The Impact of Trade Agreements on Innovation: Implications for Canadian Trade Policy

Abstract

New trade rules being implemented as part of the on-going wave of major bilateral/regional trade agreements are impacting the complex and evolving innovation ecosystem in non-neutral ways, favouring some innovation modes (such as patent-oriented research and development), but generating stumbling blocks for others (including open-source and co-creation, as well as follow-on innovations). This note considers the implications for Canadian policy in light of the tight nexus that trade theory and empirics draw between trade, innovation and productivity. Canada’s performance on all three fronts – trade, innovation, and productivity – has been decidedly poor for a prolonged period and this is not likely a coincidence. We recommend that implementation of Canada’s recently concluded trade agreements be especially sensitive to impacts on innovation; that Canada seek to preserve space for innovation policy in its future trade agreements; that Canada refrain from using trade agreements to challenge other countries’ measures to promote innovation, since it might eventually wish to imitate them; that Canada promote trade liberalization in services in terms of movement of persons (mode 4) ― including by moving unilaterally to offer Innovation Visas to facilitate the international movement of knowledge workers; and that Canada also take a leading role in developing a new policy synthesis internationally as regards the trade-innovation nexus. We suggest this new policy synthesis explore such issues as (i) the adoption in regional trade agreements of rules of origin (ROOs) that are less restrictive for smaller-valued shipments in order to induce more small and medium-sized enterprises to start exporting their products and importing intermediate inputs to drive innovation; (ii) a plurilateral Digital Economy Trade Agreement to address impediments to digital/electronic international trade; and (iii) supporting the restoration of an Innovation Green Box under the World Trade Organization’s Agreement on Subsidies and Countervailing Measures.

Keywords: trade, innovation, intellectual property, trade agreements, TPP, CETA, Canadian trade policy

JEL Classification: F13, F23, O31, O33, O34, O38