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Canada Accused of “Innovation Mercantilism”

Posted January 12, 2016

Canada has been accused of “innovation mercantilism” for continuing “to misuse international intellectual property law to undermine pharmaceutical patents,” according to an annual report released yesterday the Information Technology and Innovation Foundation (ITIF) describing the “worst mercantilist policies” in the previous year.

The think-tank’s list targets trade distorting government policies aimed at “replacing imports with domestic production or unfairly promoting exports.” Other countries singled out for criticism in this regard include China, Russia, Nigeria, Indonesia and Turkey.

“We are seeing a disturbing trend where innovation mercantilist policies are becoming the norm rather than the exception, and the global trading system is doing little to try and roll back these destructive practices,” ITIF president Robert Atkinson said.

China’s efforts to exclude foreign technology companies through new laws and funnel investments into its domestic semiconductor industry is cited as an example of protectionist policies hurting global innovation. The report is also critical of requirements forcing companies to store their data in China and Beijing’s push for “secure and controllable” equipment in certain sectors, like banking, which the ITIF contends is simply designed to prevent foreign companies from entering the Chinese market.

“Foreign technology companies are the clear target of these rules, given their competitive advantage in IP-based advanced technologies,” the report says. “China even made a preemptive push for compliance by trying to get U.S. tech firms to sign an explicit ‘pledge’ that they would abide by the contentious new national security law. These equipment and access requirements add to the already considerable risk many foreign tech firms face in having their IP passed onto Chinese competitors.”

Other glaring examples of “innovation mercantilism” in 2015 included local content requirements in India and Indonesia; in the former case for companies bidding for solar energy projects and in the latter with respect to smartphones.

Canada drew fire from the ITIF for allowing the courts to apply “an unrealistic evidentiary burden on pharmaceutical patent applications in order to benefit domestic generic drug producers.”

“Every nation wants to be a leader in innovation because it is the main driver of economic growth in the 21st century,” said Nigel Cory, a trade policy analyst at ITIF and author of the report. “But using negative-sum, protectionist policies to get there hurts global innovation. In the long run, it may even damage the very countries embracing these practices because they miss out on the opportunity to raise productivity in all sectors instead of in just a few high-tech ones.”

Click here to download the report.