BRAZIL, U.S.: AN INTELLECTUAL PROPERTY PRECEDENT
Brazil, with permission from the World Trade Organization, plans to retaliate against U.S. cotton subsidies. In addition to publishing a list of goods to be targeted in March, Brazil also will decide whether to breach U.S. patents. A decision by the South American economic heavyweight to retaliate against intellectual property rights (IPR) puts the U.S. interest in maintaining agricultural protectionism squarely at odds with key IPR policy goals.
The Brazilian government will publish a list of retaliatory trade measures against the United States on March 1, according to a Feb. 9 announcement by the Brazilian Foreign Trade Chamber. Brazil won the right to retaliate against U.S. subsidies on the cotton industry in a 2008 World Trade Organization (WTO) ruling. Brazil plans to target $830 million worth of U.S. goods per year. Of that, Brazil may sanction as much as $270 million worth of intellectual property, and is most notably considering breaching patents -- reportedly of pharmaceutical drugs.
There have been previous indications that Brazil could target intellectual property in retaliation for U.S. subsidies. And as Brazil approaches a decision point, it is worth noting that by threatening to use patent-breaching as a retaliatory measure, Brazil puts pressure on a key area of U.S. trade policy. The United States is highly reliant on intellectual property rights protection, and although the quantity of goods in question is relatively small, should Brazil follow through with sanctions on IPR goods, it will send a clear message to the United States.
The U.S. reliance on patents and other intellectual property protections is rooted in the country's economic development, which was shaped by the country's geography. With transportation networks pre-built into its agricultural heartland (that is, navigable and interconnected rivers), the United States is a naturally capital-rich state. The country's Midwest region represents the world's largest contiguous area of arable land and boasts an impressive capacity for food production. Further enhancing this advantage was the ability of U.S. farmers to immediately begin shipping goods cheaply to the global market on the network of rivers in the greater Mississippi basin. The natural result of these factors was a rapid accumulation of capital in private hands without first having to wait for the U.S. government to invest in building the expensive road and rail networks that most other countries had to build to gain access to external markets.
The rapid accumulation of capital was further blessed by the relative lack of immediate military threats from neighbors to the north or south. This meant that the U.S. government had no immediate need to control domestic capital to support a standing army big enough to defend the territory, and that it left the vast majority of domestic economic activity to its own devices. All that spare capital could be used for things like infrastructure and education -- the building blocks of technological innovation. Consequently, and for the most part without the government lifting a finger, U.S. capitalists took the opportunity to invest in increasingly higher value-added industrial development, and the United States rapidly grew from being an agricultural breadbasket to being the most technologically advanced country in the world.
That technological advantage became a key component of the U.S. economy as other industrialized nations' labor markets began to outpace that of the United States. But ideas are relatively easy to steal -- much easier than capital or labor -- and the key to protecting the U.S. technology advantage is through the enforcement of intellectual property rights (IPR) internationally and domestically. With patents and copyrights protecting everything from ketchup recipes to jet engine components to Hollywood blockbusters, vast sections of the U.S. economy have a vested interest in seeing a strong IPR regime. Driven by this necessity, U.S. trade policy focuses heavily on using -- among other things -- bilateral and multilateral trade agreements to establish IPR enforcement mechanisms.
However, Brazil's decision to use the WTO's retaliation blessing in order to breach patents puts IPR principles at loggerheads with another cherished policy: agricultural protectionism. The United States is the most efficient and prolific producer of agricultural commodities in the world, but for a variety of reasons, it has held on to agriculture protection while simultaneously liberalizing nearly every other sector. However, the very institution that serves as a critical hub for IPR protections -- the WTO -- also is a clearinghouse for complaints about subsidization programs that disadvantage the up-and-coming agricultural producers of the world, such as Brazil.
Brazil has long been a champion of the Doha round WTO trade talks, which stalled after the United States, the European Union and others were unable to walk away from agricultural protectionism -- the last stumbling block to the WTO's liberalization process. By pitting the key U.S. interest in IPR against its subsidization policies, Brazil may have found the key to pressuring the United States on protectionism.
This single dispute will not likely crack the resolve of the U.S. Congress. However, as an up-and-coming economic power, Brazil stands a good chance of setting a precedent for any of the WTO's 152 other member countries -- including economic heavyweights such as China and India -- to use WTO-sanctioned retaliation against intellectual property to leverage progress on agricultural trade liberalization.
Copyright 2010 Stratfor.