Cant buy American stories

Written by DG Shah | Updated: Feb 28 2014, 08:31am hrs
This is the story of a wolf and a lamb. In 2009, the US International Trade Commission (ITC) initiated investigation against China. The ITC estimated losses of $48.2 billion in sales, royalties, or licence fees due to IPR infringement in China. It also reported that an improvement in IPR protection in China to levels comparable to those in the United States could lead to an estimated $107 billion gain in US exports and sales to China and would likely increase employment in their US operations by 2% to 5%. This increase translates into approximately 923,000 new jobs for US IP intensive firms. A recent study by the ITC on the Theft of American Intellectual Property asserts that China is the worlds largest source of IP theft and accounts for between 50% and 80% of the problem. Notwithstanding these assertions and the US actions, the stellar inflow of FDI and economic growth continued in China. The wolf discovered that it wasnt a lamb. It was a wily fox!

In 2013, at the initiative of Pfizer, associations of pharmaceutical and biotech companies supported by a few other vocal companies from IT, telecom, solar panel, etc, orchestrated a campaign against Indias trade, investment and the industrial policies. Most of them were frustrated, like their Indian counterparts, with the poor infrastructure, lack of governance, unpredictability of the tax regime, inadequate government spending on the health care, price regulations and the judicial activism. They worked relentlessly to launch an investigation by the ITC against Indias unfriendly business environment. They focused on IP protection and enforcement in health care, information, communication and entertainment (HICE) sectors. They also roped in some other trade associations like National Association of Manufacturers, Alliance for Free Trade with India, Global Intellectual Property Center, etc. Some of them have already pronounced their guilty verdict for India even before the ITC hearing is over!

The stand-off is now not confined to Sec 3(d) of Patent Act or use of compulsory licensing to save lives of people. Others have joined the bandwagon: Some want waiver of local content requirements. Some others want modification in the government procurement rules. Some want to tweak the rules of business to take on competitive Chinese solar panels and superior technology Japanese panels. It is a different matter that 13 states of the US have similar provision or that the USFDA approved pharmaceutical companies from India cannot even participate in the US government procurement.

Since 2005, India has granted over 1,500 patents for products and compositions to the top nine global pharmaceutical companies alone. When Pfizer jointly with Swiss and German pharmaceutical companies talk of denial of patents, they are not talking of patents for medicines in general. They are complaining about the second or third patent for the same product. Typically, these follow-on patents are for new forms of the product and invariably prolong patent monopoly. However, such innovations when they enhance efficacy, are granted patents. There is a long list of granted patents.

As regards compulsory licensing, at least eight of the 12 Western European countries have provisions for grant of compulsory licences in the public interest. So do many Asian and Latin American countries. The Indian law is therefore neither unusual nor should be a cause of concern. So far only two applications for compulsory licences have been made since 2005. The first was for Bayers Nexavar, which has resulted in the grant of a compulsory licence. The second was for Bristol-Myers Squibbs Sprycel, which was rejected.

The US as a signatory to the TRIPs Agreement and Doha Declaration has acquiesced to this position. If the US pharmaceutical industry is not satisfied with the standards adopted by India, it should take it up with its own government, not subject India to its tirade.

There are some others also like the Boeing Company and the US-India Business Council (USIBC) representing wide and varied segments of the US business and industry. It is pertinent to take note of their submissions. Boeing in its submission to the ITC said:

n Indian IPR laws applicable to the range of Boeings business activities in India are comparable to IPR regulations in other developed countries, as India is a signatory to all major conventions and treaties on this subject. Additionally, in our experience, there have not been any major patent violations in India pertaining to Boeings defense/aerospace products. Boeing sells its products to the Government of India (GoI) and private airlines where our IPR is contractually protected; we see minimal risk of product IPR violations by the GoI and private airlines.

n On the R&D side, Boeing has established major research partnerships with several partners in India, including with academia such as IITs and IISc, government labs such as National Aerospace Laboratories and National Metallurgical Laboratories, and industry. Our experience has been that all Indian partners have consistently honoured these contractual agreements, including NDAs, Intellectual Property protection and other related conditions.

The USIBC which represents a cross section of the US economy made some very interesting observations. It said:

n There is now an unprecedented level of strategic cooperation between the US and India that is deepening the trade relationship, particularly in critical sectors of telecommunication, defense, space and energy.

n The positive spiral visible in trade and investment is mirrored in other spheres of endeavour, which are no less important merely because they cannot be measured adequately in dollarsfor example, in the number of Indians studying in the US.

These facts are ignored by the US pharmaceutical and biotech industries in their sweeping generalisation that the business environment in India is detrimental to US business and economic interests. The appreciation of what has been achieved and the potential for accelerating growth in trade and investment will get clouded if it is based on perceptions that are neither widely shared nor borne out by the facts. I therefore briefly present some relevant evidence that underscore the performance of the foreign pharmaceutical companies in India:

n Market audit by AWACS shows that sales of five US pharmaceutical companies grew by 79% in a four-year period (2009-13). They are Abbott Healthcare (57%), Abbott India (104%), Pfizer (105%), Merck (74%) and BMS (59%).

n Data for seven foreign companies (Abbott, Bayer, GSK, Merck, Novartis, Pfizer and Sanofi) shows rise in imports of finished products by 425% in a seven-year period (2005-12) from R1.9 billion to R8 billion.

n Dividend remittances of seven foreign companies listed above reported growth of 281% in a seven-year period (2005-12) from R6.5 billion to R18.5 billion.

It is, therefore, obvious that the business environment has not hindered growth of their sales or profits or repatriation of income.

It is not just the ITC investigation that is vitiating a vibrant and potentially beneficial trade relationship between the two countries. The USTR has invoked a US law which enables Special 301 investigation. The law stipulates that it can be invoked if one of the two conditionsthat the foreign country is not entering into good faith negotiations, or is not making significant progress in bilateral or multilateral negotiationsis not satisfied. This is not true for India.

After the 2010 meeting of the US-India Trade Forum, India twice suggested holding a meeting of the Trade Forum in 2011. Again, in 2013, before the visit of the Prime Minister to the US, India proposed Trade Forum meeting. But, the USTR was pre-occupied with the bilateral and plurilateral trade negotiations with other countries. Thus, none of the two conditions justify subjecting India to Special 301 investigation. Yet the USTR has done so, probably to downgrade Indias status to Foreign Country Watch List. This could well be a precursor to withdrawing GSP status followed by unilateral trade sanctions against India.

Time alone will tell if the wolf has mistaken a tiger for a lamb!

The author is CEO of Vision Consulting Group, a firm specialising in strategic planning