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EU Report Says CETA IP Provisions Would Increase Consumer Prices, Royalty Deficit

By Michael Geist

The European Commission has commissioned a study on the likely economic effects of the proposed Canada - EU Trade Agreement.  The report includes a detailed analysis on the likely effects of the intellectual property provisions in the agreement.  According to the report, those provisions - which come largely as a result of EU demands - would result in more dollars flowing out of Canada and in increased Canadian consumer prices. Moreover, the report acknowledges that the incremental IP reforms are unlikely to increase spending on research and development.  It notes:

Most scientific studies "fail to find evidence of a strong positive response by domestic innovators that could be reasonably ascribed to the effect of stronger IPR." To clarify, it is undisputable that R&D spending is associated with higher GDP growth and, given current business models, a certain level of IPR protection is essential for investment in innovation and creativity. Incremental IPR reforms in OECD countries, however, do not seem to increase domestic spending in R&D. Some stakeholders interviewed for this study and several academics consider that excessive IPR could actually harm economic growth, even in OECD countries, if their holders can block follow‐on research.

As for the costs of the CETA IP provisions, the report notes that more dollars will flow to Europe, but Canadian IP holders would not see increased revenue flow back.  In fact, it is Canadian consumers that will pay the price with "inflationary pressure" on consumer prices:


The Canadian trade balance would not necessarily benefit from IP provisions in CETA. Trade in specific goods, that are currently freely marketed and exported from Canada, could be adversely affected. For example, several Canadian companies brand and export their products with labels that could be considered as European geographical indications. These companies could lose market shares in domestic and foreign markets if they are forced to abandon their commercially significant labels. Conversely, it is unlikely that Canadian companies would significantly benefit from an increased protection of geographical indications in the European market. In sum, both Canadian exports and imports might be slightly and negatively impacted, but only in specific sectors.

Canada has a negative balance of royalties and license fees paid for the authorised use of IPR. In 2008, receipts were US$ 3.4 billion while payments were US$ 8.8 billon. If Canada raises its level of protection and enforcement, it will likely increase payments made by Canadians to European holders of IPR. If CETA does not require major changes in European IPR regimes, as is anticipated, Canadian holders of IPR in Europe would not increase their receipts. One of the only cases that could benefit Canadian copyright works is an extended duration of IPR protection resulting from a new reciprocity. Therefore, it is very likely that the CETA will worsen the Canadian deficit in its balance of royalties and license fees.

IPR tend to increase consumer prices. Patents, copyrights, trademarks, geographical indications, plant breeder's rights, and other IPR conferred exclusive rights, restrict competition, and authorise holders to maintain higher prices. Several exceptions and limitations to IPR provided in Canadian law are intended to maintain prices at reasonable levels. Several measures could lead to some higher consumer prices in Canada. If artistic works and data protection are protected for longer periods, the effective use of fair dealing exception is limited, protection for geographical indications and industrial designs are enhanced, and term extensions are made available for patents, it is very likely that CETA will create an inflationary pressure on consumer prices.

The next round of negotiations is scheduled for next month.

Full post as published by Michael Geist on March 16, 2011 (boomark / email).