Periodic Reporting for period 3 - DIA (Deep Integration Agreements)
Reporting period: 2022-01-01 to 2023-06-30
This project aims to improve our understanding of deep integration agreements. Unlike ordinary trade agreements, deep integration agreements do not just focus on reducing tariff barriers but try to achieve much broader economic integration. Prominent examples include the Transatlantic Trade and Investment Partnership (TTIP) negotiated between the EU and the US and the Comprehensive Economic and Trade Agreement (CETA) negotiated between the EU and Canada.
Deep integration agreements are extraordinarily controversial. For example, an estimated 250,000 people protested against the TTIP and CETA agreements in Berlin in 2016, as part of a wave of continent-wide protests. The overarching concern is that deep integration agreements benefit big business at the expense of society, for example by giving excessive rights to private investors, undermining regulation aimed at protecting the environment, or preventing developing countries from getting access to life-saving innovations.
While earlier protests against the World Trade Organization (WTO) triggered some initial work on deep integration agreements, academic research had largely turned a blind eye to these concerns. The ERC grant allowed me to launch a broad research program on deep integration agreements with the intention to provide a ‘big push’ to research in the area.
My core research program proceeds in three complementary parts, focusing on the most controversial deep integration issues. In a first part, I consider provisions regarding investor protection. My focus is on Investor-State Dispute Settlement Systems and I ask whether they give undue influence to private investors. In the second part, I turn to the issue of regulatory cooperation. Here, I study how industry lobbies influence regulatory cooperation and ask whether this makes trade agreements less likely to be "good for you". In a third part, I study intellectual property rights protection under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. The goal is to assess the efficiency and distributional implications of this key pillar of the WTO.
Besides this core research program, my team members are pursuing a number of closely related satellite projects. Most noteworthy in this regard is the work of one postdoctoral researcher who is currently leveraging new lobbying data from the United States to better understand lobbying on deep integration agreements.
Deep integration agreements are extraordinarily controversial. For example, an estimated 250,000 people protested against the TTIP and CETA agreements in Berlin in 2016, as part of a wave of continent-wide protests. The overarching concern is that deep integration agreements benefit big business at the expense of society, for example by giving excessive rights to private investors, undermining regulation aimed at protecting the environment, or preventing developing countries from getting access to life-saving innovations.
While earlier protests against the World Trade Organization (WTO) triggered some initial work on deep integration agreements, academic research had largely turned a blind eye to these concerns. The ERC grant allowed me to launch a broad research program on deep integration agreements with the intention to provide a ‘big push’ to research in the area.
My core research program proceeds in three complementary parts, focusing on the most controversial deep integration issues. In a first part, I consider provisions regarding investor protection. My focus is on Investor-State Dispute Settlement Systems and I ask whether they give undue influence to private investors. In the second part, I turn to the issue of regulatory cooperation. Here, I study how industry lobbies influence regulatory cooperation and ask whether this makes trade agreements less likely to be "good for you". In a third part, I study intellectual property rights protection under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. The goal is to assess the efficiency and distributional implications of this key pillar of the WTO.
Besides this core research program, my team members are pursuing a number of closely related satellite projects. Most noteworthy in this regard is the work of one postdoctoral researcher who is currently leveraging new lobbying data from the United States to better understand lobbying on deep integration agreements.
Since the beginning of the project, I have made substantial progress on evaluating the most controversial aspects of modern trade agreements:
In a first project, joint with Alan Sykes from Stanford University and Robert Staiger from Dartmouth College, we consider Investor-State Dispute Settlement Systems and ask whether they give undue influence to private investors, as is often argued by critics of modern trade agreements. Our main finding is that investor-state dispute settlement can be justified under certain conditions but that the case for it is far from absolute. If the main point of the agreement is to allow host governments to assure foreign investors that their assets will not be expropriated, giving foreign investors standing in the dispute settlement process may make sense. But if the main point of the agreement is instead to secure foreign market access for domestic investors, a more traditional state-to-state dispute settlement would be preferred. This implies that there is some basis for the objections to Investor-State Dispute Settlement Systems, particularly in trade agreements between developed countries for which expropriation is typically less of a concern. These results are summarized in a research article that is currently under review.
In a second project, joint with Giovanni Maggi from Yale University, we turn to the issue of regulatory cooperation and ask whether this process is particularly vulnerable to corporate lobbying, as is often claimed by critics of modern trade agreements. Our main result is that regulatory cooperation can either amplify or dilute the influence of lobbies depending on whether the interests of lobbies are aligned or in conflict internationally. We first consider negotiations on product standards, such as emissions restrictions on automobiles. In this case, a lowering of the standards is in the interest of all lobbies because this then boosts everyone's sales. As a result, the negotiations induce co-lobbying and thus amplify the impact of lobbies, which then makes these negotiations less likely to be "good for you". We then consider negotiations on process standards, such as emissions restrictions on factories. In this case, the interests of lobbies are in conflict with each other because each lobby wants loose domestic standards to lower costs but strict foreign standards to weaken competition. As a result, the negotiations induce counter-lobbying and thus dilute the effect of lobbies, which then makes these negotiations more likely to be "good for you". These results are summarized in a research article, which is currently under revision for the American Economic Review.
In a third project, joint with David Hemous and Julian Schärer from the University of Zurich as well as Thomas Sampson from the London School of Economics, we study intellectual property rights protection, specifically the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). This is one of the most controversial agreements of the World Trade Organization (WTO) because it arguably gives excessive intellectual property rights to rich countries thereby preventing poor countries from getting access to vital technologies. A recent example is the controversy about the protection of the intellectual property related to Covid-19 vaccines, which is clearly in the interest of vaccine producers in rich countries (who invented the vaccine) but arguably not in the interest of vaccine consumers in developing countries (who need cheap access to the vaccine). So far, we have developed a new model of trade, growth, and patenting, which we can calibrate to the world economy. The next step is to use this model to evaluate the TRIPS agreement, asking how much innovation it stimulated and who benefitted and lost from it. We will present an early version at a conference this September but do not yet have a completed draft.
In a first project, joint with Alan Sykes from Stanford University and Robert Staiger from Dartmouth College, we consider Investor-State Dispute Settlement Systems and ask whether they give undue influence to private investors, as is often argued by critics of modern trade agreements. Our main finding is that investor-state dispute settlement can be justified under certain conditions but that the case for it is far from absolute. If the main point of the agreement is to allow host governments to assure foreign investors that their assets will not be expropriated, giving foreign investors standing in the dispute settlement process may make sense. But if the main point of the agreement is instead to secure foreign market access for domestic investors, a more traditional state-to-state dispute settlement would be preferred. This implies that there is some basis for the objections to Investor-State Dispute Settlement Systems, particularly in trade agreements between developed countries for which expropriation is typically less of a concern. These results are summarized in a research article that is currently under review.
In a second project, joint with Giovanni Maggi from Yale University, we turn to the issue of regulatory cooperation and ask whether this process is particularly vulnerable to corporate lobbying, as is often claimed by critics of modern trade agreements. Our main result is that regulatory cooperation can either amplify or dilute the influence of lobbies depending on whether the interests of lobbies are aligned or in conflict internationally. We first consider negotiations on product standards, such as emissions restrictions on automobiles. In this case, a lowering of the standards is in the interest of all lobbies because this then boosts everyone's sales. As a result, the negotiations induce co-lobbying and thus amplify the impact of lobbies, which then makes these negotiations less likely to be "good for you". We then consider negotiations on process standards, such as emissions restrictions on factories. In this case, the interests of lobbies are in conflict with each other because each lobby wants loose domestic standards to lower costs but strict foreign standards to weaken competition. As a result, the negotiations induce counter-lobbying and thus dilute the effect of lobbies, which then makes these negotiations more likely to be "good for you". These results are summarized in a research article, which is currently under revision for the American Economic Review.
In a third project, joint with David Hemous and Julian Schärer from the University of Zurich as well as Thomas Sampson from the London School of Economics, we study intellectual property rights protection, specifically the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). This is one of the most controversial agreements of the World Trade Organization (WTO) because it arguably gives excessive intellectual property rights to rich countries thereby preventing poor countries from getting access to vital technologies. A recent example is the controversy about the protection of the intellectual property related to Covid-19 vaccines, which is clearly in the interest of vaccine producers in rich countries (who invented the vaccine) but arguably not in the interest of vaccine consumers in developing countries (who need cheap access to the vaccine). So far, we have developed a new model of trade, growth, and patenting, which we can calibrate to the world economy. The next step is to use this model to evaluate the TRIPS agreement, asking how much innovation it stimulated and who benefitted and lost from it. We will present an early version at a conference this September but do not yet have a completed draft.
When launching this project, there was almost no work on deep integration agreements, so in some sense the entire project ventures into uncharted territory. Having said this, I am glad to report that we are now seeing a surge in the number of papers written on deep integration - a trend which I like to attribute at least in part to this ERC project.
Until the end of the project, I expect us to publish our key results on investor protection, regulatory cooperation, and intellectual property right protection. One of our papers is already "revise and resubmit" at the American Economic Review so I am confident that we will be able to publish at least some of our work at the highest possible level.
In addition, I also expect us to produce additional papers on satellite topics, particularly on the lobbying surrounding deep integration agreements. Concretely, I expect at least two additional empirical papers - one on the returns to lobbying for individual firms in the context of the Trans-Pacific Partnership and another one on the role of large firms in the lobbying process.
Until the end of the project, I expect us to publish our key results on investor protection, regulatory cooperation, and intellectual property right protection. One of our papers is already "revise and resubmit" at the American Economic Review so I am confident that we will be able to publish at least some of our work at the highest possible level.
In addition, I also expect us to produce additional papers on satellite topics, particularly on the lobbying surrounding deep integration agreements. Concretely, I expect at least two additional empirical papers - one on the returns to lobbying for individual firms in the context of the Trans-Pacific Partnership and another one on the role of large firms in the lobbying process.