America’s trade negotiators are now in the process of crafting a 2.0 update of the 1994 North American Free Trade Agreement (NAFTA). Fortunately, it now appears that Donald Trump’s intention on NAFTA is to mend it, not end it. The trade deal has been a stunning economic success for all three nations: Canada, Mexico and the United States. Freer trade has meant steady increases in the volume of trade, greater competitiveness and lower prices.
But President Trump is right that under NAFTA 2.0, some things need to be fixed to guarantee fair play and to assure America’s continued commanding heights in technology and innovation. Intellectual property rights — patents, copyrights and so on — need to be better safeguarded.
There have been abuses. In an unprecedented move, Canadian regulators recently ordered American pharmaceutical company Alexion to lower the price of its breakthrough treatment for a rare blood disorder. The decision was based on currency exchange fluctuations between 2012 and 2014, which increased the relative cost of the medicine — despite that the company obviously has no control over currency values.
It’s a classic shakedown, where Canada is inventing new rules to avoid paying American pharmaceutical and technology companies for their innovations and inventions. This is also happening in Europe where the euro-bureaucrats are trying to expropriate funds from American technology leaders like Google through bogus charges of monopoly activities.
The Trump administration should vigorously repel these economic attacks against American companies.
This is a very big deal for the American economy. Intellectual property (IP) is increasingly the lifeblood of our economy. IP-intensive industries support 28 million American jobs, or about one in five workers. About $6 trillion of our gross domestic product now is in IP-related industries — including almost all of Silicon Valley.
Many of NAFTA’s IP provisions are out of date or underenforced. While access to foreign markets through international trade clearly benefits innovative companies, unchecked infringement of patent rights and in some cases, outright theft (as in the case of China), costs American consumers and businesses $300 billion annually.
Consider our drug companies. American pharmaceuticals recorded global sales of $47 billion in 2015. Yet despite that the vast majority of drug breakthroughs come from America, the United States currently has a $700 million trade deficit with Canada, and only a tiny trade surplus with Mexico in biopharmaceuticals.
As the latest decision against Alexion shows, Canadian regulators are imposing de facto price controls on new drugs, failing to value the research and development investment required to invent these breakthroughs in the first place. It typically requires $500 million to $1 billion to develop a new drug or vaccine, and American consumers shouldn’t bear the entire burden of those costs. This drives up health insurance costs in America, it is unfair to the investors in these products, and it jeopardizes world health by delaying the development of future cures.
The renegotiated NAFTA agreement must include clear language requiring all disputes over pricing to appropriately value American innovation and be transparent.
For its part, Mexico is producing “knock off” drugs that are copycats of American pharmaceuticals. This is stealing too, and negotiators should get tough with these practices south of our border.
The same abuses are happening with American trademarks and copyrighted materials. Canada and Mexico are two of the top export destinations form American entertainment and media. Yet NAFTA doesn’t sufficiently protect online theft and distribution of movies, music, games and so on.
To bring IP protections up to date for the digital age, a renegotiated NAFTA should include civil and criminal penalties for illicit access to cable and satellite signals and other preventable infringements in which the American producers are not compensated for use of the product.
The future of free and fair trade depends on rigorous enforcement of America’s multitrillion-dollar IP industries. This is about jobs, fairness and the rule of law. It is also about encouraging the very innovation process that leads to prosperity and better health in America, which we then export across the globe to the betterment of mankind. It will also help boost public and business support for trade as a driver of growth in the years to come.
• Stephen Moore is an economic consultant at Freedom Works and a senior economic analyst at CNN. He served as a senior economic adviser to the Trump campaign.
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