Megaregionalism 2.0

The following sections are included:

• Contents
• Acknowledgements
• Preface
• About the Contributors

The following sections are included:

• Capturing gains from trade for innovation: Pathways to Megaregionalism 2.0?
• Gains from trade for innovation — An evolving research agenda
• A resurgent economic nationalism creates new uncertainty
• Rethinking the framework for Megaregionalism 2.0
• The Two-way Nexus between Innovation and Trade
• Alternative futures for Megaregionalism 2.0
• Megaregionalism 2.0 building blocks — The book’s message

The following sections are included:

• Introduction
• Economics of FTAs: A primer
• The TPP agreement
• Estimates of TPP effects: Petri and Plummer (2016)
• Opposition to the TPP
• Conclusion
• Acknowledgments
• References

The Trans-Pacific Partnership (TPP) is the most ambitious international trade deal in 20 years. Although it still has to be ratified, once in place, it could lead to substantial improvements in intellectual property protection and market openness. TPP would offer innovative firms the prospect of a larger addressable market and that may incentivize R&D expenditure and new product development for the expanded market. This chapter reviews the trade and innovation nexus in the context of the proposed rule-based trade reforms under the TPP. It considers empirically the recent experience with Intellectual Property Rights (IPR) reforms and the positive association of such reforms with indicators of economic and innovation performance. It reviews the changes embodied in the TPP and concerns that have been raised. It concludes that TPP offers an important economic opportunity for the TPP partner countries and highlights innovation issues to consider going forward.

Increasingly complex and diverse global corporate production networks (GPNs) and global innovation networks (GINs) are transforming international trade, production, and innovation, creating new, yet little understood, challenges for national policies that seek to foster economic growth and prosperity through productivity-enhancing innovation. As countries are integrated into these global networks (GNs), they are forced to rethink a broad array of policies. A fundamental tension needs to be addressed between global knowledge sourcing, which requires trade liberalization, and domestic capability development, which requires supporting industry and innovation policies. To reap innovation gains from GNs, countries need to address simultaneously two challenges. From the “outside,” national policies have to deal with a multitude of bilateral and regional trade agreements (RTAs) and attempts to establish a new architecture of megaregional trade agreements, like the Trans-Pacific Partnership (TPP), that seek to create and harmonize new international benchmark standards for national policies, rules and regulations, for example, for intellectual property, technical standardization, government procurement, taxation, and competition policy. National policies need to take into account these changes in the governance of the international economy (as demonstrated throughout the book). This chapter focuses on a second set of challenges that originate from the “inside”: countries differ in their capabilities to learn and innovate, and hence they differ in their capacity to capture potential gains from integration into GPNs and GINs. The chapter outlines a conceptual framework and describes the research needed to trace the dissemination (or lack thereof) of innovation resources and capabilities through knowledge-sharing within those networks that span developed and developing worlds. The analysis focuses on the experience of China and other leading Asian electronics manufacturing exporting countries. All of these countries are deeply integrated into international trade and foreign direct investment (FDI) through GPNs, and in some cases, through GINs. The author argues that research on GNs needs to move beyond value capture. Instead more effort should be invested in exploring whether and how integration into these networks might foster or erode a country’s absorptive capacity and firm-level innovation capabilities. The chapter reviews what is known about driving forces and characteristics of GPNs and GINs and highlights the increasing diversity and complexity of these networks in the electronics industry. To establish whether GN integration might foster or erode the host country’s absorptive capacity and firm-level innovation capabilities, three scenarios are considered: (i) the “Gains from Trade” effect; (ii) the “Domestic Disintegration” effect; (iii) the “Innovation Trap” effect; and (iv) the “Limits to Modularity” effect.

The following sections are included:

• Innovation traps of an intermediate goods producer
• Recent developments
• Opportunities and challenges of China
• Future perspectives
• References

The following sections are included:

• Introduction
• Global production networks in solar photovoltaic and wind energy sectors
• Domestic “green energy” policies to support solar and wind technology manufacturing industries
• Impact of the Trans-Pacific Partnership on green industrial policies
• Implications for new research agenda
• Research measures to limit use of trade remedies or develop alternative policies
• Conclusion
• Questions for Discussion
• References
• Selected Research of Impact of Green Industrial Policies

The following sections are included:

• Introduction
• Background and history
• Trade agreements and technology transfer
• Broader initiatives
• Concluding remarks
• References

To ensure that the Trans-Pacific Partnership Agreement (TPP) works properly in practice with regard to patents and the governance of pharmaceuticals and semiconductors, strong mechanisms for enforcement and rooting out system abuse are needed. To make this happen, regulators should learn from past mistakes of the US patent system: the proliferation of non-practicing entities (NPEs) and strategic behavior that blocks or delays generic competition in the pharmaceutical industry. This chapter presents key findings of the author’s research on the complexity of the US litigation and regulatory frameworks that have provided fertile ground for strategic behavior that can have negative effects on innovation and may distort the expected gains from trade for innovation.

Global trade agreements aim to harmonize standards and create a uniform climate for trade and investment. As potential provisions are negotiated, governments and stakeholders must consider the long-term impacts of particular terms. As they do so, they should keep in mind that harmonized treaty standards often translate into significantly disharmonious country standards, due to the different ways in which countries comply with treaties, translate these treaties into laws, and administer the laws. This chapter provides a case study of the harmony and disharmony in substantive patent law that followed ratification of the TRIPS agreement. Using the (perhaps) moribund Trans-Pacific Partnership (TPP) agreement as a point of comparison to TRIPS, the author discusses and provides examples of three types of differences: (1) differences between the minimum standards that are negotiated and compliance with them; (2) differences between the substantive principles agreed to and the actual laws that implement them (and the procedural contexts in which they operate); and (3) differences between the laws on the books and the laws as administered.

The following sections are included:

• Introduction
• Diversity of patent sectors
• National, regional, and multilateral reform and harmonization
• Subsidies and their costs
• Quality
• Uncertainty
• Global technical standards and FRAND commitments
• Investor–state dispute settlement
• Discussion
• Conclusion
• References

The following sections are included:

• Introduction
• The Systems nature of modern technologies and the requirements for standardization
• The economic roles of standards and their use in global high-tech industries
• The interaction of global market structure and standardization
• Degree and timing of standardization
• Policy implications
• References

An earlier study finds that standard-essential patents (SEPs) enhance trade and additionally lead to a phenomenon of global cross-licensing; that is, global value chains (GVCs) arise along those countries in which companies will act as both the licensor and licensee of SEPs. This, however, simultaneously leads to the situation that SEP-induced GVCs are a relatively closed-off club of companies that profit from the artificial temporary monopoly awarded by patents and their connection to standards. This chapter proposes several paths for future research with the goal to uncover the micro-mechanisms of these findings. The principal questions asked are:

• How can intermediate producers (i.e., global network suppliers, for instance, in Korea and China) profit from GVCs in which many SEPs are used?
• How is upgrading (i.e., moving up in the GVC toward performing more elaborated tasks) in an SEP-induced GVC possible?
• How can a company reach a position that allows it to exert control over a GVC?

The following sections are included:

• Introduction
• Standards and the international standard-setting landscape
• Firm-level participation in standard-setting
• Patents and standards
• Impact of patents on international participation in standard-setting
• Potential responses
• Conclusion
• Acknowledgments
• References

This chapter discusses how the instruments of standards and standardization, international trade agreements, and government or public policy could collectively help foster economic growth, enhance prosperity through productivity increase, and drive innovation, without raising new protectionist barriers. These instruments should be used in an effective way to empower innovation across borders for an ecologically and socially sustainable prosperity, as — in the same time — the technological, social, and economic landscapes are undergoing tectonic shifts through:

• the rapid rate of technological development and convergence, particularly in the Information and Communications Technology (ICT) sector;
• increased competition and blurring of boundaries in the digital economy, driven by extensive global connectivity as well as the emergence of global innovation networks and new innovation hubs;
• national and regional policies having moved to coordinated broader digital approaches aiming at integrating social and economic priorities; and
• growing challenges affecting cross-border goods and information flow and their impact on individuals’ rights to a minimal respect of their private sphere in a world of data-driven innovation.

This chapter will illustrate a potential path for improvement, taking into consideration the current state-of-play of standards regimes, international and megaregional trade agreements, and government policies paradigms. One example that this chapter will discuss is that open technology platforms, such as standards developed in a globally open and inclusive, collaborative, and consensus manner, that could be voluntarily adopted and be thus applicable globally, should be explicitly considered in megaregional agreements. Temptations to use megaregional dynamics to promote “regional standards” and “export” them globally or use them as a tool to seal the regional market from competition, would create counterforces and could eventually lead to the end of the current globalization era. So, while megaregionals could pose a threat for the openness of future ICT platforms, including open compatibility, and interoperability standards, they offer also an opportunity for the above-mentioned types of standards and processes to be recognized. They could foster an evolution in the definition of what constitutes an “international standard” and “international standards body.” The current definitions stem from an era where only a nation-centric standardization model existed, perpetuating thus a concept that predates and is not adequate for the Internet era, and which may lead to national or regional industrial policies with new forms of structural discrimination and protectionism. The chapter will discuss how international and megaregional trade agreements could be used to promote globally open standardization processes and their outcomes, as well as supportive regulations, as means to increase economic activity and social inclusiveness in several regions by enhancing cross-border innovation and trade without — at least formal — discriminations across regions.

The following sections are included:

• Introduction
• Overview of the standardization institution and strategy
• Discussion
• Policy suggestions and unsolved issues
• Acknowledgments
• References

Innovation is often considered the cornerstone of modern economic growth. In the same vein, international trade has traditionally been characterized as the handmaiden of growth. Yet, innovation and trade share a complex relationship. This chapter discusses how innovation-leaders (e.g., the US), innovation-followers (e.g., Brazil), and globalizers (e.g., Vietnam) see the role of trade policies in affecting their innovation strategies. Attention is devoted in particular to the “marriage of convenience” between trade and intellectual property rights (IPRs) laws as negotiated in the context of trade agreements. The experiences of negotiating IPRs protection via multilateral (e.g., TRIPS/WTO) and preferential (e.g., TPP) agreements will be contrasted, and the argument will be made that, even among like-minded countries, these negotiations are inevitably characterized by significant controversy. This chapter also discusses to what extent the increased emphasis on innovation in terms of growth strategies is making the goal of promoting higher standards of IPRs protection easier to advance via trade agreements.

The Information Technology Agreement (ITA), a plurilateral trade agreement, seeks to accelerate and deepen the reduction of trade barriers for the critically important Information and Communication Technology (ICT) industry. ITA thus provides an interesting case study of how tariff reduction within an industry-specific trade agreement might affect gains from trade for manufacturing and innovation. From a global welfare perspective, trade expansion could reinforce the diffusion of innovation. Developing countries and especially emerging economies could thus reap significant gains for industrial manufacturing and innovation. But whether this really happens is an empirical question. This chapter compares the contrasting experiences of China and India throughout the history of ITA, from the conclusion of the original ITA-1 agreement in 1996 up to the extended ITA-2 agreement on December 16, 2015. India joined ITA early from a position of weakness in electronics manufacturing. This gap in technological development explains why tariff reductions increased IT imports but failed to stimulate domestic electronic manufacturing and innovation. By contrast, China joined ITA six years after India from a position of strength as the global export factory in electronics manufacturing. Through a continuous upgrading of its industry, China was able to reap the gains from trade. Two specific questions are addressed: First, why is it that China’s electronics industry has benefited substantially from ITA, while in India the gains from trade liberalization have been overshadowed by major costs that are eroding domestic electronic manufacturing and innovation? And, second, to what degree are domestic economic structures and global network integration useful to explain these different experiences and the very different approaches of India and China to the ITA-2 negotiations about expanding the product lists covered by this agreement? The analysis focuses on the role played by differences in the stage of development of their ICT industry, but also more generally in their growth models and regulations, and their resources and capabilities. In addition, differences are considered in the integration of both countries into the global corporate networks of production (GPNs) and global innovation networks (GINs) of the ICT industry. By inserting these domestic determinants into the analysis of trade and innovation, new insights are expected for the study of trade and innovation within plurilateral and megaregional trade agreements. The chapter concludes with suggestions for policy and further research.

The following sections are included:

• Introduction
• What are global value chains?
• Global value chains and economic development
• Conclusion
• Data Appendix
• References

The following sections are included:

• Introduction
• Emerging Mega-FTAs; Prior US FTA labor protections and shortcomings; and the TPP — A new generation?
• Implications for new research agenda
• Conclusion and recommendation
• References
• Appendix

The following section is included:

• Index