New Zealand term extension estimate clearly inaccurate says study

Opponents of the TPP such as Michael Geist have claimed that extending the term of copyright by 20 years if Canada joins the TPP could cost Canadians hundreds of millions of dollars. These claims, which are inconsistent with a Canadian study conducted for Industry Canada by Prof. Hollander, have been premised on a 2009 New Zealand estimate which suggested that the costs of a term extension to New Zealand could be (NZ) $55 million per year.

The New Zealand estimate has now been thoroughly reviewed by two prominent economists who concluded that the estimate “is clearly incorrect, and indeed seriously over-estimates costs”. In fact, they go further and conclude that when the gains associated with a term extension are included these “could easily counteract the fairly small losses that a correct estimate of the costs would find”.

The study, Economic Effect of Copyright Term Extension on the New Zealand Economy, was published by Prof. George Barker,  Australian National University, ANU College of Law, Centre for Law and Economics and Stan Liebowitz University of Texas at Dallas – School of Management – Department of Finance & Managerial Economics.

The Introduction and executive summary states the following:

This paper reviews an estimate of the economic effect on the New Zealand economy of copyright term extension which was recently released by the New Zealand Government but which was tabled as part of the Trans Pacific Partnership (TPP) negotiations on the IP Chapter. The estimate is that the average cost to New Zealand from the obligation under TPP to extend New Zealand’s copyright period from 50 to 70 years would average around $55 million per year. Our review of this estimate suggests it is clearly incorrect, and indeed seriously over-estimates costs…

There are a number of problems with this estimate by Ergas, which we shall review below in detail. As we shall see, the Ergas report:

i) Focused only on the well-known social costs of copyright while completely excluding the equally well-known social benefits from copyright, thus ensuring, given that New Zealand is a net importer of copyrighted goods, that term extension would be found to have a negative impact; and

ii) Made serious errors in its calculations of the costs of copyright, leading to an enormous overestimation of the costs of term extension by an order of magnitude over any reasonable estimate of costs.

The Government exacerbated Ergas’ misleadingly high costs by assuming, completely out of thin air, a cost of term extension for film and television that was not estimated by Ergas, and then compounded this unfounded claim by including in its cost estimate “range” a high value from the Ergas report that was contingent on a particular legal result that was known to have not occurred by the time the government came up with its range. Finally, when converting Ergas’ present value results into a yearly value, the government inappropriately used a discount rate inconsistent with that used by Ergas, a decision that increased the estimated costs from what they would have been had a consistent discount rate been used, as was appropriate.

The conclusion highlights further the problems with the New Zealand estimate.

The New Zealand government has commissioned and used a report from Concept Economics (“Ergas”) in order to gauge the economic impact of an extended copyright term. We have carefully examined that report as well as the Government’s use of that report. We have found numerous and extremely serious errors in the report that make it entirely unworthy for the basis of any policy recommendations. Its estimates of costs are wildly above any plausible values. The lack of detail found in the Ergas report prevents us from being able to precisely point to a single error, if there were but a single error in the Ergas analysis.

Our reanalysis, using mostly the same assumptions, provides an estimate of the harm that is one seventy seventh the size of that in the Ergas report. We also note that the report is entirely onesided in its approach, ignoring the potential gains from the proposed copyright legislation. These gains could easily counteract the fairly small losses that a correct estimate of the costs would find.

The government has taken these very misleading values from the Ergas report and compounded the errors by asserting, with no evidence, that the film and television market would incur the same overstated losses as Ergas found for the sound recording market. It also picked a different discount rate than Ergas had used when the present values of costs were converted into a constant yearly stream, and the new rate had the effect of raising the costs. If the government had been consistent and applied the same higher rate in its calculation of the original present values, that would have lowered the measured costs. This inconsistency in the government’s choice of discount rates is inexplicable.




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