Developing countries in the world trade regime
Developing countries in the world trade regime

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Developing countries in the world trade regime

3.2.2 The protection of intellectual property: the costs of TRIPS

Apart from the internal redistribution of income resulting from greater exposure to the world economy, the effects of one of the UR agreements in particular have achieved a certain notoriety because the agreement clearly imposes huge costs on farmers and consumers in developing countries, to the benefit of corporations in developed countries. This is the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which strengthens international rules governing patents, trademarks, copyrights, the design of integrated circuits, and certain ‘geographical indications’ (such as ‘Scotch’ or ‘Champagne’), restricting the use of these names to products produced in those regions. These are all means of establishing intellectual property rights (IPRs), that is, legal ownership of intangibles such as a new invention, a brand name, a work of literature, or the lyrics to a song. Here I explain the costs of TRIPS by concentrating on patents, which protect new products and processes from being copied without the holder's permission.

Patents serve an essential purpose. The kind of research and development that goes into the making of a new drug, for example, costs millions of pounds, takes many years, and runs the risk of not yielding a commercially viable product after all the trouble. A patent gives the pharmaceutical company monopoly rights over its new invention, to produce it itself or license the formula to other firms in exchange for the payment of royalties, thereby enabling it to recoup the costs of developing it.

This of course comes at the expense of consumers and other firms who would gain from free access to the new product or process. But if access were free, most such products would not be developed in the first place: think of computer software or a cure for AIDS or music CDs. (The last category is actually protected by copyrights rather than patents, but the idea is the same.) However, a permanent monopoly would undeservedly enrich the innovator forever and retard the spread of a valuable technology. (Imagine what would have happened if the descendants of Watt and Newcomen had retained the right to their ancestors' idea of the steam engine, or if the Fleming family had the rights to penicillin and all antibiotics derived from it.) Patent laws have always struck a balance, giving the innovator a temporary monopoly, after which the idea can be freely used by anyone.

Before the TRIPS agreement, different countries used to protect innovations for anything between five and twenty years, often discriminating between different types of products, or between patents granted to products and to processes. TRIPS commits WTO members to harmonise their laws governing IPRs, tightening them up considerably. In particular, it extends the duration of the patent monopoly to twenty years, and covers products that many countries had earlier not considered patentable: in particular, new plant varieties. Drugs and seeds are in fact the two major bones of contention between the developed and developing countries, with most of the scientific development taking place in the former, and the greatest need for easy access in the latter, where there are great deficiencies in the provision of basic health facilities and nutrition. TRIPS raises prices by preventing copying by local producers, and consequently restricts access to such products to those who can afford them. It will inevitably involve a large transfer of incomes from farmers, patients and consumers in poor countries to patent holders in richer countries, as the World Bank explains:

IPRs are generally more beneficial to industrial countries than to developing countries. Developing countries are net importers of technology, while, in general, industrial countries are the producers of technology. Industrial countries therefore reap the static benefits of higher prices resulting from the market power provided by IPRs, at the expense of developing countries. It has been estimated that the United States stands to gain $5.7 billion in net transfers from TRIPS, while Germany, Sweden and Switzerland are also expected to receive substantial net inwards transfers. In contrast, developing countries are expected to experience net outward transfers, amounting to $430 million for India, $434 million for Korea, $481 million for Mexico, and $1.7 billion for Brazil.

(World Bank, 2002, p. 147)

Furthermore, strong patent protection limits the ability of developing countries to assimilate and adapt new technology to their own needs, processes that have historically been the basis of technological change across the world.

Another concern that has been raised in regard to TRIPS is that of ‘biopiracy’. This refers to the appropriation, by Western corporations, of biological materials found in plant and animal species native to developing countries, and the patenting of products derived from them. This, it is feared, will convert traditional forms of knowledge (such as herbal remedies) that have been widely used for centuries in developing countries into commercially exploitable IPRs which will bring profits to the patent holder, and not to the countries from where the knowledge was appropriated. Instead, producers and consumers in those countries would henceforth have to pay the patent holder for the privilege of using knowledge that was hitherto freely available.

The alternative is to fight costly legal battles in Western countries, as India has done to prevent the patenting of products based on extracts of neem (a tree native to India) and haldi (turmeric), whose medicinal properties have been known since ancient times. Fortunately, India could present evidence that these properties had been documented in classical texts, but for many such products there may be no documentation of their traditional use by indigenous peoples, and many developing countries may not be able to afford the legal and technical expertise required to contest the patent claim.

To be sure, the picture is not entirely gloomy. The TRIPS agreement permits countries to grant compulsory licences under certain conditions. These licences compel the patent holder to share its knowledge with other firms, allowing them to produce the patented product on payment of royalties. Brazil and South Africa have used the threat of compulsory licensing to induce pharmaceutical companies to supply drugs at lower prices, and at Doha it was explicitly conceded that governments would have the right to use this provision to protect public health by facilitating the manufacture of essential drugs.

Nor are all developing countries passive consumers of knowledge developed in the West: for example, India can also benefit from stricter IPR protection of the drugs developed by some of its pharmaceutical firms, its computer software, and its ‘Bollywood’ films. But on the whole, for most developing countries (including India, as the earlier quotation shows), TRIPS entails massive payments to IPR holders in developed countries. And, incidentally, the agreement on geographical indications so far protects only the nomenclature of wines and spirits, principally those of European origin. Place names in developing countries that add value to a product (such as Darjeeling tea) have not yet been granted protection, despite the efforts of countries like India.

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