TCS Daily


Prosperity at Risk

By James K. Glassman - July 28, 2005 12:00 AM

The U.S. commerce secretary, Carlos Gutierrez, last month took a ritual stroll through a Beijing market that teemed with pirated versions of "Star Wars" and "Seinfeld," along with bogus North Face windbreakers, Calloway golf clubs and Samsonite suitcases.

"We would like to see greater enforcement," he said. "The time has come to see some results."

Certainly, the theft of brand-named, copyrighted and patented consumer goods is troubling. But knocking off Kate Spade handbags pales in importance next to an intellectual-property (IP) racket that the Bush Administration, in a puzzling act of denial, is largely ignoring.

That racket is the work of the smallest -- and most aggressive -- member, along with China and India, of what's been called the "axis of IP evil": Brazil.

Earlier this year, Brazil threatened to seize the patent on an innovative AIDS drug developed and manufactured by an American company unless the firm, Abbott Labs, agreed to slash the price even further. At the time, Reuters quoted a U.S. trade official as saying, "We are monitoring this latest development closely."

Monitoring, yes. Doing something, no.

A few weeks ago, Abbott had to cave. Now, Brazil has its sights set on two other American companies that make AIDS drugs, Merck and Gilead Sciences.

Don't think Brazil is acting from humanitarian motives. All three of the drugs have been made available by the companies for years to Brazil's health ministry at a 90 percent discount, or about $1 a dose, according to a recent article in the San Francisco Chronicle by Robert Shapiro, a former undersecretary of commerce in the Clinton Administration who is outraged by Brazil's behavior. Brazil spends just $169 million a year on all medications to treat AIDS patients, or about one-tenth of one percent of its government budget.

And don't confuse Brazil with Zambia. It's the 11th largest economy in the world, with thriving aircraft, petrochemical and steel industries and a Gross Domestic Product that's 50 percent greater, in terms of purchasing power, than that of Spain and nearly as big as France's.

Brazil is trying to move into a potentially lucrative new sector -- pharmaceuticals -- without having to spend the money on research and development. Almost certainly, the Brazilians will be looking beyond their own market to sell ripped-off drugs to developing nations around the globe.

The big question is, Where is the U.S. government? It's hardly a secret that the future of the American economy lies in innovation.

Such inventions -- or simply ideas -- require fierce legal protection, which, as Pat Choate points out in his excellent new book, "Hot Property: The Stealing of Ideas in an Age of Globalization," was elevated to a special position by the Founders. The passage on IP, in Article I, Section 8, he writes, represents "the only place in the Constitution where the word 'right' is used explicitly."

U.S. officials have ample cause and opportunity to crack down on Brazil. They can start by revoking the country's preferred trade standing under the Generalized System of Preferences, which currently allows $2.5 billion of Brazilian exports to enter the United States duty-free. Instead, Brazil gets a pass -- despite the fact that, as my colleague at the American Enterprise Institute, Desmond Lachman, has written, the country is "by far the largest Western Hemisphere property rights offender."

Copyright piracy in Brazil last year amounted to $785 million. Virtually every audiocassette sold in the country, writes Choate, is ripped off.

So where is Rob Portman, our new U.S. Trade Representative? Where is Condoleezza Rice, whose deputy secretary of state, Bob Zoellick, knows trade inside out? And where is Gutierrez when he's not worried about counterfeit purses?

No nation has done more to fight the scourge of AIDS than the United States. Our companies developed most of the key antiretroviral drugs that have prevented HIV from becoming a death sentence, and our president has committed $15 billion to helping the poorest countries fight the disease.

As Shapiro writes, "Intellectual-property rights are not a form of foreign aid." Absolutely. We can't allow other nations to seize -- or extort our firms into giving up -- their IP assets.

Intellectual property -- in the form of drug formulas, software, business processes, entertainment, even handbag design -- is the foundation of our prosperity. To leave IP defenseless in nations like Brazil is to put America's future at risk. Crack down now.

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