Beyond Doha – Part IV

The head of the WTO is trying to lay out an alternative to the total collapse of the Doha Round in an op-ed in the International Herald Tribune – Pascal Lamy: What now, trade ministers?

Even the least ambitious proposals would have cut trade distorting farm subsidies by two to three times the previous round of talks. Export subsidies would have been eliminated. For the first time members would have limited fishery subsidies, which contribute to the depletion of our oceans.
The vast majority of exports from the very poorest countries would have faced no barriers to trade, and practices that had crippled African cotton farmers would have been substantially reformed.
Powerful tariff-cutting formulas that were on the verge of agreement would have opened global markets as never before. And the services negotiations held the promise of new business opportunities in sectors like express delivery, banking, insurance, computer services and communications.
Can this considerable foundation be retained?

This may constitute the so-called Doha-lite agenda that the US has already rejected – partly at the urging of business groups such as the Business Roundtable. But the breakdown of the talks may have shocked negotiators enough to force them to re-think the scope of the agenda. Already the US and Brazil are talking about how to restart the talks, according to the Financial Times.
As Bruce Stokes pointed out last January in “Salvaging the Doha Round”:

A limited agreement would have undeniable benefits. U.S. multinational corporations would, at a minimum, lock in their current level of access to developing-country markets. Congress would not have to make deep, politically painful cuts in farm spending. And the WTO—with the rules and dispute-settlement mechanism that are invaluable to day-today commerce—would not be called into question, a potential casualty of a failed Doha Round.

Locking in the services parts of the agreement, as agreed to last December at the Hong Kong ministerial meeting, would be seen by many as a major step forward. As an OECD study puts it:

On some counts, the gains from services liberalisation could exceed gains in the area of goods by a factor of five. Developing countries stand to be amongst the major beneficiaries, not least because of their growing role as exporters of services. Developing countries are particularly successful in sectors such as port and shipping services, audiovisual, construction, and health services. And while developing countries have a clear comparative advantage in labour-intensive services, such as construction, technological advances in the telecommunications and computer industries has enabled them to become highly successful in skill-intensive computer-related activities.
But it may be through the opening up of imports that the greatest welfare gains will be realised –or forgone – from services liberalisation. This is because of the critical effects of services barriers on downstream users. Ongoing OECD analysis finds that if account is taken of services barriers, the effective rate of protection for some agricultural and manufacturing sectors actually turns negative, meaning that services barriers contribute to effective taxation of these industries, further compounding the overall distortions to the economy. Examples of manufacturing industry in developing countries that are effectively taxed by services barriers include motor vehicles in Brazil, chemical products in Romania and mineral products in Thailand.

Of course, opening up services will run into the buzz saw of controversy over offshoring. But, since the US economy is already open to offshore services, opening of other nations to our services may be a win for the US. It is certainly a discussion that needs to be undertaken.

Successes in the I-Cubed Economy

Two examples how things work in the I-Cubed Economy from this morning’s Washington Post business section. First is an example of user-based innovation – Lego’s Robot Redux:

After years of battling computer games for the attention of kids, Lego is fighting back with hackers, the Web and a robot on its side.
The Danish company has updated its Mindstorms line of buildable, programmable robots — a product that debuted to much fanfare in 1998 but that the company had let languish to near-extinction.
. . .
In deciding to revamp the aging Mindstorms robot line, Lego turned to its most faithful core of fans: enthusiasts and hackers who had banded together to form their own online support network. In 2004, Lego e-mailed four of its biggest Mindstorms fans across the United States. The team members spent 10 months advising Lego as the Mindstorms Users Panel, discussing their dream lists of what the next kit should and should not be.

The second story is about understanding the power of information in your business – Sagging Times at Furniture Showrooms:

Bill Diffee Jr. had big dreams for the expansion of the Colony House furniture store that his grandfather founded in 1936.
Three and a half years ago, he built a new store in Centreville to cater to Washington’s increasingly wealthy and growing suburbs. The store had twice as much room for Colony House’s signature high-end traditional furniture as the original location on Lee Highway, just off Route 66 in Arlington. But business never took off.
Two weeks ago, Diffee let go most of the staff and shut down the store.
. . .
“It gets harder and harder for a retailer to differentiate and find that niche that works for them,” said Nick McCoy, a senior consultant at Retail Forward Inc.
. . .
But he [Diffee] remains optimistic about the future. The Arlington store is still successful, he said, especially in design consultation.
He has learned a lesson: Bigger isn’t always better. Now Diffee is trying to target his customers better. He knows they’re still out there.
(emphasis added)

Using information is what makes for success in the I-Cubed Economy — be it emphasizing your design services (furniture) or enlisting users in the product design process. Catering to specific consumer needs rather than just more of the same is the hallmark of this new economy. And many business (and policymakers) may have to learn that lesson the hard way.

Moving the brand away from the product

It is called “brand extension” and sometimes it goes a bit too far, as Business Week points out Online Extra: Brand Extensions We Could Do Without – concerning Harley-Davidson’s new cake-decorating kit.

Each year, Tipping Sprung publishes, in conjunction with trade publication Brandweek, a survey of Top Brand Extensions. The survey also includes a booby prize category for the worst extension. And in the latest survey, published in December, 2005, Harley-Davidson’s cake decorating kit took that honor.
How quickly tides turn; in 2004 (the first year that Tipping Sprung conducted the survey), Harley-Davidson topped the list of best brand extensions for its move into Harley-branded footwear. The company’s precipitous slide illustrates how easy it is for even the most established brand to make a mistake. (When asked about sales of its cake-decorating kit and other spin-off products, Harley-Davidson declined to comment on any brand extensions—good or bad.)
. . .
We live in an age of relentless co-branding (consider Motorola’s ROKR phone, featuring Apple’s iTunes software). We’re seeing more and more licensing of celebrity names (such as Sylvester Stallone’s High Protein Pudding or Trump Cologne) and the requisite movie tie-ins (like Disney Couture’s recently launched, $225 Pirates of the Caribbean skull ring, designed by the movie’s on-set makeup artist).
In his 2003 book Brand Failures, Matt Haig offers up some reasons why some of these extensions flop. These include “basic mistakes such as setting the wrong price, choosing the wrong name, and getting too paranoid about the competition,” Haig writes. These no-nos can cheapen a luxury brand or make a mass-market label seem inaccessible, alienating a loyal audience, or flooding the market and overexposing a brand.

Another example – taken from Business Week’s slideshow on problematic extensions is The Jaguar X-type:

the Ford publicly predicted that the Jaguar X-type would help bump overall Jag sales to 200,000 models a year. But the so-called cheap Jaguar didn’t fool consumers, who saw it as a cheap Ford with a Jaguar hood ornament.

A perfect example of how to weaken an intangible asset!

Bloging and academia

Thanks to the New Economist for directing us to the ongoing debate over bloging and academia. In his posting on “Brad Delong, Daniel Drezner and Mark Thoma on blogging”, he excerpts pieces from the latest Chronicle of Higher Education: Can Blogging Derail Your Career?
He didn’t excerpt Brad DeLong summary of the role of bloging in academia and the intellectual debate.
Brad DeLong’s Semi-Daily Journal: The Invisible College:

A great university has faculty members who do a great many things — teaching undergraduates, teaching graduate students, the many things that are “research,” public education, public service, and the turbocharging of the public sphere of information and debate that is a principal reason that governments finance and donors give to universities. Web logs may well be becoming an important part of that last university mission.

Amen. And maybe university administrators will some day understand that the communication of faculty thoughts is their greatest intangible assets. Apparently, they don’t yet understand that.

Patenting tax strategies

This from the – Tax Report: Patented Tax Strategies May Fail To Shield You From the IRS

It’s tough enough to figure out whether a complex tax strategy is right for you — let alone legal. Now there’s something else to worry about: Getting sued by someone who has patented the technique.
It may sound surprising that tax and financial-planning ideas can be patented at all. They can, just like gadgets and other inventions. While the number of tax-related patents is still small, it appears to be growing — and is attracting attention in Congress, at the Internal Revenue Service and among tax professionals facing increasingly intense competition for wealthy clients. Adding to the interest is a lawsuit filed earlier this year against a Connecticut executive for allegedly using a tax strategy patented by a Florida man in 2003.
IRS officials and some tax lawyers worry taxpayers may be fooled into thinking that a “patented” tax strategy automatically bears the government’s seal of approval — which it doesn’t. “Just so there is no misunderstanding today on this point, let me be clear,” IRS Commissioner Mark Everson told a congressional panel earlier this month. “The grant of a patent for a tax strategy has absolutely no impact on IRS’s determination of the effectiveness or the legitimacy of the strategy.”
Lawyers, meanwhile, are questioning whether someone should be allowed to impose what amounts to a toll charge on someone else for using a technique to reduce taxes lawfully

Clearly, the asset base has shifted in the I-Cubed Economy. It used to be that you got a patent to protect a product you wanted to market. More and more, your get a patent not to market the product but to market the idea. While I believe that marketing ideas is an important positive characteristic of the I-Cubed Economy, the granting of monopoly rights to the marketing of ideas must be considered very carefully. The patent system shouldn’t prevent people from thinking new ideas. Unfortunately, that appears to be where we are headed.

Innovation metrics workshop

In June, the National Science Foundation held a workshop on Advancing Measures of Innovation: Knowledge Flows, Business Metrics, and Measurement Strategies:

The workshop was held in the context of the American Competitiveness Initiative, the Science of Science Policy (SoSP) initiative led by NSF and involving other federal agencies, and OECD’s decadal “Blue Sky II” effort to develop new and better indicators of science, technology, and innovation.

Presentations from the workshop are now available on their website and I understand that the full papers will be available later as a special issue of The Journal Technology Transfer.
There is a lot of good information and insight in these presentations. I was especially taken with the conclusions of Rajesh Chandy, University of Minnesota presentation on Innovation: Business Metrics:

• Innovation
   – What is it?
      • Not what we typically measure
   – Who does it?
      • Not whom we typically assume
   – How is it done?
      • Not how we implicitly believe
   – Who gains most from it?
      • Not who we often think

Answering those questions and confronting those misunderstandings would be an excellent starting point for crafting a real innovation policy for the US.

Beyond Doha – part III

Graham Searjeant, Financial Editor for The Times of London, has a slightly different take on the end of the Doha Round – “Doha: doomed before it started”:

In particular, apparent concessions on agricultural subsidies, tariffs and quotas always turned out to be less than they seemed, because to give the developing world what it wanted would radically undermine the farming industries of the North, possibly threatening rural life from California to Cracow.
France, the most agricultural of the main EU powers, kept trying to hold back EU concessions, knowing the power of its farmers to bring the country’s life to a stop. The spring riots in France, though unconnected, probably ended any chance of an accord.
Neither President Chirac nor the French government dared provoke the farmers into the even more serious riots that would follow what they saw as a sell-out. Many others were happy to shelter behind the French position.

In other words, Doha failed because nations focused on their agricultural past, not their information future.
Searjeant ends up in the same position as I do, looking for better mechanisms:

If it is accepted, however, that the era of the grand, multi-year trade negotiation is over, important gains could still be made. For instance, an agreement was made in Hong Kong to phase out subsidies to agricultural exports. This should happen anyway.
The developed world, in return, can reasonably demand that its trading partners respect intellectual property rights from brand names to computer software, and that they enforce these rights effectively. Step-by-step deals could then be led by the WTO itself without investing all the political capital sunk in a mega trade round.
If Doha does prove to be a failure, all is not lost. Learning from the mistakes can usher in more sensible ways to foster trade and expand the huge benefits that it brings.

Beyond Doha – part II

More on the trade talks and I-Cubed Economy issues from Intellectual Property Watch » WTO Doha Round Suspended Indefinitely, IP Issues May Be Kept On Table:

The end of the talks means that important developing country issues, such as the relationship between the Convention on Biological Diversity (CBD) and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) likely will not go forward for the time being. This issue has been seen by some as outside of the mandate of this round of talks.
Biodiversity Patent Disclosure, Geographical Indications Still to be Pushed
A number of developing countries, including Brazil, China and India, have proposed that the TRIPS agreement be changed to make it mandatory to include disclosure the origin of genetic resources in patent applications (IPW, Genetic Resources, 7 June 2006).
Brazilian Foreign Minister Celso Amorim told Intellectual Property Watch that Brazil “will continue to push” the issue although he noted that “all the groups are stuck,” referring to the negotiations in general.
India’s Nath agreed. He told Intellectual Property Watch: “Of course we will continue to push” for disclosure of origin in patent applications, as the CBD issue has been an “important ingredient of this round.”
But he added that India and the other supporters of the CBD issue did not want it to become an “instrument of abuse” through unfair use, saying that it should not be something these countries would have to use to trade off for something else.
The European Union is also determined to keep its demand regarding geographical indications (GIs), referring to products deriving their names from geographic places, alive.
European Commissioner for Agriculture and Rural Development, Mariann Fischer Boel, told Intellectual Property Watch that the GIs are “extremely important” for southern European countries in particular. She said the European Union would therefore keep the issue on the table, meaning not only on the EU agenda, but “on this [the WTO] table as well.”

While this round of talks may have broken down, many of the issues remain at the forefront of interest. What mechanisms emerge to address these issues is uncertain. As the above comments concerning India and the CBD issues indicate, these issues may need to be addressed directly rather than incorporated into some trade-off negotiations.

Beyond Doha – the next trade agenda

According to Reuters, the Doha Round of the trade negotiations is over: “Trade power talks collapse”:

WTO Director General Pascal Lamy told the G6 late on Sunday he would halt the Doha Development Agenda — launched in 2001 to ease poverty and boost the global economy — without a quick end to the deadlock, diplomats said earlier.
But 14 hours of talks yielded no breakthrough on Sunday and ministers were meeting again on Monday not to negotiate but to discuss what the next steps should be, diplomats said.

Frankly this comes as no surprise (see my earlier postings – “Future of trade talks” and “Trade focus shifting to IMF?“).
Discussing the next steps, however, is likely to be as messy as the negotiations themselves. The breakdown is essential over the issue of agriculture. Anti-globalization forces will claim victory as well. But agriculture and the perceived backlash against globalization are only part of the problem. As I stated back at the beginning of the Round in 2001 (in After Doha: What The WTO Is Not Talking About, many of the real issues weren’t even on the table:

Slightly less than a decade ago, I played a small part in the implementation of the Uruguay Round and the birth of the WTO. As a Senate trade policy staffer, I had fly-on-the-wall view of the pushing and shoving. At the time, I could not help but think that I was witnessing the last major trade round. I may be proven wrong. But, regardless of whether a new round is launched and successfully completed, it will be outdated before it begins. As we engage in the first war of the 21st century, we may be entering into the last trade negotiations of the 20th Century.
This is not to say that the negotiations are unimportant. There are numerous areas, ranging from agricultural subsidies to the dispute settlement process, that need to be addressed. These are, however, the loose ends of trade in the Industrial Age – not the emerging issues of the Information Era.

It remains to be seen if Pascal Lamy and the WTO can move the agenda into the 21st Century. It maybe, as I mused about before, the focus of the discussion needs to move to other venues.

Do patent promote or retard innovation

It is axiomatic in some circles that stronger patents are the key to greater innovation (see for example my posting on EU Innovation Scorecard). The counter to that claim might be found in a recent Wall Street Journal story – “How a University’s Patents May Limit Stem-Cell Research”:

When executives at Carlsbad, Calif.-based Invitrogen Corp. chose to locate their stem-cell research in Asia recently, they blamed the patents. And today, a California watchdog group, the Foundation for Taxpayer and Consumer Rights of Santa Monica, says it will ask the U.S. Patent and Trademark Office to overturn three patents awarded to James A. Thomson, the Wisconsin researcher who first isolated stem cells from human embryos in 1998.
The broadly worded patents, which cover nearly any use of human embryonic stem cells, are held by the Wisconsin Alumni Research Foundation, a nonprofit group that handles the school’s intellectual-property estate, managing a $1.5 billion endowment amassed during 80 years of marketing inventions.
John Simpson, an official at the foundation bringing the challenge, says WARF’s efforts to enforce its patents are “damaging, impeding the free flow of ideas and creating a problem.” Mr. Simpson’s group got involved in the dispute earlier this year after Wisconsin officials said they would demand a share of state revenue from California’s voter-approved stem-cell initiative.

One of the characteristics of knowledge (as described in the endogenous growth theory – or New Growth Theory) is that it is self-perpetuating: knowledge begets more knowledge. But the process only works if knowledge is shared — and a balanced patent system is key to that sharing. Which is why we need patent reform legislation — legislation that is unfortunately stalled. Given it is July of an election year, it is doubtful that anything will come out of this Congress. I can only hope that next year Congress will make patent reform a top priority.