Innovation, competitiveness and development in Asia

* This is my article in BusinessWorld yesterday, May 17. I forgot to mention the Institute for Democracy and Economic Affairs (IDEAS, Malaysia) as co-sponsor of the seminar when I submitted my paper to my editor. IDEAS helped a lot in organizing that event.

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Kuala Lumpur — I just attended the “Asian think tanks dialogue on Innovation, Competitiveness and Development” in Kuala Lumpur sponsored by the Geneva Network (UK). The event, last Wednesday, was attended by mostly free market-oriented and independent think tank leaders with participants from China, India, Indonesia, Malaysia, Myanmar, Philippines (me), Singapore, S. Korea, Thailand and Vietnam.

The first presentation was “The Policy Ingredients for Innovation: Lessons From Abroad” by Nigel Cory, associate director for trade policy of the Information Technology and Innovation Foundation (ITIF, US). Nigel emphasized that intellectual property rights (IPRs) are essential for innovation because they (1) Create incentives for innovation and help repeat it in a virtuous cycle, (2) Induce knowledge spillovers that help others to innovate, (3) Attract investment and ensure companies can focus on innovating, (4) Promote the international diffusion of technology, innovation, and knowhow, and (5) Boost domestic levels of exports, R&D, and FDI.

The second paper was “The Role of IPR for Asian Development” by Philip Stevens, founder and director of Geneva Network. Philip showed a ranking of Asian economies, from the most to least innovative, in the Global Innovation Index (GII) 2018 Report. I added the GII 2012 Report here to show changes in global ranking and scores of selected economies (see table).

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Third paper was “IPR and Access to New Technologies” by Amir Ullah Khan, professor at Maulana Azad National University in India. Amir showed some glaring health data in India: 1 government doctor caters to 11,082 people, 1 government hospital bed to 1,908 people, and 80% of the population do not have significant health coverage.

Then he showed the negative impact of heavy government interventions like drug price control and patent-busting compulsory licensing: “With non-availability of cancer drugs, price controls have had a depleting effect on the efforts towards development of new antibiotics. Of the 18 largest pharma companies, 15 have stalled work in antibiotics due to economic, regulatory and scientific obstacles.”

Fourth and last paper was on “Emerging Policy Threats to Innovation” by Azrul Mohd Khalib, founder of the Galen Center for Health and Social Policy in Malaysia. Azrul discussed the IPR on health polices in four ASEAN countries. In Indonesia for instance, amendments to the Patent Law would require that the manufacture of patented products and use of patented processes should take place in the country. In Malaysia, there is concern on IP protection and enforcement because the government has either issued or threaten to issue compulsory licensing.

The Philippines has shown improvement in global ranking and score but it still belongs to the bottom half in ranking as shown in the above table. Now there is growing appreciation about the importance of innovation and IPR protection.

A BusinessWorld report, “IP protection applications rise 15% in 2018” (March 5, 2019) said, “IPOPHL said filings for patents, utility models, industrial designs, trademarks, and copyright deposits in 2018 totaled 44,461, up 15% from a year earlier. Applications filed online totaled 10,346 last year, up 35%. This covers all IP types, except copyright deposits.”

While many Asian countries appreciate the value of innovation, there seems to be less appreciation on the value of IPR protection. As pointed out by Philip, among the weaknesses in Asian innovation are counterfeiting (3.3% of global trade in 2016, higher in Asia), online piracy, more difficult to secure and defend patents (compulsory licensing, restrictive patentability criteria like in Thailand, average of 16 years to gain a pharma patent).

There should be more understanding and appreciation by governments to promote and protect IPRs. Most physical property values now are predicated by non-physical property values, like shoes with “big check” logo and trademark are more expensive than lesser-branded logo.

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Protecting human know-how, knowledge, creativity, and innovation

A good guest article in BusinessWorld by a friend Philip and his co-author last December, reposting below.

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By Matthias Bauer and Philip Stevens

TRADE tensions between the US and China continue to escalate and the World Trade Organization (WTO), the global forum of the management of trade rules and disputes, seems powerless to stop them.

The WTO’s multilateral, rules-based trading system has underpinned huge increases in global prosperity since the 1960s. But shortcomings in investment rules and enforcement mean WTO reform is now top of the G20, US, and EU agenda.

The US is right: intellectual property is vital to the modern economy.

Much of the drama stems from US accusations that the WTO failed to hold China to account for not opening up its economy as promised when it joined the body in 2001. No reform, says the US President, could see his country withdraw from the WTO.

The US is seriously concerned about China’s attitude toward intellectual property (IP) rights. The Trump administration claims Chinese theft of American companies’ proprietary knowledge through cyberattacks, counterfeiting, online piracy, and forced technology transfer from investing companies has cost $50 billion in corporate earnings.

The US is right: intellectual property is vital to the modern economy. Trade used to be all about moving physical goods from their point of manufacture to customers in different countries. Today, it is increasingly about “intangible” products and services, based on research and development efforts, brands, and patented or licensed technology.

Much of modern international trade and investment is driven by human know-how, knowledge, creativity, and innovation.

The WTO has accelerated this globalization of knowledge-based industries thanks to its Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), ratified in 1994.

TRIPS requires all WTO members to institute basic laws to protect IP. As recently as the 1980s, many countries did not even grant patents — unsustainable given era’s rapid pace of globalization and technological development.

The creation and harmonization of basic global IP standards under TRIPS has been transformative for developing countries in particular. Under TRIPS, more countries have benefited from the integration of domestic companies into global value chains, through which modern products and services are designed, manufactured, and marketed across many countries. China, Singapore, and Korea are notable examples.

These global value chains have created cheaper consumer goods and reduced poverty by helping to integrate developing countries into the global economy.

According to the World Intellectual Property Organization (WIPO), one-third of the value of manufactured goods sold globally ($5.9 trillion), comes from intangible capital, underlining the importance of IP to today’s global economy.

Outside of China, IP problems abound. Counterfeit and pirated goods account for 2.5% of global trade. Rights holders are unable to uphold their IP rights in local courts and many countries have yet to fully upgrade their domestic IP laws in line with their treaty obligations.

Meanwhile, the text of TRIPS has not had a meaningful update since its inception in the 1980s, and could benefit from updates to take account of developments in new technologies, particularly in the biotechnology and digital sectors.

These shortcomings have compounded multilateral trading system’s problems. As a result, knowledge-exporting countries increasingly look outside the WTO to achieve their trade objectives. Bilateral Free Trade Agreements (FTAs) and regional deals (the NAFTA [North American Free Trade Agreement] replacement being a current example) have allowed like-minded countries to modernize and update trade and investment rules, free from the constraints of a unanimous vote by 164 countries.

But this is fragmenting the international trading system and limiting the opportunities for countries outside these deals.

At the November G20 summit and October conference on WTO reform in Ottawa, Canada, leaders focused on the mechanics of dispute resolution and enforcement.

These are important for restoring faith in the WTO. But in the longer term, the WTO needs to ensure the intellectual property rules that govern trade in knowledge-intensive intangible capital are strong and well enforced. If needed, countries willing to move faster on these reforms could form coalitions under the auspices of the WTO.

In December, Beijing announced a number of new punishments for domestic IP infringers. It suggests that China’s officials are beginning to understand the importance of IP for smooth trade and relations.

But to ensure modern trade and investment can continue on non-discriminatory terms for everyone, the WTO should put IP first.

Matthias Bauer is senior economist at the European Centre for International Political Economy, Brussels. Philip Stevens is executive director of Geneva Network.

IPR and MORE investments

* This is my article in BusinessWorld on May 1, 2019.

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A report in BusinessWorld reiterated the value of IPR protection: “PHL remains out of US IPR watch list for 6th year’ (April 27, 2019)

“FOR the sixth straight year, the Philippines was not included in the US government’s watch list of countries with weak protection of intellectual property rights (IPR)… after being included from 1994 through 2013,” the report said in part.

The government’s Intellectual Property Office (IPOPHL) also announced in its website: “Finally, Philippines No Longer in the Notorious Markets List of the USTR” (April 25, 2019) — of which I quote in part, “After being on the list for the last six (6) years, the Philippines is completely gone in the list of Notorious Markets of the Office of the United States Trade Representatives (USTR) as reported in the Out-of-Cycle Review of Notorious Markets dated December 13, 2012.”

Good news then. Last week, April 26, was World Intellectual Property Day as declared by WIPO with the theme, “Reach for Gold: IP and Sports.”

Also that day, 77 independent think tanks and institutes (including Minimal Government Thinkers) from 39 countries signed the “Open Letter to WIPO Director General Francis Gurry,” initiated by the Property Rights Alliance (PRA, USA). The letter said:

“When IPRs are protected, markets are formed that encourage innovators to compete to make the next breakthrough product consumers demand — be it training equipment, a smart sensor, or a new media platform. In this way, athletes and innovative markets are sure to always go faster, stronger, higher! Neither innovation nor sport can exist without enforceable property rights.”

More IPR protection indeed facilitates and encourages more investments. Table below is constructed from three different sources: (1) International Property Rights Index (IPRI) rank: PRA’s IPRI 2018 Report, (2) Foreign direct investment (FDI) inward stock 2017: UNCTAD, World Investment Report 2018, and (3) Population 2017: IMF, World Economic Outlook 2019. The last column is derived by this paper.

Global ranking in IPR protection and innovation in East Asia

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More property rights protection, more investments. Japan is the exception here because Japan is the main source, not destination, of FDIs in many countries abroad. On May 15, the Geneva Network (UK) will hold a one-day seminar and meeting of Asian free market think tanks, institutes and academics doing work on IPR protection and trade to be held in Kuala Lumpur.

And on May 24 or 25, PRA (US) will hold a side event on IPR and investment promotion in Sydney during the 17th meeting of the World Taxpayers Association (WTA) conference and the 7th Friedman conference by the Australia Taxpayers Alliance.

From the IPRI report, the per-capita income in countries with robust property rights protection is 20 times greater than those in countries with weak protections. The market-oriented reforms for efficiency (MORE) are to further strengthen private property protection, physical or intellectual — by legislation or executive action.

Recent news on India, China and HK on IP

It is somehow easy for governments to initiate disrespect of intellectual property rights (IPR), when the history and philosophy why government was created in the first place, is to protect the citizens’ three basic freedom and rights — right to life, right to liberty, and right to private property.

ipr-bannerThree recent news in Asia point to this continuing problem. This illustration/image is from http://www.bdu.ac.in/cells/ipr/
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1. India is emerging as an important producer of counterfeit goods
Apr 21, 2019, 02.11 PM (IST)  G Srinivasan
https://www.wionews.com/opinions/india-is-emerging-as-an-important-producer-of-counterfeit-goods-212263

… the European Union Intellectual Property Organisation (EU-IPO)… 2016 data, an updated report jointly released in the third week of March, estimated that the volume of global trade in counterfeit and pirated products could amount to as much as a whopping $509 billion. Even as this constitutes up to 3.3 per cent of world trade, it excludes domestically produced and consumed counterfeit and pirated products or pirated digital products being distributed via the Internet.

the study traces the dramatic sale of counterfeit and pirated goods from virtually all economies in all continents, with China and Hong Kong as the biggest conduits. In addition, several Asian economies, including India are also important suppliers of counterfeit products, despite a role that is significantly lesser than China’s.

2. China is being hyped as new haven for enforcing IP rights, but let’s not get carried away
April 25, 2019 11.05pm AEST
http://theconversation.com/china-is-being-hyped-as-new-haven-for-enforcing-ip-rights-but-lets-not-get-carried-away-115948

Before foreign firms trust the IP litigation hype about China, they need to look at the big picture. A national IP system comprises more than just win rates. The length of time required to reach a ruling and the level of damages awarded are important, too. Jaguar’s experience is dramatically different to certain other foreign firms: Honda, for instance, took 12 years to win a similar case in 2016 concerning the design of its CR-V SUV. The Japanese company only received ¥16m (£1.8m), a sliver of the ¥300m it claimed it was due.

According to the US-based Global Innovation Policy Centre’s 2019 index of IP system rankings, China scores a lukewarm 21.5 out of 45 – miles behind the top-ranked US (42.7), UK (42.2) and Sweden (41.8).

3. Innovation Banned. The Case Of Hong Kong And Other Asian Countries
Apr 24, 2019, 12:25pm   Lorenzo Montanari
https://www.forbes.com/sites/lorenzomontanari/2019/04/24/innovation-banned-the-case-of-hong-kong-and-other-asia-countries/#184506e9a417

The ban of e-cigarettes is back in the news in Asia, this time partnered with its disastrous partner, “plain packaging.”… In 1992, Singapore banned the import, manufacture, and sale of chewing gum, reportedly because vandals were sticking it over door sensors on new Mass Rapid Transit (MRT) trains…

Hong Kong once had a common sense approach to vaping – waiting for evidence, one way or the other, on efficacy and potential negative side effects. But, even now that we know that vaping is at least 95% safer than cigarette smoking and much better than nicotine replacement gum (which is legal in Hong Kong), Hong Kong has decided to join Singapore in banning vaping.

Singapore has now intensified its war on smokers, not just by banning the one credible alternative to smoking, but now also passing “plain packaging” for cigarette containers… removal of branding and trademarks from tobacco products, Singapore has also conducted a public consultation regarding sugary soft drinks.

MORE IPR protection

* This is my column in BusinessWorld on April 17, 2019.

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Unlike physical property which is tangible, intellectual property rights (IPR) are intangible, like copyrights of songs, patents of newly invented medicine molecules, trademarks of known brands, and trade secrets. Thus, public appreciation of IPR protection is not as high as physical property protection.

A report in BusinessWorld, “Bill to be pushed strengthening intellectual property rights” (April 13, 2019) showed some data from the government Intellectual Property Office (IPOPHL) that piracy and counterfeiting of known brands were high in 2018:

“… pirated and counterfeit goods seized in 2018… worth P23.6 billion… Of the fake items seized in 2018, 85% were cigarettes.”

Compared to neighbors in the region, the Philippines ranks low in IPR protection in certain international reports. Numbers below are from three sources: (1) Property Rights Alliance’s (PRA, US) International Property Rights Index (IPRI) 2018 Report, (2) World Economic Forum’s (WEF) Global Competitiveness Index (GCI) 2018 report, and (3) IMF’s World Economic Outlook (WEO) 2019.

Notice the top seven countries and economies — they have higher global ranking in property rights protection (out of 125 countries), also in Patent and Trademark per million population ranking (out of 140 countries), and higher per capita income of at least $9,600 in 2018.

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Middle of next month, the Geneva Network (UK) will hold a one-day seminar and meeting of some Asian free market think tanks and academics about IPR protection and trade to be held in Kuala Lumpur. And a week after, PRA (US) will hold a side event on IPR and investment promotion in Sydney during the bigger event, the 17th meeting of the World Taxpayers Association (WTA) conference.

IPR issues often crop up in public health policy debates. Like the continuing push in some Asian countries for compulsory licensing (CL) of newly invented drug molecules that are successful in controlling certain diseases. These are very expensive drugs to develop (many stages of clinical trials involving thousands of patients) and yet governments with the implicit aid of the WHO will quickly confiscate the patent and allow mass production by local generic manufacturers. This pours cold water on further medicines innovation that can help control existing and emerging diseases.

Then there are trademark-busting policies like plain packaging of certain products deemed “unhealthy” like tobacco, soda and sugary foods. Abolition of the many elaborate branding by competing companies and forcing only one generic packaging will make counterfeiting of these products so much easier. When cheap counterfeits come in, they will encourage, not discourage, more consumption of “unhealthy” products.

The “law of unintended consequences” often kicks in when the sanctity of private property is disregarded. The market-oriented reforms for efficiency (MORE) to promote public health, entice more investments and generate higher per capita income are also aimed at further protecting private property, physical or intellectual, not dishonor them.

IPR, innovation and growth

* This is my article in BusinessWorld on March 05, 2019.

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“The natural effort of every individual to better his own condition…is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.”

— Adam Smith, Book IV, Chapter V, The Wealth of Nations (1776).

The ideas of Adam Smith, John Locke and other classical liberals were indirectly discussed in the various panel discussions during the Asia Liberty Forum (ALF) held in Hilton Colombo, Sri Lanka last week February 28 to March 1. The ALF was mainly sponsored by Atlas (USA) and Advocata (Sri Lanka), with co-sponsorship by the Friedrich Naumann Foundation for Freedom (FNF) and other groups. FNF is a German foundation whose main work around the world is to help promote the value of economic freedom, free markets, human rights and political diversity.

The last panel on Day 2 was on “IPR for Innovation and Economic Growth” and speakers were Lorenzo Montanari of the Property Rights Alliance (PRA, USA), Philip Stevens of Geneva Network (UK), and Rainer Heufers of Center for Indonesian Policy Studies (CIPS). The panel was moderated by Harith de Mel of Advocata.

Mr. Montanari showed the three components of the International Property Rights Index (IPRI) — legal and political environment, physical property, and intellectual property — and the results of the 2018 Report. He emphasized the role of institutional arrangements and property rights protection in building a free, productive, prosperous and inclusive societies.

Mr. Stevens presented “The knowledge economy as a driver of sustainable economic development.” He showed data on the components of S&P 500 market value, the rising share of intangible assets vs tangible assets as follows: 17% vs 83% in 1975, 68% vs 32% in 1995, and 84% vs 16% in 2015. He further observed that “One third of the value of manufactured products sold around the world comes from ‘intangible’ capital.”

And Mr. Heufers observed that “For Indonesia to be free and prosperous” in the agriculture and food sector, the adoption of modern rice varieties protected by IPR has contributed significantly to greater food production in the country.

Let us review some numbers. Data below are from three sources. (1) IPRI Report http://internationalpropertyrightsindex.org/, (2) Global Innovation Index (GII) 2018 report, produced by the World Intellectual Property Organization (WIPO), INSEAD, and Cornel SC Johnson College of Business, http://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2018.pdf, and (3) IMF World Economic Outlook (WEO) October 2018.

IPR_Innovation_030519

Notice the top seven countries and economies — they have higher global ranking in property rights protection, also in innovation index, and higher per capita income of at least $8,600 in 2017, higher sustained economic growth.

The Philippines has low rank in both IPRI and GII and low per capita income. Improving the country’s global ranking and score in at least these two reports will send a good signal to both local and foreign investors and traders, that their investments and branding here will be respected and protected.

There are efforts in Asia though to circumvent IPR protection. Like moves to issue compulsory licensing (CL) and kill the patents of newly-invented and successful medicines. Or impose plain packaging and kill trademarks and brands of certain products deemed “unhealthy” like tobacco, soda and sugary foods.

These anti-IPR moves downgrade the fact that people in general are living longer, healthier and freer. Life expectancy at birth keeps rising, mortality rate across ages keeps declining, and people engaged in “dangerous” hobbies and sports like sky jumping, downhill cycling and motorcycle stunts is rising. Threat on companies’ IPR on their invention and corporate branding is also a threat on the overall investment environment. Governments should avoid such populist and anti-liberal policies.

IPR, private property and prosperity

* This is my article in BusinessWorld last November 23, 2018.

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“Every Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say are properly his.”

— John Locke, Two Treatises of Government (1689)

Private property, not collective or communal or state property, is the cornerstone of social order, innovation and prosperity in the history of humanity. The most prosperous economies are those that respect and protect private property of the means of production. Backward communist China and Vietnam realized this later so they instituted reforms that allow and protect private property even if they retain the one-party socialist government.

Such private ownership apply to both physical and nonphysical or intellectual property, the latter including trademark and brand, patent on inventions, copyright on compositions, and trade secret.

In Asia in particular, economies with high per capita income — Singapore, Hong Kong, Japan, South Korea, Taiwan — are also those with high scores and global ranking in intellectual property rights (IPR) protection. And countries with poor or low per capita income also have low scores and ranking in IPR protection. Exception here is Brunei, high per capita income due to gas and oil-based economy and not FDIs-based like the five economies mentioned, and low scores and global ranking.

Data below are from four sources. (1) International Monetary Fund’s (IMF) World Economic Outlook (WEO) October 2018 database, (2) Property Rights Alliance’s (PRA) International Property Rights Index (IPRI), (3) World Economic Forum’s (WEF) Global Competitiveness Report (GCR), and (4) US Chamber of Commerce’s Global Innovation Policy Center (GIPC).

IPRI is composed of three factors, one of them is IPR protection. WEF’s global competitiveness index is composed of 12 pillars, pillar #1 is about Institutions and among the sub-pillars is intellectual property (IP) protection, and global rank is out of 137 countries in 2017 and 140 countries in 2018.

GDP_IPR_112318

Now there are IPR-busting policies in several governments like plain packaging for tobacco products. Australia was the first country in the world to do it in 2012, and in the ASEAN Thailand wants to do it too.

Plain packaging (PP) is a ban on branding, it removes trademark, certain graphics, colors and logo, and allows only a generic name in a standard font/size with graphic warnings. And this is where the danger lies.

Corporate branding is elaborate and complicated, the bar codes can even show where the product was manufactured and when. By removing corporate branding via PP, generic branding is less complicated, less elaborate, and very easy to copy and reproduce by illegal producers and smugglers. Since these smugglers did not invest decades of business developing their brand, they can sell at a much cheaper price. And this will attract more smokers, more smoking, not less.

IPR issues like forced technology transfer and outright IPR robbery are among the thorny issues in the ongoing US-China mild “trade war.” The US says its companies are losing as much as $600 billion per year via piracy, counterfeits, imitations, trademark infringement and other IPR robbery, but China denies it.

Health socialists and activists who hate tobacco, alcohol, soda, confectionery companies and their products should realize that both nature and the market hate a vacuum. Remove the legal products and demonize their manufacturers, and that gives room for smugglers, criminal gangs and terrorist organizations to produce and sell their own fake, substandard but cheap products. This results are more smuggling and corruption, more smoking and drinking, not less.