infoJustice

NAFTA Modernization Hearing, International Trade Commission
USTR-2017-0006 | June 27, 2017
See also: Written Comment on NAFTA Modernization, submitted jointly with Sean Flynn

My name is Michael  Palmedo, and I work for the Program on Information Justice and Intellectual Property (PIJIP) at the American University Washington College of Law.  We have an interdisciplinary project that studies the economic effects of legal provisions in copyright laws, specifically copyright limitations that are relied upon by various firms in the information and research sectors.  I manage the economic side of this research, which is partially funded by Google. In this testimony, I will share information from our research indicating that the promotion of balanced copyright systems promotes U.S. trade interests, and should therefore be included in the NAFTA renegotiation objectives.

One key element of an adequately balanced copyright system is having sufficiently “open” limitations for the digital environment. At PIJIP, we refer to “open” limitations as those that are open to the use of any kind of work, by any kind of user and for any purpose, as long as the use does not unreasonably prejudice the legitimate interests of the author. Such openness is the hallmark of the U.S. fair use clause. These “open” aspects are crucial because the digital environment creates new opportunities to use different kinds of works, by different users and for different purposes than were envisioned by legislators when writing the statutes. An open statute is a flexible one – and flexibility is needed to accommodate and encourage innovation in the digital environment.

PIJIP is currently developing a Copyright User Rights Database tracking changes to copyright limitations over time in multiple countries.  We circulated a detailed survey on changes in copyright law to legal scholars in various countries to collect data on the presence of openness, flexibility, and generality in copyright limitations over time. The survey defines “law” broadly, explicitly including “all authoritative, published rules or interpretations,” including “statutory law, administrative regulations or directives, decisions by courts, enforcement agencies or others.”  It asks a series of questions about the openness of 20 separate copyright limitations often found in national laws (i.e. – the quotation and education exception). We code the answers and use them to derive an openness score for each country in each year. The survey instrument and coding process is described in more detail in our written submission.  Our surveys and data are publically available under a creative commons license at http://infojustice.org/survey.

PIJIP has used the data generated from this process to run a series of tests showing how the openness of copyright limitations affects foreign affiliates of U.S. firms overseas.  Our research indicates the following:

1. Greater openness is associated with better outcomes for foreign affiliates of U.S. multinational enterprises in the Scientific, Technical & Professional Services industries. These are the industries under the two-digit NAICS code 54, which include research and development services and computer systems development, among others. Using industry-level data on multinationals from the BEA, we find that our openness score is positively correlated with Net Income, Total Sales, and Value Added. When controlling for the size and wealth of the host countries, as well as time, the positive association remains significant at the 99% level of confidence.
2. Foreign affiliates of U.S. multinational enterprises in the copyright sector do not perform worse in countries with more openness in their copyright limitations. These are the industries under the two-digit NAICS 51 heading – including publishing, music, and movies. There is neither a positive nor a negative relationship between openness and the same set of indicators drawn from the BEA data, though the control variables are positive and significant as expected.
3. S. firms in the computer service, information service, and contract R&D industries export more services to countries with greater openness. This finding is based on UN COMTRADE data on these three information-based service exports identified under the Electronic Balance of Payment Services (EBOPS) codes. There is a positive association between a country’s openness score and U.S. exports in these sectors with significance at the 99% level when controlling for national wealth, size, and time.
4. Imports of books from the U.S. are not negatively associated with the openness of copyright limitations in the importing countries. This finding is based on UNCOMTRADE data on trade in books.  Since books are physical goods, the data includes both the value of exports (measured in U.S. dollars) and the quantity of exports (measured in thousands of kilograms). Though U.S. book exports to countries are positively related to each country’s wealth and size as expected, there is no relationship with our openness variable.  This is the case whether we are reporting the impact on the value or the quantity of exports.

To conclude, American firms operating overseas in industries that rely on copyright exceptions enjoy better outcomes on average when our trading partners’ copyright laws are more balanced. At the same time, firms in the more traditional “copyright sectors” (i.e. – music, movies, and printed media), are not negatively affected by greater balance and openness.  It would be in the best interest of the United States to include the promotion of greater balance in copyright as a negotiating objective in the NAFTA renegotiation, and any other future trade negotiations. PIJIP’s written comment, which I submitted jointly with law professor Sean Flynn, includes examples of language in previous agreements that promotes balance in copyright laws, as well as recommendations on how such provisions could better meet U.S. interests.

Thank you for this opportunity to testify.