Intellectual Property Rights

November 08, 2021

This 13-minute podcast was released Nov. 8, 2021.

Ana Maria Santacreu, senior economist at the St. Louis Fed

“As countries have become more integrated, not only in terms of trading goods and services but also in terms of trading ideas, protecting intellectual property has become more important,” says Ana Maria Santacreu, a senior economist at the Federal Reserve Bank of St. Louis. She talks with Laura Taylor, a manager at the St. Louis Fed, about her research on intellectual property rights.

 

Transcript

Laura Taylor: Welcome to Timely Topics. My name is Laura Taylor and I’ll be your host for this podcast. Joining me today is Ana Maria Santacreu, a senior economist with the Federal Reserve Bank of St. Louis. Ana Maria studies intellectual property rights, innovation, and even trade-in technology transfer among other things. And she’s joining us here today to talk about intellectual property rights. So, welcome, Ana Maria.

Ana Maria Santacreu: Thank you.

Taylor: I’m in the older millennial bucket. But for a lot of people my age, you know, intellectual property rights invoke memories of Napster, and the early 2000s, and the fight between music companies and newly invented file sharing technology. it was a pivotal moment in property rights history as the phrase intellectual property rights really started becoming commonplace. obviously, this topic has only grown in importance in scope since then. And here we are at the St. Louis Fed talking about intellectual property rights with an economist. So, Ana Maria, tell us how this became an area of interest for you and your research.

Santacreu: Yeah. So, intellectual property rights have been a frequent topic of discussion. When intellectual property rights are enforced, innovations get protected. And these innovations can be of many types. As you were mentioning, they can be songs or movies, or other forms of entertainment. But they also refer to software and the technology that is needed to produce a good. So, think for example, of a technology that goes into the production of the COVID-19 vaccine. This technology is protected by a patent and it becomes intellectual property of the innovator. Now, as countries have become more integrated, not only in terms of trading goods and services, but also in terms of trading ideas, protecting intellectual property has become more important. And in the past few years, developed countries that are also very knowledgeable have been complaining about misappropriation of intellectual property from countries that have weaker intellectual property laws. And as a result, many of the trade policies that have been implemented recently are putting a lot of emphasis on protecting intellectual property rights. So, for example, the trade war between the U.S .and China, or the renegotiation of NAFTA, or even the COVID-19 vaccine. Should governments waive intellectual property rights on COVID-19 vaccines in favor of developing countries so that they can start producing them? And, and what we have said today is that many trade agreements are including provisions that are about protecting intellectual property rights. Now, as an economist that is interested in understanding the connections between trade, innovation, and technology transfer, these trends are what have motivated me to look into intellectual property rights and their connections with international trade.

Taylor: That’s interesting to, kind of, put this wide timeline span on intellectual property rights. So, all the way from, perhaps music sharing to the development of the COVID vaccine, tying trade into this topic really shows how trade agreements have evolved over time, from a focus on lowering tariffs or removing barriers to a focus on protection of intellectual property from country to country. Everything from enforcement to trademarks to patents to domain names even. So, how would you say this focus has changed overtime?

Santacreu: Well, before establishment of the World Trade Organization in 1995, most trade agreements were about lowering dives between the members that were signing the agreements. And this has changed dramatically over time. Now, trade agreements include other types of productions than just making sure that countries get access to a larger market. And this is where it’s called e-trade agreements. One of these provisions, and this is where I’m start making my current research is about protecting intellectual property rights in exchange for market access. Here, typically countries that want to enter into a trade agreement commit to reach standards of intellectual property rights protection that have seemed like to those in place in developed economies. And that includes from making sure the patents are protected to offering equal treatment to foreign and domestic firms to making sure that firms pay for the use of foreign technology, for example, through licensing contracts. And in exchange from insurance from intellectual property laws, these countries get access to export market. And this is what I have been looking through in my most recent research where I show that now most trade agreements contain straight intellectual property provisions.

Taylor: So, it sounds like we’ve kind of seen a parallel in growth between technology and the change in these trade agreements over time, particularly as it relates to intellectual property rights. So, the World Trade Organizations establishment in 1995 really seems to be the tipping point for this change over time. Now, your work on this subject showcases that prior to WTO’s launch, 69% of regional trade agreements did not mention intellectual property rights at all which is obviously an overwhelming majority. You know, fast forward to today, and your research shows that only about 6% don’t mention the subject. So, what was notable in that finding for you?

Santacreu: Well, these findings suggest that the nature of international trade has been changing over time. That the interactions within countries have become more complex in how they face different challenges. Those that they were facing prior to 1995. As I was mentioning before, then it was, all about making sure that countries had access to larger markets. But now a big focus of trade agreements is about making sure that they be as diffuse, that innovators get compensated from their efforts. And this may also have benefits for developing countries. In fact, a big emphasis in favor of reforming intellectual property rights is that developing countries can access foreign technology and then they can export the goods that they produced with that technology. And that is, for instance, a case of licensing contracts as I explore in some of my recent work where the owner of a patent licenses the right to use the technology to affording firm in exchange for a royalty fee. And improving intellectual property rights make sure that the royalty is paid and that the foreign firm can then export the good that is produced with that licensed technology. If, instead of technology were misappropriated, and the firm was stealing the technology, that firm will then be able to export the goods back to the developed country as their patent laws that are enforce there that would prevent the firm from doing that. So, all this suggests that the emphasis of international trade agreements is shifting towards older IS than just the division are focused on removing ties between the countries that signed an agreement.

Taylor: That’s interesting, the difference between developing and developed countries and their involvement in intellectual property rights. You’ve mentioned that intellectual property rights are important to the economic well-being of developed countries. So, for instance, in the United States, intellectual property industries that are specifically related to trade account for 52% of all merchandise exports -- over half. So, it’s easy to see why countries want to protect the home team a bit here and limit the ability for others to copy technology or products. You know, if two regions or countries can agree on a trade pact, that’s obviously the easy road. But what happens if they can’t? You know, what could happen to those countries’ economies?

Santacreu: So, as you were mentioning, many trade agreements with safety provisions, they placed between developed and developing countries. Developed countries want to protect their innovations. And developing countries want to get access to those innovations or those technologies. And the trade agreement requires that the developing country has to improve intellectual property laws and has to pay for the technology in the way that they stipulated in their contract. Now, not reaching an agreement can have several consequences. For the developing country that wants to access the technology and then export the good with that technology, not reaching the agreement can imply that they can reduce the technology to produce. Now, even if they get the technology, but they don’t pay for it, and they don’t meet the requirements of the agreement, then this may mean that they cannot export the goods that is produced with the technology that is imitated. Or the developed economy not reaching an agreement can have also large economic losses because if they don’t get paid for the technology that they are transferring that may prevent them from innovating in the future. And that may have long-term effects in the form of low innovation and lower growth.

Taylor: Thinking about the winners and losers, what do countries have to gain from an economic perspective by focusing or strengthening their own intellectual property rights?

Santacreu: That’s exactly what I study in my most recent paper on the topic. I look at what are the short-run and the long-run effects of regional trade agreements with intellectual property provisions, both from developed and, and developing countries. And what I find is that in terms of welfare, both groups of countries gain in the long run. And this happens for two reasons. First, because veteran intellectual property rights increases the incentives of doing around being developed economies of how innovators get compensated for their efforts, innovation and growth are higher in the long run. Second, developing countries are so benefitting the long run for more technology transfer and from access to export markets. And there is a large literature that shows that levying by adopting foreign technologies increases innovation and growth in a country. And what I find is that in the short run, however, only developed countries benefit from these improvements in intellectual property rights. And the reason is that innovators in developed countries get compensated from doing because by improving intellectual property rights, now they get paid. But developing countries lose because now they have to pay for technology that they were previously getting for free. So, what these findings suggest is that we need to weigh the gains against the losses. And we need to distinguish between the short run and the long run consequences of these types of agreements. What I find is that, overall, all countries seem to benefit, the short-term losses that developing countries are experiencing may prevent governments from wanting to do these big reforms on intellectual property rights. And this is becoming a very important policy question that we need to study.

Taylor: Very interesting. The implications of this, you know, short term verses long term seem kind of obvious here in our conversation. Yet, I imagine government officials from around the world in developing countries have very mixed feelings about this because like you said of the short-term implications or the long-term implications. So, speaking long term, if you had a crystal ball, what do you foresee happening in the world of international trade and intellectual property rights over time? You know, will we see a widening of the gap between the winners and losers? Or will we see a lot more gray area over time as the world, you know, becomes more connected and perhaps a bit smaller over time?

Santacreu: Yeah. Well, if I had a crystal ball, I would be doing something else. I wouldn’t be doing research. But the findings of my research show that there seems to be some persistence on who the main innovators are. Innovation tends to be concentrated in a few very rich countries like U.S., Japan, Germany. And this seems to have been the case for a while. But there’s especially been a trend where some countries that are improving their intellectual property rights are catching up in terms of innovation. And that has been the case of China, for example. And that’s what I’m documenting in some of my current research. So, China has been becoming a new innovation powerhouse. And it has been closing the gap in the number of granted patents and even surpassing some of the most innovative countries in the world, like Germany, for example. And that happens since China joined the WTO in 2001. So, what I would say here is that there is a lot more gray area over time. And as time goes by, and we can have access to more data, we can start making more conclusions about whether these types of agreements are going to lead to more convergence, or whether instead, they are going to increase the gap in innovation after countries have signed these agreements.

Taylor: Well, we’ll certainly have to look for that crystal ball again. I think we’d all be interested in what that could mean for our futures. Ana Maria, thank you so much for joining us today on Timely Topics here at the St. Louis Fed. If you’re interested in learning more about Ana Maria’s work in intellectual property rights, trade, or innovation, please visit us online at StLouisFed.org.

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Economists and other experts from the St. Louis Fed talk about their research, economics-related topics in the news and issues specifically related to the Fed. Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.