world in computer software;  drugs;  artificial intelligence;  patents;  trademarks;  and music, entertainment and other creative industries.  But how long can that last when competitor nations are ripping off our entrepreneurial companies to the tune of half a trillion dollars a year?”

It’s an excellent piece worth the read, and a welcome call from someone to whom the White House listens.

In a letter sent to Ambassador Robert E. Lighthizer, United States Trade Representative, the Center for Individual Freedom joined with a coalition of 25 organizations to urge strong intellectual property protections for any renegotiated NAFTA deal.

The letter, which was organized by the American Conservative Union, can be read by clicking here.

The Center for Individual Freedom yesterday joined a coalition of 20 free market, taxpayer advocacy, and limited government grassroots and public policy organizations on a letter urging Congress to pass Trade Promotion Authority (TPA).

“TPA is a necessary step to get Congress moving on a long-stalled trade agenda,” the letter reads. “Without it, there is little hope that this Congress will make any progress on advancing free trade, a conservative public policy goal which all our organizations support.”

Read the full letter here.

The Heritage Foundation tees up five issues that so far haven’t been mentioned in the Romney-Obama or Ryan-Biden matchups:

1)      Welfare Reform

2)      Trade

3)      Medicaid

4)      Federal Spending and Debt

5)      American-Produced Energy

Each of these is not only critical to American prosperity, but also conveniently is attached to a disastrous policy decision by the Obama Administration.

This summer Obama’s HHS gutted the work requirement for receiving welfare checks that was the hallmark of the mid-1990’s reform.

The President and his fellow liberals in Congress held hostage free trade agreements negotiated by the Bush Administration as a favor to labor unions, and in the process damaged our international standing.

Obamacare is scheduled to hit Medicaid doctors with a 19 percent pay cut starting in 2014.

This is the fourth consecutive year of $1 trillion budget deficits presided over by President Obama, and there is no indication the incumbent will do anything differently if reelected.

As for domestic energy production, Obama’s rejection of the Keystone XL pipeline angered not only consumers paying high gasoline prices, but also the unionized labor that stood to benefit from short- and long-term job creation.

Mitt Romney should look for ways to insert these failures of leadership into his answers during tonight’s townhall debate with Barack Obama.  People need to be reminded that the President’s kneejerk liberalism is bankrupting the country.

That was the topic taken up by two of the nation’s finest economic journalists over the weekend.

Newsweek’s Robert Samuelson, one of the few legitimate talents left on that particular sinking ship, says yes:

… What’s missing [to promote a global economic rebalancing] is a sizable revaluation of China’s currency, the renminbi. Fred Bergsten of the Peterson Institute thinks the renminbi may be 40 percent undervalued against the dollar. This gives China’s exports a huge advantage and underpins its trade surpluses. Other Asian countries fear altering their currencies if China doesn’t change first. “They’ll lose ground to China,” notes Hensley. The European Union, Brazil and India all feel threatened by the renminbi. President Obama wants U.S. exports to double in five years. That’s probably unrealistic, but it’s impossible if the renminbi isn’t revalued.

Samuelson is rarely deserving of a public refutation, but gets one (though it’s not targeted at him) from a recent column by the always-insightful Steve Forbes, who lays the China hysteria to rest:

… A decade and a half ago China fixed the yuan to the dollar. If there had been any mistake in the exchange rate it would have been flushed out in trade patterns fairly quickly. Again, to simplify: If you sell a bottle of wine for four loaves of bread but suddenly notice you’re getting only two loaves, you’ll adjust your price pretty quickly to ensure you’ll get those four loaves again.

 By fixing the yuan to the dollar Beijing outsourced its monetary policy to the Federal Reserve. And for this “manipulation” Washington politicians and policymakers are in a lather of outrage. This fixing of a measure of value has enormously facilitated commerce–and thus prosperity. During the last 15 years U.S. exports to China have increased 650%, China’s exports to the U.S. almost 670%.

As I noted in my criticism of Obama’s exports fetish in this year’s State of the Union, a focus on so-called “trade deficits” is meaningless. Forbes gives an excellent explanation:

The notion that a trade deficit or surplus indicates anything about an economy’s health is also mistaken. The U.S. has had a trade deficit with the rest of the world for some 350 years out of the 400-plus since Jamestown was settled in 1607. Focusing on deficits and surpluses ignores equally important flows of capital, as well as the phenomenon of supply chains and the intracompany trade that crosses borders.

Americans will survive Beijing’s economic policies intact. Whether we can say the same about Washington’s is another question altogether.

Hello.  Good morning.  We need to use this opportunity for an urgent message to American business, large and small (and even tiny), to American agricultural interests, large and small, regardless of crop, if you are or are trying to sell overseas or buy overseas.

Your president is in the process of starting a trade war with the Chinese over imported tires.  He is doing this on behalf of a union, no big news on that.  It is, as most protectionist acts in the global village, silly and ill-advised.  In this case, the potential upside is infinitesimal and the downside, in an unusually fragile economy, similar unto the scariest Halloween movie in which victims are picked randomly and abruptly for slaughter.

You may not be paying attention now, but you better.  Trade wars cannot be contained.  Trade wars cannot be limited to the original countries involved.  Trade wars cannot be limited to specific products or commodities. You wanna talk political triangulation?  Trade wars involve hyperdextrangulation squared. 

The problem with trade wars you ignore is that one day you wake up to learn you have become collateral damage, through no fault of your own, never did one thing wrong in or to any country involved.  Doesn’t matter.  That’s what collateral damage is.  You don’t want to become collateral damage.  You don’t want to explain to your employees and farm workers and families and children that you are collateral damage.

You have three choices.  The first is to call the president and tell him to stop this nonsense before it gets out of hand.  The second is to write the president and tell him to stop this nonsense before it gets out of hand.  The third is to do nothing and play foreign trade roulette.  You do not want to take the third option.

Trust us.  We know.  We once, shall we say, had some proximity to advising on targets for collateral damage in other countries.