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| Author: | Jagdish N. Bhagwati, Senior Fellow for International Economics |
|---|
September 17, 2002
Financial Times
The provision of medicines in poor countries has become the principal focus of dispute in the wider debate on intellectual property rights and whether they should be included in World Trade Organisation rules.
Thanks to the mighty political muscle of pharmaceuticals companies and their lobby groups, intellectual property protection has formed part of WTO rules since the Uruguay round, which concluded in 1995. Drugs companies, backed by the US government, managed to include IPP in the form of the trade-related intellectual property agreement. This not only allowed sanctions to be imposed on countries deemed to be using intellectual property without paying a royalty; it also established a 20-year patent to protect companies' knowledge.
There are two problems here. First, IPP is not a "trade" issue; the WTO ought to be about lowering trade barriers and tackling market access problems. The inclusion of IPP has turned the organisation into a royalty collection agency.
Second, and to the chagrin of the poor countries today, the inclusion of IPP in WTO rules has resulted in a proliferation of yet more lobby groups, such as labour unions, which have been spurred on by the success of the IPP lobby groups to push for their own agendas to be incorporated into WTO rules. It is hardly surprising that poor countries see the WTO increasingly as the target of western lobby groups determined to exploit the WTO to their own advantage, using the specious argument that their causes have to do with trade in some intrinsic way.
One of the original arguments drugs companies used in support of IPP was that the lack of protection in poor countries would handicap research and development. Yet this is deeply flawed, for the simple reason that while poor countries have plenty of need for drugs, they have no effective demand.
To understand why the drugs companies nonetheless see IPP in poor countries as a money-spinner, it is necessary to distinguish between two types of diseases: those that are primarily present in poor countries, such as malaria; and those that afflict all, such as Aids.
In the case of diseases such as malaria, it is clear that IPP cannot ensure any decent return for drugs companies because poor countries cannot pay. Instead, there are several ways of developing and producing the necessary drugs for poor countries, in particular through the use of public and quasi-public funds.
In the old days, there were institutions such as the Institute for Tropical Medicine in England. Today there are more sophisticated variations on the use of public funds. But however elaborate these become, one thing is clear: IPP has no useful role in the provision of drugs specific to poor countries.
All that changes in the case of developing drugs to fight diseases such as Aids, which affect rich and poor nations alike. Here, drugs companies make profits in rich countries' markets; IPP there is clearly something they value. But when it comes to supplying these drugs to poor countries, the companies face weak demand. In response, their strategy is to sell to poor countries, producing at low marginal cost and charging the little that these poor markets will bear.
In addition, pharmaceuticals companies try to increase their profits by selling their drugs to health programmes operating in poor countries. By tapping into the aid money these programmes receive, the companies in effect increase demand and their returns.
IPP in the poor countries would therefore seem of little value to the drugs companies. Yet it comes into play because the companies want to prevent the more advanced poor countries competing in these markets with generic copies. These copies are, in effect, the same drugs as those sold by the big pharmaceuticals companies. However, they are sold at lower prices, which places a cap on the amount drugs companies can raise their prices in poor countries. Through the application of IPP, drugs companies can therefore stop countries such as India and Brazil from exporting to countries such as Gabon.
Many pressure groups from the industrialised countries have criticised the drugs companies for the way they use IPP - and they are right to do so. But these groups also object to "parallel imports" - the segmentation of rich and poor countries' markets in order to prevent the importation of lower-priced drugs sold by the drugs companies to poor countries.
Yet to end segmentation would be a big mistake: without this mechanism the rich and poor countries would form a single market and the prices charged to poor countries would rise. Segmentation enables poor countries to secure low prices for their drugs.
There are often paradoxical ways to help the poor - segmentation is one of them. The lobby groups that try to defend the interests of the poorest countries should take note.
The writer is a professor at Columbia University and a senior fellow at the Council on Foreign Relations
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