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All posts by Nigel Cory

Digital Trade on the Hill: Hearing on Expanding U.S. Digital Trade and Eliminating Digital Trade Barriers

Digital trade issues continue to grow in importance to the U.S. economy as people and businesses find new and innovative ways to use data and technology to deliver more goods and services via the Internet. However, the growth in entrepreneurship and innovation so vastly enabled by digital technologies is increasingly threatened by a growing range of digital trade barriers. On July 13, the U.S. House Committee on Ways and Means Subcommittee on Trade held an important hearing on the growing significance of digital trade to the U.S. economy, the rise of these digital trade barriers, and the ways in which U.S. trade policy, including through the Trans-Pacific Partnership (TPP), can help remove existing—and prevent future—barriers. ITIF Founder and President Robert Atkinson testified, alongside representatives from IBM, the Internet Association, PayPal, and Fenugreen (a tech startup). This post captures a few of the key takeaways.

Digital trade benefits a large segment of the U.S. economy and its workforce. Digital trade and data flows often go unrecognized (as they are often hard to see) for the important role they play in helping U.S. companies and workers, whether from firms big or

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Roving Government “Bandits” Pillaging and Stealing Intellectual Property Need to Be Confronted by “Gunboat” Nations

A number of countries see cutting-edge intellectual property, especially for life sciences and high-tech goods, much like a predatory bandit saw trade caravans in centuries past—as something there to be raided and plundered. As trade and economic activity becomes more knowledge-based and dependent on intellectual property, the battle between countries that develop and protect the latest technological innovations against those that seek to steal it will only increase. A new paper by Australian academics Sinclair Davidson and Jason Potts—The Stationary Bandit Model of Intellectual Property—presents a new model that captures key traits of this global battle over intellectual property.

Before analyzing how this model reflects the real world, it’s important to consider the contrasting foundations of the new Davidson-Potts model compared to the standard economic model of intellectual property. The standard model sees intellectual property as a government-granted monopoly designed to create public incentives, that the natural domain of this property right is under the government which grants this right, and that intellectual property theft, when it occurs, is largely private—by individuals and firms. Traditional theory paints governments as benevolent actors that create the right conditions—the supply side

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The TPP’s Financial Data Carve Out—USTR Closes a Loophole for Digital Protectionists

The Obama administration has taken a key step in fixing its decision to exempt financial data from the Trans-Pacific Partnership (TPP) trade agreement’s otherwise groundbreaking rules to protect cross-border data flows. As ITIF recently argued, this rule was unnecessary and redundant, and created a dangerous loophole that could be misused for protectionist purposes by other countries, such as China, India, and Russia. Thankfully, this patch by the U.S. Trade Representative (USTR), if successfully applied, will help reduce the likelihood that other countries could misuse this loophole.

The TPP’s special treatment of financial data has become a major issue for the deal’s passage as U.S. lawmakers and firms know that the free flow of data across borders is essential to the modern global economy and that the free flow of data is increasingly at risk of being restricted. A growing range of countries are enacting barriers to data flows as a form of digital protectionism. Allowing forced local storage for financial data on regulatory grounds could have been the start of a slippery slope that allowed these countries to force local data storage for other types of “important” data, such

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A Welcome Expansion of the Information Technology Agreement Has Arrived

On July 1, the global production, trade, and usage of information and communications technology (ICT) products received a long-awaited boost when the expanded Information Technology Agreement (ITA)—a trade agreement that eliminates tariffs on hundreds of ICT products—came into force. The World Trade Organization (WTO) considers the initial ITA, concluded in 1996, as one of the most successful trade agreements ever. The expanded ITA is the biggest tariff-cutting deal in WTO history. It’s hoped that the deal will have similar success in driving ICT-based trade, productivity, and innovation as its successor.

The expanded ITA will build on the significant impact that the initial ITA exerted on growing global ICT trade. From 1996 to 2008, total global two-way trade in ICT products covered by the agreement increased by more than 10 percent annually, from $1.2 trillion to $4.0 trillion. The expanded ITA promotes affordability and accessibility to a new generation of ICT products by eliminating tariffs to trade on an updated list of 201 ICT products. The initial ITA cut tariffs on eight categories of ICT products, such as semiconductors, computers, and telecommunication products. The latest list includes scores of products

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World Intellectual Property Day – Highlighting How IP Incentivizes Innovation

Every April 26, the World Intellectual Property Organization (WIPO) celebrates World Intellectual Property Day to promote discussion of the role of intellectual property (IP) in encouraging innovation and creativity. Given the increasing tempest over the role of IP in the Trans-Pacific Partnership (TPP) trade agreement, the day provides an important reminder about the foundational role that IP plays in supporting innovation. IP is more important than ever as it is embodied in many economic sectors, especially across the digital economy, which means it affects not only innovation, but also trade, competition, taxes, and other areas of public policy and society. According to the OECD, investment in IP-protected capital is growing faster than investment in tangible capital.

To analyze this critical relationship between IP protection and innovation, ITIF compared the strength of IP laws and the effectiveness of anti-counterfeiting laws based on data from the World Economic Forum’s Global Competitiveness Report 2015-16 and creative output scores from the Global Innovation Index 2015, a report from Cornell University, INSEAD, and WIPO. The Global Innovation Index applies three distinct measures of creativity in an economy that taken together provide a measure

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Russian Trade Policy: Veering Off the Rules of the Road

When Russia joined the World Trade Organization in 2012, observers hoped it signaled the start of a process that would bring Russia closer into the rules-based trading system that the WTO oversees and the market-based economic principles that underpin it. But four years on, it has become increasingly clear this has not happened. In fact, Russian President Vladimir Putin has turned away from the WTO to pursue mercantilist and protectionist policies as part of misguided and costly industrial development strategies.

Two clear examples from the past year were a compulsory data localization policy that forces digital service providers to store data on Russian citizens inside the country’s borders and a discriminatory industrial policy that favored domestic pharmaceutical and medical device producers over imports. These two policies earned Russia the dubious distinction of being one of the few countries with more than one listing on the Information Technology and Innovation Foundation’s list of the top 10 worst innovation mercantilist policies of 2015.

Russia’s new Data Localization Law acts as a barrier to cross-border data flows as it prevents many data-intensive firms—whether in social media, financial, medical, or other service sectors—from

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Copyright Infringement: Science Pirates Are Still Pirates

The scientific community has become embroiled in a debate around online piracy after Alexandra Elbaykyan, a graduate student based in Russia, setup Sci-Hub—an online database of 50 million stolen scholarly journal articles. After encountering paywalls for scientific journals, she setup Sci-Hub because she said she believed that scientific information should be free to use and share. Elbaykyan can try to justify it in whatever way she wants, but what she is doing still involves the theft of property that is not her own.

Sci-Hub has garnered some support in the online piracy debate as the business model used by scientific publishing firms has clearly not caught up to the digital age and is in need of reform. The firms commonly charge as much as $35 for a digital copy of a journal article. Yet, an annual subscription to a top journal, such as The Lancet, costs $233 for both digital access and a print copy. This means, assuming four journal articles per weekly issue, that they charge 31 times more for a single digital article than a paper one, with zero marginal costs for the digital. While

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Music Piracy: Streaming to an App Near You

The distribution of music has evolved over time, from records, tapes, and CDs, to downloading and streaming online from computers, mobile devices, and a growing array of connected devices in the home and car. Music piracy has also evolved as those peddling and consuming infringing content adapt to new technologies. A new study from MusicWatch (a research firm that focuses on the music and entertainment industries) highlights the changing nature of music piracy and shows that while there is no “silver bullet” to combating online piracy, stakeholders involved in protecting intellectual property need to adapt their efforts to meet this evolving challenge.

The study has four main findings: music piracy is still prevalent; “streamripping” of music has emerged alongside the rise in legitimate music streaming services; music apps and app stores play an increasingly important role in music piracy; and piracy has a substantial negative impact on musicians and content owners.

First, the MusicWatch study shows that music piracy is still rampant, with an estimated 57 million Americans engaged in some form of illegal online downloading or streaming of music. In December 2015, the study surveyed 1,000 U.S. respondents aged

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China’s Exaggerated Semiconductor Trade Deficit No Justification for Mercantilist Policies

As ITIF has long argued, China pursues an autarkic, indigenous economic growth and innovation development strategy, particularly with regard to high-tech products. For example, in the semiconductor sector, China has launched a $100 billion National IC (integrated circuits) Industry Development plan designed to significantly increase domestic IC production and to reduce China’s imports of semiconductors—by half in 10 years and entirely in 20 years. To justify its mercantilist industrial development policies China claims hardship: we import too many semiconductors. This argument has been broached again recently given the potential merger between two semiconductor companies, one of which, Western Digital, has a major Chinese stockholder. This simplistic analysis needs to be called out for what it is—false—and a façade for a policy which breaches rules China agreed to when joining the WTO.

One reason China has tried to give for its aggressive and mercantilist IC industry development plan is that it runs a “large” trade deficit in semiconductors—$232 billion in 2013—which supposedly justifies efforts to replace foreign imports with domestic production, but this rationale is wrong on several levels. First, this simplistic narrative fails to account for the fact that

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The Architect of Europe’s Digital Single Market Leaves Important Questions Unanswered on U.S. Visit

At a time of considerable uncertainty about the future of transatlantic digital commerce, one Europe’s top officials for such issues, Gϋnther Oettinger, visited the United States last week and did little to dispel concerns that the EU’s Digital Single Market (DSM) may raise new barriers for U.S. companies. Of particular concern for many in the United States is vague language in the DSM that appears to be designed for protectionist purposes. As one of the strategy’s chief architects, Oettinger would have been uniquely well-positioned to offer needed clarification. He didn’t.

The growing list of political, legal, and regulatory cases involving top American technology companies prompted U.S. President Barack Obama earlier this year to call out Europe for protecting domestic competitors. More generally, it has raised serious concerns about the direction that Europe’s regulatory environment is heading as it proceeds through multiple policy initiatives in parallel—the Digital Single Market, the General Data Protection Review, a revision of the U.S.-Europe Safe Harbor Framework, and the Trans-Atlantic Trade and Investment Partnership. Any one of these on its own would be a major issue for the transatlantic trade relationship, but taken together, they

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