Defocusing, from health to trade

A review of 'The WTO and India's Pharmaceuticals Industry: Patent protection, TRIPS and developing countries' by Sudip Chaudhuri.

In writing about the effects of the World Trade Organisation on the Indian pharmaceutical industry, Sudip Chaudhuri provides an incisive account of the 1994 international trade agreement known as TRIPS (Trade Related Aspects of Intellectual Property Rights). Through the course of this informative, well-researched work, Chaudhuri scrutinises how inefficient government is often what limits the public benefit of TRIPS – indeed, as much as patent protection itself. In the end, such analysis makes this work necessary reading for Southasian supporters and critics of the WTO alike.

Such arguments are particularly important in the current Indian context, amidst assertions of the government's commitment to rebuilding the country's skeletal health system. Other Southasian readers will find interest here as well, for The WTO and India's Pharmaceuticals Industry is a warning about how the jeopardy that India's low-cost drug industry faces will threaten the health care industries of Sri Lanka, Nepal, Bangladesh and others.

Chaudhuri's cardinal conclusion is that the patent protection demanded by TRIPS is not necessary for the stimulation of the international pharmaceutical industry. Furthermore, application of such commitments in the developing world puts public health at risk without serious economic benefit in other quarters.

The author analyses the strong foundations of the Indian drug industry as it stood at the end of the 1980s, just before the 1994 passage of TRIPS by 125 countries. Chaudhuri links that strength with several factors: Indian public-sector interest in bulk drug production during the 1960s, a patents regime set up in 1970 that revised one leftover from 1911, and strong regulation of foreign-capital investments in the industry during the subsequent decade. These developments had fundamentally altered the prevailing situation, wherein India used to import life-saving drugs, and local production was of marginal importance to health care. While major multinational companies (MNCs) did have a presence in India, their job was to sell drugs designed elsewhere – at extremely high prices

At that time, the country's capacity to produce the chemical material that lay at the heart of innovative drug formulations was limited. Poor expertise and patent laws leftover from colonial times prevented the growth of sturdy production capacity in low-cost 'generic' drugs, those whose patents have expired. Even when new processes for drug manufacture were pioneered in India, judgments on patent issues favoured the company working with the patent. Attempts to forge a new approach to the patent regime were delayed by the lobbying of multinational companies such as Pfizer

The Patent Act of 1970 subsequently removed the need for Indian producers to abide by international patents. Thereafter, foreign companies operating in India had to establish production capacity in the country itself. Under these laws, by the 1980s additional research and reverse engineering (re-inventing a product that has already been developed elsewhere) had led to a strong output of generics by both public-sector enterprises and private companies. Determined not to lose the Indian market, the MNCs began their own production, thereby contributing to local professional expertise.

Bowing to dollars

This state of affairs has begun to change, however, due to India's concessions to WTO demands regarding TRIPS. Countries did not need to accede to TRIPS mandates on all products until 2005. But in the case of the pharmaceutical industry, multinationals and others could file their claims for patent respect from as early as 1995, which could then be the foundation for exclusive marketing rights. In 1999, New Delhi passed an ordinance that enforced respect of international patents, which has subsequently been followed up by legislation that amends the 1970 act.

In this context, Chaudhuri is worried about both access to and the ultimate fate of new life-saving drugs in India. He argues that new drugs will become inaccessible, and that the situation gives multinational companies and their products a dangerous degree of pre-eminence in India, by diverting them from required research specific to the region. The author forecasts a process of subordination and networking that would suddenly draw Indian private capital into the workings of the multinational company. This could take place through the licensing of new molecules, outsourcing and the like. Not only would the sanctity of the patent prevent the creation of high-priced multinational-designed equivalents in India, but circumstances could deter Indian companies from such a challenge because of their own interests in the product, both at home and abroad. Such a situation partly explains the lack of serious foreign direct investment in the Indian pharmaceuticals industry, despite TRIPS-oriented legislation.

There are options available within WTO regimes, however, to vary and moderate property-rights protection to ensure prices lower than standard. Chaudhuri notes that these have been poorly utilised by both public and private entities in India. Among the permissible gambits are 'compulsory licensing', which, once the basic royalty has been paid, entails local production of a product under license regardless of a pending patent. This way, such an approach is not influenced by an MNC's mark-up after producing the drug elsewhere – although things do get much more difficult if the low-priced drug is then exported.

A growing number of exporters (especially small outfits) now have their eyes trained on unregulated markets in Africa, Latin America and Asia. After gaining footholds in those markets, however, the ultimate prize is the US. To all these exporters, compulsory licensing offers limited rewards, since its basic guaranteed access is to the domestic market. Chaudhuri points out that gaining access to the US market is ultimately a possibility for only a very few.

Meanwhile, the Indian government's compulsions on small producers to follow WHO 'good manufacturing practices' jeopardises the future of most of those producers. The way that the government applies such policy, together with its failure to use TRIPS allowances to set aside WTO requirements when drugs are essential, indicates poor strategy and public commitment.

But these developments in general, Chaudhuri implies, are only to be expected from the prevalent circumstances in India, where the history of the link between pharmaceutical companies, the state and the public shows general misuse of popular trust. According to one recent assessment, India is ranked below Chad and Bangladesh for health care to the populace. The poor government commitment to health services, coupled with the simultaneous outright manufacture of spurious drugs, indicates a fuzzy sense of priorities at home – as does the ups and downs in the history of price regulation before the 1990s.

Past follies should be the signpost to the future. According to Chaudhuri, and backed by significant additional research, thoughtless interaction with TRIPS will be disastrous for India and for developing countries in general. Awareness of this agreement's loopholes and pitfalls is absolutely necessary.

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