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US-India Intellectual Property Rift - Arvind Subramanian and Kimberly Elliott
00:25:54
With the Office of the US Trade Representative (USTR) reported to be considering a downgrade of India, trade ties between the two countries are even rockier than usual. Worse, the decision could be announced soon after a newly elected Indian...
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- [00:17]
A
Welcome to the Global Prosperity wonkast. I'm Lawrence MacDonald. I'm delighted to have with me today Arvind Subramanian. He's a senior fellow here at the center for Global Development and at the Peterson Institute. Arvind, welcome to the show.
- [00:29]
B
Thanks, Lawrence.
- [00:29]
A
And Kimberly Elliot, who's also a senior fellow here at CGD and the author of a terrific book, Farm, Trade and the Poor, and an expert on trade sanctions. Kim, welcome to the show.
- [00:39]
C
Thank you, Lawrence.
- [00:41]
A
I invited you both on this show because I was curious about a piece that Arvind wrote. Initially, it was for submission to a US Trade panel, and then it was reproduced in the India's Business Standard that warned India US Trade ties hit a new low. A thorn in India, US Business ties. And in that piece, Arvind, you raised the specter that the US Trade representative, ustr, if I understand it correctly, might downgrade India, put it on status called priority foreign country for violation of intellectual property rights standards, and that this conceivably could happen just a couple of weeks after a new Indian government is due to take office so that the sanction could be announced as soon as May. Did I get all of that right?
- [01:34]
B
You did pretty much. I think that this action, or potential action by the United States follows on a series of trade spats and disputes between India and the US So broadly, India, US Economic relations have been deteriorating quite a bit in the last couple of years. And in some ways, this is kind of the. The culmination or potentially the last straw where if India were to be downgraded, it would be clubbed with Ukraine and Paraguay as the most egregious countries in terms of respecting intellectual property rights.
- [02:12]
A
I can't let Ukraine pass. It's in the news. Presumably. It's the new darling, right? It's everybody's favorite stepchild. So it's going to get off that list soon, I guess, right?
- [02:19]
B
Ukraine, yeah. No, Ukraine has been there well before this thing began. So I think that's just an accident that all this is happening. The announcement would come, potentially could come exactly two weeks before a new government and potentially a transformational government comes into power.
- [02:38]
A
Oh, I had it reversed. So the decision could come before the government, and that would be before the election.
- [02:43]
B
No, the election is done. No, the elections are not done. The elections are going to happen over one month, beginning April, early April 1st, second week of April, and the new government will take office, if everything goes well, May 16th. And USTR is due to announce it end of April, early May. So things are really bad relations. And so one of the things I said was that, you know, in terms of just economic diplomacy, it's a very odd thing to try and, you know, start a new relationship on this really sour, sour note. So quite apart from the merits of the case, which I think are not, are not on the side of the United States on this, it's just as economic diplomacy, it seems a terrible thing to do.
- [03:28]
A
I want to come to the merits, but Kim, first I want your view. Is this something where US Trade negotiators and diplomats might be so ham handed as to poke a stick in the eye of India just before new government takes office? Do you think that's a reasonable thing to be worried about? Should this be on the top list of top five things I worry about in US Indian relations?
- [03:50]
C
Well, I certainly applaud Arvind for being out there saying, you know, highlighting this and making sure that everyone is aware of the potential costs. At the same time, when you look at the history of the use of 301 and section 301 and special 301, this priority foreign country designation is pretty rarely used. And the USTR is pretty careful about when and how they used it. As Arvind said, Ukraine has been on the list in recent years, but it's the only country in recent years and it's very rarely used, in particular against other World Trade Organization members. And so the USTR is pretty careful. They are pretty politically attuned in using these tools.
- [04:32]
A
Are there domestic US Interests that would like to see that happen that are pushing USTR to make such a decision?
- [04:38]
B
Yes, I think, you know, I agree with what Kim said about, and I hope USTR is going to, you know, take all these things into account. But the worrying thing is that Big Pharma in the US is very active, very powerful. And what makes me less sanguine, or at least not as hopeful as Kim, is that vis a vis India, it's become like almost a symbolic thing because in some ways India is such a big country. And what India has been doing on intellectual property is potentially a model for other developing countries to emulate. And if that happens, the consequences for Big Pharma around the world go way beyond India. So this has in some ways kind of symbolic and general what India is doing has potentially wider repercussions, which I think US Big Pharma wants to head off. And that's why I think, I still think Kim is going to be right. I still think, you know, USTR will not put India in This, you know, amazing category, but the pressures domestically from Big Pharma because of the international ramifications of what India is doing is what makes me a little less sanguine.
- [05:53]
A
So I'm wondering if I'm a lobbyist for a pharmaceutical company or the pharmaceutical association. Maybe just the fact that people at CGD are worrying about this and presumably people in India are worrying about this is. I've kind of made my point, which is to say, you know, there are potential repercussions to behavior that we regard. We in this case, I'm imagining that I'm Big Pharma, you know, potential repercussions to behavior that we regard as unacceptable. And we want to make sure that you're aware that there was at least a risk. So there's an element of sort of having achieved their goal, the fact that we're worrying about it at all, presumably some people in India are worrying about it. They've kind of made their point.
- [06:32]
B
But I think here's what's tricky about this case and which I think we should move into the substance. I think in some ways Big Pharma is not trying to say, you know, the India is acting, you know, egregiously violating laws, rights, etc, etc. But I think it's the fact that what India is doing might be potentially consistent with international norms and therefore be legitimate is what increases the worry of Big Pharma, I think. I think.
- [07:02]
A
So there's a disagreement about what is considered acceptable behavior.
- [07:06]
B
Right.
- [07:06]
A
That brings us into substance. Kim, I'm going to ask you to maybe in simple terms unpack it. And I'm going to start out with what I imagine is in some of our listeners heads, which is this is because India produces generic versions of drugs that American firms regard as being unpatent. And then you'll correct me and tell me where I got that wrong?
- [07:27]
C
Well, no, that's certainly part of it. India has a large generic industry and so has used compulsory licensing in some cases. And Arvind knows more about those particular cases to lower the cost of drugs as well as to support its industry. But the priority foreign country, certainly Big Pharma is one important constituency. But there are other areas where India in terms of other technologies is also of concern.
- [08:01]
A
Movies, software, is that the kind of thing we're worried about?
- [08:03]
C
No, I think some of the energy technologies and just in general in industrial technologies. So there's a broader concern there. And the problem for Big Pharma that I think that Arvind was alluding to and What India and other developing countries fought very hard for back during the previous Uruguay Round of trade negotiations was that the international rules have a lot of flexibility for developing countries. And so that's, I think that goes to what Arvind was saying is that there's the US Government and US industry want to. What they really want is tougher rules. And that's what they're seeking through bilateral free trade agreements. But at the moment we're not negotiating with India. So that avenue to try and force India to a higher standard isn't there. So we're left with sticks rather than carrots.
- [08:55]
B
Arvind? Yeah, I think, Lawrence, you know, I think what has made India grab the limelight on this patent in pharmaceutical issues. There were two cases. One was a case in which the Indian Supreme Court actually upheld the decision of lower bodies not to grant a patent to a drug that's been granted a patent worldwide. So US Pharma screamed, oh, India is a deviant as an outlier. The second big case was for a cancer drug. The Indian lower bodies, the patent bodies, granted what's called a compulsory license, which is that, you know, Indian generic manufacturers can produce that patented drug provided they pay some nominal royalty to the firm.
- [09:43]
A
It's compulsory because if I'm the patent holder, I have no choice, I have to grant license.
- [09:47]
B
Exactly, yeah. The opposition is with voluntary licenses. You know, voluntary, if you negotiate with the company, negotiates someone, you get a much higher royalty. But here it's force to the hands of force. These were two high profile cases. And in both cases the Indians claim that they are completely acting, completely consistent with WTO rules. The TRIPS agreement, the trade related aspects of intellectual property rights which are negotiated in the early 90s, came into effect in 1994 or 1995. India claims it's acting consistently with those rules now.
- [10:25]
A
So do cases like that then go to the WTO to decide if they're consistent or not?
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B
Well, so one of the things that I've been saying is that if you think that India is not acting consistently or behaving deviantly, instead of taking these unilateral decisions that you're doing, why not take India to the wto? And for some reason the US is not willing to do that, partly because it fears that it might lose that case and therefore its legitimacy will be undermined.
- [10:53]
A
So it's taking, to simplify, taking what, in some, what you might regard as basically a legal dispute, a dispute about the interpretation of international trade rules. And since you think you might not win in the courts, then taking it into a political arena.
- [11:08]
B
So I think that, you know, for example, I think there are a couple of things about Indian law which I think are problematic vis a vis WTO rules. And so I think the US should test that. But I think the actual compulsory licensing that India has done or the patent that it's not granted, I think those cases, the US is less likely to win than not. And that worries a big pharma. You see, the other thing that I find what I was really upset about, the whole US attitude to this was in some ways in relation to intellectual property. India has done this amazingly, in a way that's amazingly rule of law consistent. You know, at every stage, you've had decisions clearly explained, subject to challenge, you know, going up to supreme courts and done very expeditiously. And the irony, I say, is that if we had such rule of law in the rest of the Indian economic system, India's per capita GDP would be five times as big. So for the sake of foreign patent holders, we're providing such amazing rule of law. And the US doesn't seem to acknowledge that. And so it's like, you know, you believe it's a country based on rule of law, but when someone else does rule of law, but it goes against what you say, you say, well, you know, this is not how rule of law should function. So there is a kind of little bit of a hypocrisy and contradiction in the American stance here.
- [12:30]
A
We're going to take a quick break. When we come back, I want to come back to the question of development. We've been talking about essentially a bilateral dispute. Where's the good outcome for poor people in the world, broadly within this dispute? This is the Global Prosperity Wonkast from the center for Global Development. We're discussing U S India business relations and in particular a simmering dispute over intellectual property rights. My guests are Kimberly Elliot and Arvind Subramanian. We'll be back in a moment. Welcome back to the Global Prosperity Wonk cast. I'm Lawrence McDonald. My guests today are Vin Subramanian and Kimberly Elliott. Here at the center for Global Development, we're talking about US India bilateral trade dispute about intellectual property rights. Kim. Setting aside the merits of the dispute, Arvind has made the case that India has done a pretty good job. You and Arvind have both explained that there are differences in interpretation here where US Pharmaceutical interests would like to see the rules applied much more stringently. And India feels that it's already within the boundaries of the rules. But I want to step back and ask where are the interests of poor people in terms of access to medicines both in India and more broadly in particular, I think many people are aware that the availability of generic AIDS drugs, HIV AIDS drugs for Africa from India was one of the things that helped to drive down the costs and made possible the US led PEPFAR effort to provide treatment in India. How do you view this dispute about intellectual property rights with in the broader framework of access to medicines and global health?
- [14:30]
C
Well, if I could broaden it out even a little bit further than that and just start with intellectual property in general and you know, what's a good set of global rules that recognizes the needs of developing countries? And I think the core problem with trying to negotiate global rules is that intellectual property is all about striking a balance. You want to incentivize innovation on the one hand, but then the societal benefits come from spreading those innovations as broadly as possible. And so even in the US there are some who would argue that we've kind of gotten that balance a little bit too, a little bit too much in the direction of protecting the innovators and against diffusion. So you want to strike a balance. And then that balance is struck differently in a rich country that has a lot of innovative, innovative activity than it is in a poor country that doesn't have much of its own innovative capacity to protect it's importing technology. And so in that context, for a developing country to have very strong intellectual property rules basically amounts to a rent transfer to the rich countries where the innovators are doing their business. So there's that broad problem of how to strike a balance. And then particularly as you mentioned, in the area of drugs and access, of course, you know, you need intellectual property for drugs because it costs a lot to develop a new and effective drug. But developing countries with small poor markets can't afford those prices. So there again you need a different set of rules for poor countries to ensure that global access.
- [16:10]
A
And I guess part of that is these smaller poor markets, they're not going to provide much of an incentive effect anyway. If I'm trying to decide whether or not to invest in a new drug, I'm going to make the decision based on my perspective earnings in the rich markets. And the other part is just like gravy. If I get it, I don't get it, it's not going to determine.
- [16:28]
B
But here, this is where I think the tricky part comes in, which is that I think what you've said is exactly right. However, Even since the TRIPS negotiations were done over the last 20 years, countries like Brazil, India and China have become very big markets. Right. So that balance between, you know, what you should do to incentivize and what you should do in order to provide cheaper drugs is different when you're small and when you're big. So I think the spirit of the TRIPS agreement is that even these poorer countries, as they become richer and because they're large, they would pay some of the fair share of contributing to the R and D that's in everyone's benefit.
- [17:17]
A
So I think they would pay it by charging their consumers that or they would support R and D in some other way.
- [17:23]
B
No, I think that the deal is that the way you make that fair contribution is through some form of differential pricing, what we call tiered or differential pricing, I. E. That it's accepted that prices will be higher in the richer markets and poorer in the poor markets. I mean, that even normal economics would lead you to that outcome. But in this case, I think, should some of these countries pay a little bit more than that because they're big? And because what you said earlier, Lawrence, if you're very small, what you do doesn't matter for the R and D decision, but if you're big, it does matter for the R and D decision. So now I think the crux of the problem really is what is a fair share for these countries like India and China and Brazil to contribute to this global R and D, and they themselves accept it. Because it's very interesting in these Supreme Court and court decisions that the within India, the Indian institutions that made the decision, they recognize that. They say, look, it's not about not paying for IP at all. It's about, you know, should the royalty be 4% or 6% or 7%? And consistently, the courts in India have been upping, you know, raising the levels of compensation that they're paying, even when they're, you know, using compulsory licenses. So I think that's, I think, the heart of the debate now. How much should it be and how should it be accomplished?
- [18:47]
A
Presumably, if these big emerging markets did start to pay relatively more, they could also attract attention to some things that we currently call neglected diseases. Right. I mean, your market gets big enough, suddenly it's in the interests of big pharma to start developing products for those markets. Are we approaching that point?
- [19:06]
B
I think that, you know, in this case, I think all the dispute is not about those rare, you know, diseases that are, you know, exclusive to, you know, tropical climates and so on. But I agree with you that if some of these small markets start to become big and have these specialized diseases, then in some case you could argue that these countries should actually raise the protection themselves because that would provide the incentives for more R and D. But the dispute now is not about those situations at all. It's much more about what are widely prevalent diseases all over the world.
- [19:45]
A
Kim, if you were advising USTR on this, what would you say?
- [19:53]
C
Well, I would say I would agree with Arvind that if, if there are areas where Indian law does seem to be in violation of the international agreement that they should, rather than going this unilateral route, they should take those to the WTO and try and get those upheld. I think it is a little bit tricky though because as Arvind said, I think there are other areas where probably PhRMA and USTR don't like are perfectly legitimate in the WTO. And the last thing they want to do is make that clear by bringing a WTO case that they lose. So that's a bit of a fine balance of whether you could, you know, do that.
- [20:35]
A
And I suppose ustr, US Trade Representative, they will bring things to the WTO at the request of industry. They're not going to bring a case to WTO that Big Pharma says we would rather you don't. Is that right?
- [20:47]
C
Right. And I think that the industry has generally not pressed. For example with China, you know, we've had huge intellectual property cases with China but few if any have gone to the wto. I think precisely for this reason that it's the rules are a bit fuzzy.
- [21:05]
A
So just to play that out a little bit, is it far fetched to imagine a conversation where the industry and the industry represented, say to the U.S. trade Representative, we'd like you to raise the level of India so it becomes a priority foreign country in terms of violations of ip. And USTR says you know what, we're not going to do it around this dispute but if you're really upset about this, we'll take it to wto. And then Farmers says thanks very much, let's not. Right. Is that sort of the state of the conversation?
- [21:35]
B
I guess that's what's actually happening. I suspect that's the kind of conversation that's happening. But in response to your question, my advice to USTR would be, look, don't even go towards, don't even get close to naming India as a priority foreign country. Let a new government come into power, start a new dialogue on, as Kim said, broader trade issues and broader economic issues because those need to be restored and repaired. And I think as part of that broader conversation, I think it might be fairly legitimate for the US to say, look, some aspects of your law are problematic. We'll take you to the wto and India might want these things to be taken to the WTO and lose some of these things as a way of kind of showing good faith and wanting to meet a US halfway or quarter way to resolving the broader gamut of.
- [22:26]
A
So don't let the pharma intellectual property disputes wag the US India dog.
- [22:32]
B
Exactly. That's exactly right. Because there are much bigger issues at stake. That's what I said in my testimony. You know, India is a growing market. You know, there's a bigger strategic elements there because you know, the US Needs friends all over the world, especially in Asia. So there is much more to the relationship than pharmaceuticals.
- [22:54]
A
Okay, so I'm going to flip it around now, Arvind, you may already be doing so, but let's imagine that you're advising the Indian Ukraine equivalent of the trade Representative's office. I'm not sure how those things are structured in India, but you're advising the Indian government on this. What's your advice?
- [23:10]
B
Well, my advice would be that when the new government comes into power, I think to, you know, start this conversation and be willing to meet even us apart from resolving the other disputes like you know, India has to, it's created a lot of uncertainty for foreign companies by way of very erratic taxation, put all these issues, make some effort towards resolving some of these things, eliminating the uncertainty. And on pharma and ipr, India I think should go some way toward meeting US demands like for example, some potentially problematic aspects of its law which as I argue India doesn't need. Actually India can very well meet its basic objectives of getting affordable access to drugs while respecting intellectual property. And it doesn't need to have these laws which are really red rags to a bull. So I think on those things India should be open to compromise.
- [24:07]
A
Kim, would you disagree with anything in Arvind's prescription or add to it if you were advising India on how to approach us on how to approach economic and trade ties with the United States?
- [24:19]
C
No, I think that Arvind's covered it very well. I think the only thing that I would say is I think, I think the, if I recall the law correctly, if USTR were to designate India as a priority foreign country, it would then trigger an investigation that could ultimately lead to a WTO case. And if it didn't, if the US tried to take any action outside of WTO then my recommendation then would be for India to take the US to the WTO for any unilateral action that that it might take.
- [24:51]
A
Terrific. I think we're going to leave it there. I want to thank you both. I learned a lot. If listeners stuck with us to the end, I'm sure they learned a lot, too. So thank you very much for joining me on the show.
- [24:59]
B
Thank you, Lawrence. Thanks, Kim.
- [25:00]
C
Thank you.
- [25:01]
A
This has been the global Prosperity wonkcast from the center for Global Development. My guests today are Arvind Subramanian and Kimberly Elliot. And we've been talking about U. S India trade ties and in particular a simmering dispute over intellectual property rights. You can find the wonk cast online on itunes and on stitcher. Just search for wonkcast or CGD and sign up to hear a new interview every week. Until next time, I'm Lawrence MacDonald. Thanks for listening.
- [25:47]
B
Sam.