The Bear’s Lair: TPP doesn’t deserve free trade agreement treatment

The U.S. Congress is being asked to give President Barack Obama full “fast track” negotiating authority for the Trans Pacific Partnership, supposedly a free trade agreement with 11 other mostly wealthy Pacific nations. Yet when you examine the Wiki-leaked version of TPP which is all we have, it is far more notable for the draconian intellectual property provisions than for any truly significant easing of trade barriers. I would argue that such tight intellectual property rights are an historic aberration, incompatible with a truly free market, so that TPP would overall raise barriers against free market exchange rather than lowering them. If it is to be economically beneficial, TPP needs a truly free-market negotiator at the U.S. end – which means it should wait until 2017.

Like all regional trade treaties, TPP is in principle an unsatisfactory substitute for the real thing, which is a truly global free trade agreement along the lines of the moribund Doha round, hanging fire since 2001. Regional treaties allow countries to raise non-tariff barriers against non-members and erect innumerable incompatible international product standards which form barriers to truly free world trade. In TPP’s case there are some genuine advances, such as opening up Japanese agriculture (if that indeed happens). However trade among the TPP partners is mostly free with low tariff barriers already, since several of the TPP members already have free trade agreements with the United States.

Even for proponents of the TPP such as the U.S. Congressional Research Service, its projected benefits for the United States are concentrated entirely in services, and relate largely to intellectual property. While the CRS in a March 2015 study expected net benefits for the U.S. of $36 billion annually, it expected manufacturing industries to lose $44 billion annually and agriculture/mining merely to break even in spite of projected Japanese market opening. The entire benefit, $79 billion annually, was expected to come in the service sector. Interestingly, TPP was expected to have a net negative effect of 0.6% on U.S. median wages by 2025.

While the U.S. financial services sector expects considerable benefits from further trade opening to TPP countries, those benefits are not strictly within TPP, being negotiated separately. Thus the great benefit of TPP, the entire point to its existence as far as U.S. interests are concerned, comes in the intellectual property area. Here the treaty takes the provisions of the United States’ 1998 Digital Millennium Copyright Act (DMCA) and imposes them (or in some cases, more draconian versions of them) on other TPP members. This extends copyrights to life plus 70 years for individual owners and either 95 or 120 years for corporate owners. According to the Electronic Frontier Foundation, TPP would also place additional liabilities on Internet intermediaries, escalate protections for digital locks, enact a “three-step test” language putting restrictions on fair use and adopt criminal sanctions even for non-commercial copyright infringement.

Some of those provisions may be modified in the final TPP agreement, and the technical arguments for others are complex. Nevertheless it is clear that TPP represents a tightening of copyright law and extension of patent law even beyond the expansive current U.S. practice. As such, it’s worth reminding ourselves of how copyright and patent law can be abused to restrict free markets and build crony capitalist monopolies.

The first general copyright law was the British Copyright Act of 1709, which provided for copyright of 14 years, thought to be plenty at the time. Before that, very few works were copyrighted, except for those thought to be of particular importance, which were granted individual copyrights, obtained in one of two ways. One was an Act of Parliament, used for example to get copyright for Clarendon’s “History of the Great Rebellion,” written before Clarendon’s death in 1674 but published only in 1703.

The other method, of which I know of only one example but there are probably others, was a copyright grant by Royal decree. Francis Sandford’s “Genealogical History of the Kings of England and Monarchs of Great Britain”, published in 1677, a handsome volume full of Royal family trees, crests, seals and tomb illustrations that was used to justify the rather shaky Restoration government, had a royal decree attached, signed on King Charles II’s behalf by Henry Coventry as Secretary of State. This pronounced: “That it is our Royal Pleasure, and We do by these Presents… strictly Charge, Prohibit and Forbid all Our Subjects to Reprint, within this our Kingdom, the said Book in any Volume, or any Part thereof…or to Import, Buy, Vend, Utter or Distribute any Copies or Exemplaries of the same, Reprinted beyond the Seas, within the term of fifteen Years next ensuing the first publishing thereof….”

Thus copyrights were initially intended to be of limited duration and available only for works of great importance. In that sense even the 1709 Act was a perversion of their original intention, since it allowed authors to demand copyright on anything they published, however trivial, seditious or obscene (the latter two categories were however still subject to prosecution.)

The origin of patents is even clearer; they were Royal monopolies, granted from mediaeval times and especially fashionable under monarchs from Elizabeth through Charles I as a way of rewarding favored courtiers at the expense of the populace. The first patent statute makes this crystal clear; it was the 1624 “Statute of Monopolies.” Thus when in 1632 a syndicate had devised a new form of soap, it granted a royalty of 4 pounds per ton on the soap to the Crown in return for a monopoly, under which ordinary soap would be forbidden and New Soap mandated throughout the Kingdom – after all, as the statute said, it “washeth whiter.” The Star Chamber duly set to work seizing the output of traditional soap boilers, and higher priced New Soap spread throughout the land, to the populace’s disgust.

New Soap has been underrated as one of the significant causes of the English Civil War, but the attitudes of its promoters persist to this day. Like New Soap promoters, the companies owning assets from 1920s films to 2010s software want to promote their wares worldwide, banning the sale of competitive products. Already since the DMCA, 1923 has become embedded as a kind of Maginot Line determining the fate of all kinds of media content, much of it entirely unrelated to large-scale commercial exploitation.

Thus the early (pre-1784) correspondence of King George III, published in the early 1920s, is freely available through Google Books, but His Majesty’s later correspondence (from 1784 on), published only in the 1960s, must be searched for far and wide through second hand bookshops. The fate of a letter of reproach to the Prince of Wales for overspending is thus determined solely by whether His Majesty dated it before or after the New Year of 1784 – thereby determining its inclusion or non-inclusion in a publication of 140 years later, whose use was mandated by legislation written 215 years later.

Patents have similarly been abused over the centuries. Matthew Boulton and James Watt built their steam engine business in the 1780s, not on the technical superiority of Watt’s engines (which initially was not that great) but on the ingenuity of their patents forcing competitors out of business. Henry Ford built the initial success of his venture in low-cost automobiles by defying the Selden patent cooperative, which was attempting to force automobile manufacturers to pay royalties based on a clever patent lawyer’s speculations about internal combustion engines in 1879, updated through patent-law manipulation to produce a final patent in 1895 (whose term therefore extended to 1912, well into the high-volume period of the automobile industry.) These were just ancestors of the myriad of criss-crossing patents and lawsuits in today’s software industry.

The aim of patent manipulators is the same as that of the New Soap proprietors: to establish a monopoly that can drive competitors out of business or make them pay lucrative royalties. Sometimes, as in Watt’s case, the technological advances protected by the patent are real, sometimes, as in New Soap and the Selden patent case, they are chimerical. However the consumer is always the loser; he must pay not only for the products themselves but for the armies of expensive lawyers deployed by patent owners, and for the billions in royalties extracted by the courts.

In summary, therefore, copyrights were initially a benign innovation, but were intended to run for a few years only and to protect primarily publications that were expensive to produce and of genuine importance, not popularly-marketed trivia. Patents, conversely, were initially economically pernicious attempts to establish monopoly, and when extended too far have always been subject to abuse.

While TPP performs a modest valuable function by extending copyright and patent protection to poor countries, so that Vietnamese inventors can benefit from their ingenuity, most of the TPP signatories already have solid copyright and patent protections of their own. TPP simply codifies the overblown protections of the DACA and recent U.S. patent legislation, thus turning copyrights and patents from modest protections for genuine innovation into rent-seeking scams, most benefiting corporations that add little current value to the economy but have legacy rights of one kind or another.

As currently written, TPP seems likely to reduce rather than increase the free flow of trade, while greatly augmenting the rent-seeking opportunities in intellectual property. To become a genuine free-trade agreement, it needs negotiators strongly intellectually committed to free trade, and opposed to the rent-seekers of Silicon Valley and Hollywood. The Obama administration’s operatives do not appear to qualify in either respect. It would thus be better for Congress to avoid giving them free negotiating authority and to wait instead and see if better potential negotiators arrive in 2017. The world will lose little by the delay.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)