Dr Bharat Jhunjhunwala
An atmosphere of uncertainty surrounds India’s position on the Patents Act. Our courts have ruled in favour of losing the Patents Act. This has made available cheap drugs to our people. On the other hand, the Joint Statement issued by President Obama and Prime Minister Modi talks of establishing a “annual high-level Intellectual Property Working Group with appropriate decision-making… meetings.” Observers are unanimous that this is a strategy by the US to foster a stronger Patents Act upon India. Just before Modi’s US visit, the Indian Government killed a proposal to impose anti-dumping duties on solar panels imported from the US, Taiwan and China. This too is seen as an attempt by the Indian side to appease the US. The judiciary and the government appear to be pulling in opposite directions. It is necessary to put the problem in the overall context of the WTO so that the matter can be appreciated.
There are two main components of the WTO. First component is of free trade. Every member country is prohibited from imposing import taxes above a specified level. This provision is especially beneficial for the developing countries. Cost of production of goods produced in the developing countries is less due to low wages. These low-priced goods and services are being exported to the developed countries in large quantities. China’s economic prowess is rooted in this low-cost manufacture. Industries and services in the developed countries are being wiped out leading to chronic unemployment, low tax realization and increasing fiscal deficits. US President Obama repeatedly mentions the need to tighten one’s belts to face the challenge from India and China.
The global recession of 2008 was rooted in this free trade regime created under the auspices of the WTO. Cheap goods produced in the developing economies were able to enter the developed economies. Industries in the developed economies came to a grinding halt. The production of textiles and clothing, for example, has wholly been transferred to Asia. This led to fewer jobs being created in the United States. The salaries obtained by the US workers were less. They had borrowed heavily in expectation of continued employment and high wages. Collapse of the job market pulled the rug from under their feet. Their incomes dropped and they were not able to repay the housing loans. This ballooned first into a national banking crisis and later engulfed the global economy. The developed countries are slowly realizing the peril in which they have placed themselves. The tightening of rules for the grant of H1B visas and increase in the fees is one step taken by the United States to deal with this problem. Indirectly this is criticism of the WTO which has led to the transfer of these jobs abroad.
The second component of the WTO is that of patents. This is almost wholly in favour of the developed countries. At the time of signing of the WTO Treaty the developed countries thought that new inventions will continue to happen and they would continue to reap huge benefits by selling these patented goods at high prices to the developing countries. They thought that they will gain much more from income from patents than loss incurred by them due to the transfer of low-paying blue collar jobs to the developing countries. But the developed countries are not reaping the expected benefits because there is a hiatus in new inventions. No major invention has been made after the internet in the nineties. The 3G and 4G platforms too, for example, are not providing many benefits because developing countries are fast copying these inventions. Moreover, high-tech inventions like the supersonic passenger plane Concorde have failed. The shares of drug companies are on the downhill because they are not able to discover new molecules that would enable them make a new stream of patented medicines that they could sell at high prices. Indeed the United States continues to lead in the global market for inventions. But the depth of inventions appears to be less. Nevertheless the dominance of the developed countries in the world economy is rooted in these technological innovations. They situation is like the Zamindar who has lost his Zamindari. He yet continues to hold the dominant position in the village for many decades. Similarly the developed countries are dominating the global economy even though new inventions are not taking place as previously.
We have to work out our long term and short term strategies in this background. The effort must be to protect free trade and dismantle the IPR regime. Remember that the IPR regime was not part of the General Agreement on Tariffs and Trade that governed the global trade arrangements before 1995. These were incorporated in the trade arrangements in the WTO Treaty that came into being in 1995. The IPR regime can be taken out of the WTO just as it was brought into the WTO. Global trade is not dependent on the IPR regime.
In the short term our effort must be to extract whatever benefits we can from the IPR regime; and reduce the losses. Our courts are providing much needed help here. Multinational drug company Novartis was selling Glivec-a drug for the cure of leukemia-at Rs 1,20,000 per month. Indian drug companies were selling the same for Rs 8,000 per month. Novartis had filed an application for grant of patent for Glivec so that the Indian companies could be prevented from selling their low cost drugs. The Supreme Court last year decided against Novartis. Only recently the Bombay High Court dismissed Bayer’s appeal against the grant of a compulsory license to Natco, a generic manufacturer, for its Indian patent on an anti-cancer drug called Nexavar. Bayer’s Nexavar reportedly costs about 280,000 rupees a month for 120 pills while Natco’s generic version costs less than 9,000 rupees for a month’s dose. Both Sitharaman’s resolve and the court judgments are a welcome succor for the people of India.
This is still only firefighting though. We are losing billions of rupees to the MNCs for payment of royalties and for import of costly patented goods that could be produced cheap within the country. The efforts of our courts to interpret the Patents Act in our favour will not solve this problem because the asymmetry between us and the developed countries is simply too glaring. All the effort put in playing a cricket match comes to naught if the umpire is biased. In such a situation it becomes necessary to replace the umpire. Similarly, we should seek the removal of the IPR regime from the WTO and delink it from trade. Modi must not succumb to the pressure from the US to dilute the Patents Act. We should use the Working Group formed as a result of this visit to seek removal of Patents Act from the WTO.
(The author was formerly Professor of Economics at IIM Bengaluru)
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