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Yes to IPRs, No to their Inclusion into the WTO

Arvind Panagariya

            In a provocative column last week, Swaminathan Aiyar  (ET, January 19, 2000) took the view that the inclusion of intellectual property rights (IPRs) into the World Trade Organization (WTO) was a good idea after all.  He argued that IPRs have now become central to the evolution of world trade and as such belong into the Geneva-based institution.  The veteran columnist has such good instincts that only rarely can one disagree with him.  This is one of those occasions.

            At the outset, let me state that the opposition to the inclusion of IPRs into the WTO does not imply opposition to IPRs.  Though India opposed the Agreement on Trade-Related Intellectual Property Rights (TRIPs), which will eventually bring IPRs under the purview of the WTO, it has long had world-class legislation in copyrights.  This legislation meets or exceeds the standards required by the TRIPs Agreement and even protects computer programmes on a par with artistic and literary works.

            India has also had a patent regime though our standards in this area have been substantially weaker than those required by the TRIPs Agreement.  In particular, it allows the patenting of only processes (and not products) in pharmaceuticals, chemicals and food.  But this has been a deliberate choice to limit the monopoly power of the patent holder thereby making newly discovered medicines rapidly accessible to the poor.  It is not an accident that a sizable low-cost medicine industry has evolved around reverse engineering in India.

            It is tempting to argue that in the absence of the TRIPs Agreement, nationally chosen IPR regimes will hamper trade in an age when products are increasingly technology intensive.  Yet, there is little evidence to support this view.  All the existing division of labour between “brain intensive” and “material intensive” goods that Swaminathan Aiyar describes in his column and ascribes to the TRIPs Agreement has, in fact, taken place under the nationally chosen IPRs.  Even the recent, much-publicized innovation of a drug by the Indian pharmaceutical firm Ranbaxy, sold for $60 million to AG Bayer, has taken place under the nationally chosen IPRs.  For the implementation of the TRIPs Agreement did not begin until January 1, 2000.  And full implementation will not be achieved until January 1, 2005.

            The reason why innovations and trade have progressed smoothly even before the implementation of the TRIPs Agreement is that developed countries, where much of the demand for newly innovated products is concentrated, have had IPR regimes at par with the TRIPs Agreement for some time.  This protection has been sufficient to make innovations profitable even in countries where IPR protection is lax.

            Thus, there is nothing to prevent an Indian firm such as Ranbaxy from patenting the fruits of its innovation in developed countries.  The popular argument that Indian firms do not innovate because India has a weak patents regime is patently false.  What matters for the profitability of innovations is whether they enjoy sufficient protection in the markets where demand is concentrated.  These are mainly developed country markets.

            What the TRIPs Agreement accomplishes is to require all WTO members to adhere to the same IPR standards, which have been chosen to approximately equal those already achieved in developed countries.  Therefore, the effective burden of adjustment falls virtually entirely on developing countries.  Economists Michael Finger and Philip Schuler estimate that the cost of legislation required to implement the TRIPs Agreement alone will be a hefty $150 million per country.  For many poor African countries, this is a substantial burden with no commensurate benefits.

            But more importantly, under the TRIPs Agreement, all countries must provide both product and process protection to all innovations for 20 years.  Under TRIPs, it will be illegal to reverse engineer the patented drugs, making India’s low-cost medicine industry a thing of the past.  To take just one dramatic example, if a cure for AIDS is found, millions of patients in the poor countries will be unable to afford it.

            The principal objective of the WTO is to remove trade barriers.  But IPRs can hardly be construed as trade barriers and as such constitute what many of us call the “non-trade agenda”.  Countries choose IPR standards with a view to balance the rights of innovators against benefits from innovations in the light of the prevailing social and ethical norms rather than to acquire any “unfair” advantage in international trade.  Like other domestic policies such as excise tax, labour and land laws and investment rules, IPRs do have an effect on international trade.  But this hardly justifies equating lower IPRs to higher trade barriers.

            There is yet another factor distinguishing trade barriers from IPRs and other non-trade issues including labour and environmental standards that are now creeping into the WTO agenda.  The removal of trade barriers is an efficiency enhancing activity that benefits all parties including the one undertaking liberalization.  In contrast, non-trade agenda, as pursued so far, redistributes income from the developing to developed countries and may even lower the world efficiency.  For instance, by extending the monopoly right of innovators, the TRIPs Agreement is likely to lower efficiency.

            Worst of all, the TRIPs Agreement has become an effective instrument of promoting more non-trade agenda by labour and environmental groups.  They say the WTO must now do for workers and nature what it has already done for corporate interests.  The following excerpt from an article in the Washington Post by Elaine Bernard on behalf of labour groups offers a dramatic illustration:

“For example, the WTO says its purview does not include social issues¾only trade.  So it claims to be powerless to do anything about a repressive regime selling the products of sweatshops that use child labour.  Yet let the same regime use the same children to produce ‘pirated’ CDs or fake designer T-shirts, and the WTO can spring into action with a series of powerful levers to protect corporate ‘intellectual property rights’.”

Economic Times, January 26, 2000