The pharma giant Pfizer wants the US government to act more aggressively to defend the interests of the research-based pharmaceutical sector in India. Will it succeed?
The path from lobbying in Washington, D.C, to a change of policy in India is a long and uncertain one involving multiple steps. First, Pfizer needs to convince Congress that action against India is warranted. Second, Congress needs to get the United States Trade Representative (USTR) to apply pressures on the Indian government. And third, the pressures would need to be effective. In this post, I discuss the third link in the chain.
First, some background. On March 13, as part of hearings on U.S.-India Trade Relations, the Trade Subcommittee of the Committee on Ways and Means in the U.S. House of Representatives heard testimony from Roy Waldron, Senior Vice President and Chief Intellectual Property Counsel of Pfizer.
As Waldron was quoted in the Financial Times, “The issuance of unwarranted compulsory licensing, the unfair revocation of valid patents and the denial of patentability of inventions in India are critical areas of concern in our industry.”
The first step – convincing Congress to act against India – is probably simple. In fact, the entire day of hearings appears to have been arranged to obtain evidence to support the claim that India was engaging in “unfair” practices. However, even if the USTR were then motivated to apply pressures on India it is not at all clear that such measures would be effective.
India is unlikely to change policies just because the US government asks or instructs it to. Rather, the ability of the US to change’s India’s policies will be a function of the costs that its government can attach to India not doing so. After all, the patent policies that Pfizer is complaining about are not designed to hurt the Indian economy. These measures may be problematic for Pfizer and its peers but the Indian government appears to believe that these are good for India (or if not good for all of India that they benefit a set of actors that are powerful in the Indian political economy).
What instruments does the US government have to alter the cost-benefit calculus of the Indian government and thus elicit policy change? The most obvious instrument would be to file a complaint against India in the World Trade Organization (WTO), through the Dispute Settlement Mechanism (DSM), arguing that India is out of compliance with TRIPS. This strategy has worked previously: in 1998 the US used a successful DSM case to make India introduce a “mailbox” for receiving pharmaceutical patent applications even though it would begin to examine and grant drug patents only from 2005.
There is another option, one that received particular prominence in the Trade Subcommittee hearings: trade sanctions. The head of the Subcommittee emphasized that one tenth of India’s exports to the US market qualify for preferential treatment under the Generalized System of Preferences (GSP). As the GSP needs to be renewed in July, the implied threat is that India’s GSP privileges would be revoked should it persist with these policies that are perceived to discriminate against US-based firms.
It is important to emphasize that the US is not threatening to cut off Indian exporters’ access to the US market (to do so would itself be a violation of WTO rules), but rather threatening to cut off preferential market access; India firms that are now exporting goods to the US could continue to do so but face the same tariff as exporting firms from the rest of the world.
The logic here is that threat of reduced access to the US market will mobilize exporters to push the government to change policies. If successful, external pressures of this sort would isolate the current beneficiaries of India’s intellectual property policies, namely, the domestic pharmaceutical industry and effectively shift the distribution of power in Indian political economy.
The WTO-based approach is not likely to bear fruit this time. Each of the measures causing Pfizer such ire appears to be compatible with TRIPS: granting compulsory licenses on the grounds that they have been granted in India is permissible, revoking a patent in response to an opposition challenge is a normal course of affairs, and implementing a pre-emptive mechanism to deal with secondary patents in pharmaceuticals is acceptable too. Were this dispute to go the WTO, India would likely prevail this time.
What of the trade sanctions? In some countries, where most exports to the US enter under GSP treatment, such threats are exceptionally effective in eliciting policy change because they mobilize powerful actors.
In India however, it is unlikely that the US strategy will succeed for the simple reason that the GSP beneficiaries are too small to be significant. While the absolute size of India’s GSP exports to the US is large, it remains a relatively small share of India’s overall exports (roughly 3 percent). Most of India’s large and politically powerful export sector would be unaffected by the US pressures. Where the potentially affected party is fairly small, the threat of removing GSP privileges is not a particularly powerful one.
While the two approaches here – a case at the WTO and removal of trade preferences – hardly exhaust the limit of possibilities, the answer to the question posed in the title is that, Pfizer’s ire notwithstanding, it is unlikely that the US can force a policy change. Rather, if India’s drug patent policies change it will be due to changed interests of actors within the Indian political economy.
Dr Ken Shadlen is a political scientist in the Department of International Development at the London School of Economics (LSE). His main areas of research include the global and cross-national politics of intellectual property and the politics of trade and economic integration (including North-South trade agreements and the WTO). He has particular interests in issues related to the pharmaceutical industries, the production and supply of medicines, and health policies in developing countries.
Pic sourced from www2.lse.ac.uk
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This post has been corrected after publication. In the last paragraph, the words “trade sanctions” have been replaced by “trade preferences.” The author regrets the error.
3 thoughts on “Guest column on India & drug patents: Can the US force policy change?”
Paper tiger indeed! Another reason why the the Obama Administration won’t act on this is the worldwide condemnation it can expect from a slew of NGOs, activists, and other countries. India most certainly is counting on this hesitation and even daring the U.S. to make a move in the international court of public opinion.