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Gantz, David A. 2020. USMCA Provisions on Intellectual Property, Services, and Digital Trade. Baker Institute Report no. 01.17.20. Rice University’s Baker Institute for Public Policy, Houston, Texas.
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One of the changes taking place in the U.S. economy today is the increasing interrelationship among goods, services, and intellectual property (IP). While it is not the purpose of this discussion to analyze this relationship in any detail, it is worth noting that the United States-Mexico-Canada Agreement (USMCA), as with other regional trade agreements beginning with the North American Free Trade Agreement (NAFTA), has recognized the importance of all three sectors to the U.S. economy and to encouraging U.S. trade. Increasingly, issues relating to the digital economy, which incorporate aspects of both IP and services, are critical to fostering global trade.
It is difficult to overemphasize the importance of IP and services to the U.S. economy. According to the U.S. Department of Commerce and the U.S. Patent and Trademark office, “IP-intensive industries support at least 45 million U.S. jobs and contribute more than 6 trillion dollars to, or 38.2 percent of, U.S. gross domestic product (GDP).” Some 81 U.S. industries are identified as relying on patents, copyright, or trademark protections extensively, including software publishers, sound recording, auto and video equipment producers, cable and subscription programming, performing arts companies, and radio and television broadcasting. Total merchandise exports of IP-intensive industries amounted to $842 billion in 2014, with licensing rights worth $115.2 billion in 2012. As a recent report noted,
Intellectual property (IP) protection affects commerce throughout the economy by: providing incentives to invent and create; protecting innovators from unauthorized copying; facilitating vertical specialization in technology markets; creating a platform for financial investments in innovation; supporting startup liquidity and growth through mergers, acquisitions, and IPOs; making licensing-based technology business models possible; and, enabling a more efficient market for technology transfer and trading in technology and ideas.
As the Commerce Department further observes,
The services sector is an important part of the U.S. economy. According to [the Census Bureau’s Bureau of Economic Analysis], in 2009 services accounted for 79.6 percent of U.S. private-sector gross domestic product (GDP), or $9.81 trillion. Services jobs accounted for more than 80 percent of U.S. private-sector employment, or 89.7 million jobs.
What is particularly important for this discussion is that the U.S. has long enjoyed a trade surplus in services. In 2009, U.S. exports of services totaled $502 billion, with a surplus of $132 billion, a larger surplus in services than any other country. In 2016, the U.S. enjoyed a services trade surplus with Canada and Mexico amounting to a combined $31 billion, compared to a $86.8 billion goods deficit with those countries. The United States also enjoyed surpluses each year between 2004–2015.
Thus, even if most of the chapters of the USMCA, like NAFTA, primarily address various aspects of trade in goods, some are focused directly on IP and services, and many of the innovations in USMCA, such as the chapters on telecommunications, competition law, small and medium-sized industries, and state-owned enterprises, encompass trade in services as well as goods and depend on the parties’ respect for rules protecting IP.
Because of its relationship to IP and services, this report includes discussion of the new USMCA chapter on digital trade, which, among other things, prohibits localization requirements for data storage and bans tariffs on goods that are delivered digitally. It also briefly addresses the possible impact of the reduced protection for U.S. investment in Canada and Mexico (discussed in detail in an earlier report) on the IP and services sectors.
This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.
