Of virus, seeds, patents, competition

Published: Business Line, November 17, 2006

By Pradeep S Mehta

India is facing a series of public health disorders due to dengue, chikungunya and other diseases for which the doctors have only one answer: Virus. What virus and why, is a question that begs answers. One of the crucial issues resolved at the Doha meeting of the World Trade Organisation was about flexibility in the TRIPs (Trade Related Aspects of Intellectual Property Rights) Agreement. That is, the power of a government to order compulsory licensing when medicines are required to deal with public health problems.

Another contentious area of TRIPs is patenting of seeds, which relates to food security. But that has not been addressed as yet, because it is not sensational. But a related issue cropped up in the Indian courts in the recent past, when some State governments actioned Monsanto, the US biotech company, for charging what they call very high prices for patented seeds. The battle is not yet over. This raises the larger question of intellectual property rights and competition.

Monsanto owns 90 per cent of the GM seed patents in the world. To protect its rights, Monsanto has filed hundreds of suits against farmers in North America on a variety of violations. It has been awarded over $15 million, with one payment of $3.05 million against one farmer. This does not include the millions of dollars it collects from farmers for out-of-court settlements, when the farmers are faced with expensive litigation.

AP takes action

Faced with protests by farmers, the Andhra Pradesh Government made a reference to the MRTP Commission (MRTPC) alleging restrictive trade practices by six entities including Monsanto Mahyco Biotech Ltd (MMBL), the Indian subsidiary, and Monsanto Company, US.

It sought a temporary injunction under the MRTP Act 1969, which would restrain MMBL and five others from collecting Rs 1,250 per 450 gm for Bt cotton seed from the farmers (later reduced to Rs 900).

The State Government argued that the royalty fee fixed by MMBL was not proportionate to the actual cost incurred on the invention of the new technology and urged MMBL not to charge more than Rs 750 ($16) per 450 gm pack of genetically modified Bt Cotton seeds. Seven States (Maharashtra, Gujarat, Karnataka, Tamil Nadu, Punjab, Madhya Pradesh and West Bengal) joined cause with Andhra Pradesh.

The MRTPC report stated that an excessively high royalty fee was being charged by MMBL for its Bt gene, and in the interim order, asked MMBL to sell the seeds up to a maximum of Rs 750 on 450 gm pack.

Appeal in SC

Before the Supreme Court, MMBL contended that the MRTPC cannot fix prices of a product and has over-stepped its jurisdiction. Monsanto also pleaded that royalty fee is part of the price charged to farmers and is used both to support current production in the market and research that would deliver new products. It moved the Supreme Court to stay the MRTPC order. But this was declined, though the case has been admitted for arguments.

Can regulator fix price?

An interesting battle is on the cards. The main question is whether or not determination of price by the regulator is the best mechanism to ensure competition in the market (that is the key objective of the Indian Competition Act, 2002, which however is not yet in force).
Pricing in most countries is controlled either by price control orders (for instance, India's Drug Price Control Order) or laws.

For example, Canada has the Patented Medicine Price Review Board, which examines excessive pricing and persuades the relevant firms to lower their prices.

In the European Community, charging an excessive price is seen as an abuse of a dominant position, when its appeals court held that intellectual property rights are all right but not its abuse (Hoffman v. Centraform etc).

In the present situation, the most important action is to bring into force the Competition Act, 2002. Secondly, the law must cover abuses due to intellectual property rights explicitly.

This is important not only to check transgressions by firms but also to exploit the flexibility provided under the TRIPs Agreement.

(The author is Secretary-General of CUTS International, a research, advocacy and networking group and can be reached at psm@cuts.org)

This article can also be viewed at URL:
http://www.thehindubusinessline.com/2006/11/17/stories/2006111700420900.htm

Developing a closer Indo-Pak economic cooperation

Published:The Financial Express, Bangladesh, November 14, 2006

By Pradeep S Mehta and Huma Fakhar

A recent action by the Pakistan government to increase the positive list of tradeable products from 773 to 1075 under the South Asian Free Trade Agreement (SAFTA) could result in the doubling of formal trade from US$1.0bn to US$2.0bn. But, this exchange can quadruple if only there is closer economic cooperation, and that could lead to better peace.

Whenever one speaks about the peace-promoting economic relations between India and Pakistan, skeptics opine that relations between the two are marred by the border dispute and terrorism across borders. Hence, to expect more peaceful relations between the two fast growing economies through trade is a dream. We do not agree.

Once, one of us had written to the US government to promote mutual trade between the two countries by offering duty free imports if one used the others' inputs in their exportables to the US. The idea was received positively.

Until recently, we did not know that to promote peace in the Middle East, the US had adopted a similar scheme. In 1996, the US Congress authorized designation of qualifying industrial zones (QIZs) between Israel and Jordan (1999) and Israel and Egypt (2004). The QIZs allow Jordan and Egypt to export products to the United States duty-free if the products contain a minimum level of inputs from Israel. The purpose of this trade initiative has been to support the prosperity and stability in the region by encouraging economic cooperation. It has worked well.

Since both India and Pakistan are currently preparing to or entering into various preferential trade agreements (PTAs, bilateral as well as regional) with other countries and regions (both with developed and developing countries), it would be sensible to include QIZs type of arrangement in some of the agreements particularly with the European Union (EU), US and China and even within South Asian Trade Agreement (SAFTA) and the proposed Association of South Asian Nations (ASEAN)-India Free Trade Accord (FTA). Such arrangement would help both Indian and Pakistanis exporters/importers to reap benefits of free trade as well as promote greater cooperation.

Among other ways to promote economic cooperation is to look at cross-border infrastructure projects across the globe, which have been able to release limitations on free economic relations and therefore open prospects for economic benefits from cooperation. Regional cooperation projects have a potential for the improvement of the well-being of all parties involved because of the scale economies they permit, the complementarities between the economies, and the externalities they induce (multiplier effects, attraction of foreign investment, diminution of gaps, etc…).

The East-West Economic Corridor (EWEC), a 1500 Km. long highway project crossing six Greater Mekong Sub-region countries in South-East Asia connecting South China Sea to Indian Ocean and the Middle-East regional cooperation projects are some good examples. In the same vein, mega-economic projects like the Turkmenistan-Afghanistan-Pakistan and the Iran-Pakistan-India gas pipeline projects would help in promoting trust and regional economic cooperation between India and Pakistan.

History provides ample evidence that no neighboring countries have ever survived and progressed on prolonged belligerent relations. "History repeats itself" is the saying going around for time and again. The famous economist Wilfred Pareto (1889) wrote, "customs unions and other systems of closer commercial relations (could serve) as means to the improvement of political relations and the maintenance of peace".

The Southern African Development Community originated in the 1980's as a coalition opposed to apartheid in South Africa and has more recently turned to creating a free trade area. Some observers note that African customs unions and free trade areas are as active in areas such as conflict resolution as in trade liberalisation. Finally, many see relaxed tensions between India and Pakistan as the real payoff from the SAFTA agreement, regardless of what happens to trade barriers in the region (World Bank, Global Economic Prospects, 2005).

Many current studies also point out that regional trade agreements (RTAs) that expand trade flows appear to have a substantial dampening impact on conflict. Mansfield and Pevehouse (2000) attempt to identify empirically the role of RTAs in ameliorating conflict. They found that, on an average, the likelihood of the outbreak of a militarized interstate dispute declines by around 50 per cent if both belong to the same RTA. However, only RTAs that expand trade flows appear to have a substantial impact on conflict. In Africa, for example, RTAs that address the management of cross-border resource issues (such as water) are more effective in reducing military conflict than other RTAs.

Though both India and Pakistan are moving closer, it is at a snail's pace and constantly encountering hurdles. Some of the above measures could divert attention from sticky matters and accelerate the speed of greater economic cooperation between the two nations through reduction (if not elimination) in tensions and mistrust and bringing in peace and tranquility in this region.

Pradeep Mehta is Secretary General of CUTS International, a research, advocacy and networking group  in Jaipur, India and Huma Fakhar is partner, Fakhar law International and Market access Promotion, Lahore, Pakistan.

URL:
http://www.financialexpress-bd.com/index3.asp?cnd=11/14/2006&section_id=5&newsid=43576&spcl=no