The Benefits of Intellectual Property Rights in EU Free Trade Agreements
A recent ECIPE report, supported by CECIMO and other industry associations, was published yesterday and demonstrates how Intellectual Property (IP) stimulates EU GDP, productivity, investments and exports of Europe by strengthening IP-intensive sectors.
Key Takeaway 1: What are Intellectual Property Rights and why do they matter?
Intellectual Property gives the creator (e.g. an artist, a company doing R&D, indigenous peoples, a creative studio) an exclusive right over the commercial use of that intellectual creation for a certain period of time. IP motivates people/companies to invest in innovation by providing the opportunity to recoup the investments made. By motivating such new discoveries, innovations and other immaterial creations, IP directly leads to progress that is beneficial for society as a whole.
Key Takeaway 2: The economy-wide relevance of IP-intensive industries
IP-intensive industries constitute 44.8 percent of EU GDP and generate 38.9 percent of total EU employment. Wages are 47 percent higher on average in IP-intensive industries compared to non-IP-intensive industries. They are responsible for 68% of total EU exports and they drive investments in the EU economy (51% of all investments occur in a set of IP-intensive industries).
Key Takeaway 3: EU trade agreements: strong on niche types of IP but weaker on the broad IP types
EU FTAs are particularly strong in some niche types of IP (e.g. geographical indications), but less so in the broad types of IP of patents and trademarks, while the latter matter most economically. The EU did not copy the equivalents of EU law into its FTAs and there is much less focus on patents and trademarks in EU FTAs compared to US FTAs.
Key takeaway 4: 55% of EU exports (of which 60% is IP intensive) are not covered by an FTA
Because of the EU’s bilateral FTA strategy, the share of EU exports covered by FTAs rose to 45% in 2018 and IP-intensive trade covered by FTAs grew fast. However, 55% of all EU exports are not covered by bilateral FTAs and 60% of these exports are IP-intensive. They do not have FTA IP protection which could be an issue for trade with countries where IP systems (including enforcement) are weaker.
Key Takeaway 5: The EU IP score and EU’s global share of IP-intensive exports declined
From 2009 to 2018, the EU IP score has declined vis-à-vis the US, China, Japan and Switzerland. The global share of EU IP-intensive exports is also eroding gradually. The fact that the decline in IP-intensive export shares is gradual is likely due to the long-term nature of R&D, which also means this trend cannot easily be turned around once it happens.
Key Takeaway 6: Sector-specific relevance of IP-intensive industries.
- Most value-added for the EU economy is created by machinery (€232bn), motor vehicles (€206bn), and architecture & engineering (€158bn).
- Pharmaceuticals (€161k), telecoms (€156k), chemicals (€107k), transport equipment (€88k) and motor vehicles (€81k) create the most productive and highest value-added jobs. These sectors are 2-3 times as productive as non-IP-intensive industries (€51k).
- Machinery (€240 bn), motor vehicles (€169 bn), chemicals (€161 bn) and pharmaceuticals (€135bn) contribute most to EU exports. IP-intensive sectors export 68% of all EU exports.
- Telecom (€44k per person), motor vehicles (€39k p.p.), machinery (€22k p.p.) and electrical equipment (€13k p.p.) create most investments per capita in the EU in 2019.
Key Takeaway 7: Strengthening IP in EU FTAs has a significant positive economic and societal effect for the EU and EU Member States
Stronger IP provisions in EU FTAs matter: they create a level playing field, improve market access, reduce trade costs for IP-intensive products, and create predictability for long-term investments. Stronger IP provisions in EU FTAs lead – each year – to higher EU GDP (€63bn), more EU exports (€74bn), higher investments in the EU (€17bn) and higher wages for EU citizens (€245 per EU family of 4). Every EU Member State benefits. All 27 EU Member States participate in these gains.
Key Takeaway 8: Strengthening IP in EU FTAs also has positive sectoral effects in the EU and in EU Member States
The EU IP-intensive sectors that would increase exports most in case of stronger IP provisions in EU FTAs are: machinery (+4.0%), transport equipment (+3.4%) and electronics (+3.2%). In terms of production, transport equipment (+6.3%), machinery (+2.3%), electronics (+2.2%), electrical equipment (+2.0%) and pharmaceuticals (+2.0) would increase production in the EU.
Key Takeaway 9: Patents and trademarks matter most for IP-intensive EU exports
The largest positive impact on exports comes from patent and patent-related provisions, followed by the effects of trademarks. For EU FTAs, however, the patent and trademark provisions have a weaker trade-enhancing effect compared to other FTAs due to EU FTA patent and trademark provisions being weaker than those in other FTAs. By strengthening these provisions a stronger export performance and more export-oriented jobs in EU Member States would result.
Key Takeaway 10: IP and the EU Industrial Strategy: an opportunity for EU IP-intensive industries
The biggest gains in economic activity are created when new innovations such as digital technologies, new machines, innovative medicines, and green technologies are also broadly adopted. IP provisions in EU FTAs can meaningfully contribute to EU strategic resilience by promoting innovation in the EU, driving the digital transformation, green technology development and R&D into innovative medicines, especially if done in parallel to a strong regulatory framework and deepening of the EU Single Market.
Key Takeaway 11: IP in the EU pharmaceutical strategy: the EU at a crossroads
The EU has lost ground in terms of pharmaceutical innovation – the most R&D intensive industrial sector – since 1990. The EU Pharmaceutical Strategy has the potential to turn this trend around, but in spite of some positive IP elements in the strategy, it looks like this may not happen, mainly because it could introduce conditionalities on IP and incentives. This is the opposite of what the EU’s global trading partners are doing and could undermine the positive effect of strong IP provisions in EU FTAs.
Key Takeaway 12: IP effective against counterfeit goods
Counterfeiting is a violation of IP. Strong IP provisions (e.g. trademarks, patents, copyrights) that are enforced jointly by companies and governments (e.g. an EU-wide food fraud risk management system, the EU falsified medicines directive) are one of the most efficient ways to combat counterfeiting and piracy and reducing their negative economic, environmental, health and societal impact.
Key Takeaway 13: IP and biodiversity
The EU-ANDEAN FTA contains most IP provisions on the protection of ‘traditional knowledge and genetic resources’. IP helps to combat the overexploitation of natural resources, supporting the lives and livelihoods of indigenous and local communities and allowing these communities to capture larger shares of the economic benefits, while focusing on preserving the planet for future generations.
Key Takeaway 14: IP and SMEs
The protection granted from IP is vital for small- and medium-sized enterprises (SMEs). Many SMEs fail to consider their IP in early stages of development and overlook that it is one of their most valuable assets. Stronger IP provisions in EU FTAs, linked to SME chapters, could help SMEs overcome the export hurdle as more predictability and certainty are provided and investments protected. Stronger FTA enforcement too is especially beneficial for SMEs who do not have the resources for legal battles to protect their (intellectual) property.