[A2k] Arvind Panagariya in the Business Standard: India must call the US' bluff on patents

Thiru Balasubramaniam thiru at keionline.org
Wed Mar 5 02:59:15 PST 2014


*Arvind Panagariya:* India must call the US' bluff on patents

*The recent US-India friction over trade is being driven by Big Pharma*
*Arvind Panagariya  *
*March 4, 2014* Last Updated at 21:50 IST

Apart from the deterioration of the business environment generally, which
impacts both domestic and foreign investors, retrospective taxation has
figured most prominently in the media as the principal cause of growing
scepticism among foreign investors. Entirely missing from the discourse has
been an equally potent factor with wholly foreign origins: the hijacking of
the economic policy dialogue between the United States and
India<http://www.business-standard.com/search?type=news&q=India> by
pharmaceutical lobbies in the
Big Pharma <http://www.business-standard.com/search?type=news&q=Pharma> has
convinced the US government that the country's interests are synonymous
with its own. With its own list of grievances against trade restrictions in
India, the National Association of
a lobby group of the United States manufacturers, has lent its support to
the pharmaceutical industry.

Big Pharma <http://www.business-standard.com/search?type=news&q=Big+Pharma> is
currently using its considerable clout to pressure the United States Trade
into designating India as a "priority foreign country" in its 2014Special
301 <http://www.business-standard.com/search?type=news&q=Special+301> Report
due on April 30, 2014. The designation is reserved for the worst offenders
of intellectual property rights and triggers trade sanctions. If the USTR
obliges, the immediate impact will be the withdrawal of tariff preferences
enjoyed by India on $4.5 billion worth of its exports to the US. It is
unlikely that in an election year, India will let such an act of hostility
go unreciprocated. In all likelihood, it will retaliate through
anti-dumping duties or outright increases in tariffs on
the US.

To understand what lies behind the discontent of Big Pharma, we must go
back to the Uruguay
of 1994, which gave birth to the World Trade Organisation
Pressed by its pharmaceutical lobbies, the US had demanded a uniform
20-year patent <http://www.business-standard.com/search?type=news&q=Patent> on
medicines and chemicals in all negotiating countries in the negotiations.
The patent was to result in a 20-year monopoly worldwide on the sales of
new drugs <http://www.business-standard.com/search?type=news&q=Drugs> by
the firms innovating them. Because these firms were nearly exclusively from
the rich world, most notably the US, the patent was to result in monopoly
profits for these countries in all countries including the developing ones.
Therefore, India had opposed the US' demand on behalf of the vast majority
of the developing countries.

In the event, the US prevailed and the Trade-Related Aspects of
Intellectual Property Rights
Agreement, which included the 20-year patent protection, was incorporated
into the Uruguay Round Agreement. But India's efforts on behalf of the
developing countries did not go to waste: India was successful in getting
certain flexibilities inserted into the TRIPS Agreement. Under one such
flexibility, a member country could issue a compulsory licence to a local
firm for the manufacture of a patented drug if the patent holder's pricing
or other actions resulted in the denial of access to the drug to most
patients. Under another provision, countries were given the option to deny
patent to a drug that involved incremental innovation over an existing drug
and provided no additional benefits.

Under the WTO agreement, India was required to bring its patent protection
regime into conformity with the TRIPS Agreement by January 1, 2005.
Accordingly, it adopted the Patents (Amendment) Act, 2005. It built the
flexibilities it had negotiated into the legislation.

In the last nine years, India has used these flexibilities twice. First, in
March 2012, it granted a compulsory licence to an Indian firm on an
anti-cancer drug because the patent holder, German multinational Bayer, had
priced out more than 95 per cent of the patients. Second, in April 2013,
India's Supreme
a 2006 decision by the Indian Patent
the Swiss multinational Novartis patent on a drug. The Indian Patent Office
and the Supreme Court argued that the patent would violate Section 3(d) of
the Patents (Amendment) Act, 2005, which disallows patents to drugs
representing incremental innovation and yielding no additional medical
benefit over an existing drug.

A solitary compulsory licence and a solitary denial of a patent in nine
years do not amount to much by themselves. But the reason they have worried
pharmaceutical companies is that these instances may encourage a large
number of other developing and even some developed countries to introduce
similar provisions in their laws. That could severely restrict the
companies' current ability to extend patents beyond 20 years through minor
tweaking of drugs as their 20-year patent expires.

Critics of the Indian patent law chastise it for flouting its international
obligations under the TRIPS Agreement. When confronted with these critics,
my response has been to advise them to urge the US to challenge India in
the WTO dispute settlement body and test whether they are indeed right. But
nine years have elapsed since the Indian law came into force; and, while
bitterly complaining about its flaws, the USTR has not dared challenge it
in the WTO. Nor would it do so now. Why?

There is, at best, a minuscule chance that the USTR will win the case.
Against this, it must weigh the near certainty of losing the case and the
cost associated with such a loss. Once the Indian law officially passes
muster with the WTO, the USTR and pharmaceutical lobbies will no longer be
able to maintain the fiction that India violates its WTO obligations. Even
more importantly, it will open the floodgates to the adoption of the
flexibility provisions of the Indian law by other countries. Activists may
begin to demand similar flexibilities even within the US laws.

But what about possible actions against India under the Special 301
provision of the US trade law? Ironically, this provision itself was ruled
inconsistent with the WTO rules in 1999 and the US is forbidden from taking
any action under it in violation of its WTO obligations. This would mean
that it couldn't link the elimination of tariff preferences on imports from
India to TRIPS violation by the latter. The withdrawal of preferences
would, therefore, constitute an unprovoked unilateral action, placing India
on firm footing for its retaliatory action.

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