The trade deals negotiated in the last quarter century are becoming less focused on traditional trade barriers like tariffs and quotas. Instead, they are imposing a regulation structure on the parties, which tend to be very business oriented. In many cases, the rules being required under the trade deals would never be accepted if they went through the normal political process.
The renegotiation of the North American Free Trade Agreement allows the United States, Canada and Mexico to get rid of rules that have no place in trade deals. At the top of this list is the Investor-State Dispute Settlement (I.S.D.S.) tribunals. These tribunals operate outside the normal judicial process. Their rulings are not bound by precedent, nor are they subject to appeal. Also, they are only open to foreign investors as a mechanism to sue member governments.
These tribunals can be used to penalize governments for measures designed to protect the environment, consumers, workers or to ensure the stability of financial institutions. TransCanada, the company that had been building the XL pipeline, gave us an example of how these tribunals can be used. It initiated a suit after President Barack Obama decided to cancel the pipeline. It is likely that we would see many more suits in the future using the I.S.D.S. tribunals if they are left in NAFTA and other trade deals.
The other non-trade elements that should be removed from Nafta are the provisions requiring strong patent and copyright protection. These are forms of protectionism – the opposite of free trade – that can raise the price of the protected items by a factor of 10 or even 100. The impact of these protections is especially pernicious in the case of prescription drugs.
Drugs that would be readily available in a free market can be prohibitively expensive because of patent protection. For example, the Hepatitis C drug Sovaldi has a list price of $84,000 in the United States. A high-quality generic version is sold in India for less than $200.
While companies need an incentive for innovating, there are far more efficient mechanisms than patent monopolies. It doesn’t make sense for a 21st century economy to be dependent on this relic of the feudal guild system for supporting innovation.
Ending the patent and copyright requirements in NAFTA would be a good first step. We need a fuller debate on modernizing our systems for financing innovation and creative work.
This column originally appeared in the New York Times.