Relevance of WTO

(91025)Shanky Jaiswal(91026)Karan Khanna(91027)Kuldeep Indeevar(91028)Laxmi Sravani(91029)Madhusudan Partani(91030)Manish Kumar Verma

Scope

TRIPS

RTA’s

MFN

Failed Negotiations

Indian Farmers

Other issues

IP Rights and the Pharmaceutical Industry.

• The argument for a stronger patent regime for pharmaceutical companies is often made on the basis of the heavy capital investment costs (for R&D) that goes into the creation of a new drug.

• “Most of the value of new medicines and other high technology products lies in the amount of invention, innovation, research, design and testing involved.” – WTO.

TRIPS (Trade Related Intellectual Property Rights)

• negotiated in the 1986-94 Uruguay Round under strong pressure from major industrialized countries.

• “aims to protect the IP rights of the creator.” - WTO

• “IP rights are the rights given to people over the creations of their minds.” –WTO.

• “Creators can be given the right to prevent others from using their inventions, designs or other creations — and to use that right to negotiate payment in return for others using them.” – WTO.

• Failure to meet a TRIPS standard could result in a reduction of the export quota of the non-complying country.

What’s wrong with TRIPS?

• The IP issue relates to the collection of royalties on patents and does not belong to the WTO in the first place.

• Big Pharmaceutical companies have muscled their way into the WTO and turned it into a royalty collection agency simply because the WTO has the authority to apply trade sanctions.

• The optimal patent period must reflect a balance of two forces: on one hand the protection provided by IPP provides an incentive to innovate; on the other hand, it slows down the diffusion of benefits to potential users. …The patent period under TRIPS is uniformly extended to 20 years – a period so long that few economists of repute can be found who would call it efficient in terms of balancing the two opposing forces.

Myths & Facts: 1

• Myth: Drug companies spend their maximum resources on research and development.

• Fact: In 2008, the pharma industry spent only 14% of its revenue on R&D.

Myths & Facts: 2

• Myth: The R&D spending is aimed at developing new drugs.

• Fact: In excess of 40 per cent of the industry's R&D is aimed at producing minor variations of existing drugs, not at turning out new ones.

• Two-thirds of the drugs approved from 1989 to 2000 were modified versions of existing drugs or even identical to those already on the market, rather than truly new medicines.

Myths & Facts: 3

• Myth: Pharma Companies are the major source of innovative research.

• Fact: Taxpayers and Academic institutions are by far the largest funding sources to research.

• Fact: Public researches often tackle the riskiest and most costly research, which is basic research, making it easier for industry to profit. The NIH report discovered that only 14% of the drug industry’s total R&D spending went to basic research, while 38% went to applied research & 48% was spent on product development.

• This begs the question: Who should really own the patent rights for a drug?

Myths & Facts: 4

• Myth: Pharmaceutical sales are not sufficient to cover R&D costs.

• Fact: With normal profit margins ranging from 11% to 25% in 2008 for eight top companies, the research based pharmaceutical sector is amongst the most profitable of all industries in spite of research spending.

• Since 1999, the rate of growth in research investment is slower than the growth in net income within the pharmaceutical industry.

Myths & Facts: 5

• Myth: High R&D layouts entitle the pharmaceutical industry to more IP-protection than other industries.

• Fact: The pharmaceutical industry enjoys the highest Return On Capital of any industry.

Myths & Facts: 5 (cont’d)

Myths & Facts: 6

• Myth: Generic Companies merely copy brand-name products using originator company data, with no R&D costs.

• Fact: Generic Companies invest 6%-8% of annual revenues into R&D and never see originator data.

Regional Trade Agreements

Regional Trade Agreements

• Characteristics of the FTA/RTA

– More than 200 RTAs till July 2008

• Recent RTA are different from the ones in the 60s and 70s

– Includes economies that had not entered into any FTAs before

• Reason:

– Stagnated multilateral liberalisation process like the WTO and

APEC

– Perceived tendencies toward regionalism in Europe and Americas

– The strong sense of need to help themselves within East Asia

RTAs Contd.

• Market integration within FTAs, causing the creation of

new and competitive business through the increased

productivity and price depreciation

• Attempts to include agreement on

– Tax and investment

– Trade facilitation measures

– Integration of financial markets

• “Ecotech” activities between developed and

developing countries

Potential Negative Effects of the FTA Proliferation

• Various local agreements will emerge depending on the

circumstances that each FTA faces

• If it is hard for a government to undertake structural

adjustment, forming an FTA is the only option available

• Content of every FTA differs from each other when

participants differ

WTO may well have lost its “uniqueness” in function as a vehicle for multilateral liberalisation but it still keeps its “superiority” over RTAs/FTA

FTAs to complete goal of WTO

• FTAs should become multilateral and non-

discriminatory if they are to become truly consistent

with the global MFN trade that the WTO ultimately

pursue

• Two ways in which WTO can become multilateral

and non-discriminatory

– From Outside

– By Themselves

USA and Trade Agreements

• Bilateral: Australia · Bahrain · Chile · Israel · Jordan · Morocco · Oman · Peru · Singapore

• Multilateral: Dominican Republic–Central America Free Trade Agreement (DR-CAFTA) · North American Free Trade Agreement (NAFTA)

2%

0% 0% 0%

20%

12%

1%

0%

2%

1%5%

4%2%2%

5%

42%

USA Exports-2008Australia Bahrain Morocco Peru Canada Mexico Israel Oman

Singapore India China United Kingdom France Hong Kong Japan Others

Source: USITC

FTA38%

Non-FTA62%

USA Exports

Source: USITC

USA and Morrocco

• “A free trade agreement bolsters Morocco’s courageous economic reforms, creates economic opportunities for both of our peoples and solidifies our strong relationship with a key partner.”

– Robert B. Zoellick, U.S. Trade Representative

• U.S. exports to Morocco $1518 million annually,

• Imports from Morocco contributed to 4% of Total, with $878 Million in 2008.

Source: http://www.moroccousafta.com

16%

13%

10%

9%9%6%

5%

4%

3%

3%

3%3%

2%2%

1%

1%

1%6%

Exports of Morocco to US

Mineral Fuel, Oil Etc

Aircraft,Spacecraft

Cereals

Fats And Oils

Machinery

Food Waste; Animal Feed

Dairy,Eggs,Honey,Etc

Plastic

Electrical Machinery

Iron And Steel

Misc Grain,Seed,Fruit

Vehicles, Not Railway

Special Other

Optic,Nt 8544;Med Instr

Misc. Chemical Products

Paper,Paperboard

Organic Chemicals

Others

Source: http://www.moroccousafta.com

World Growth Vs Exports

Source: Business Victoria

1995 to 2008

Most Favored Nation

Most Favored Nation (MFN)

• In WTO, MFN means non-discrimination

• Each member treats all the other members equally

as “most-favoured” trading partners

• Agreements under WTO grants all members MFN

status automatically

• Eg: if a country lowers trade barrier or opens up

market, it has to do so for the same goods or

services from all its trading partners

MFN: Advantages

• Promotes equality

• Save time and resources on negotiation and

monitoring

• Possible for nations to import form the most

efficient suppliers

• Countries tend to support the liberalized status quo

• Reduces the cost of determining point of origin

MFN: Problems & Criticism

• Agreements are first made in bilateral negotiations, which

usually lack transparency

• Continual awareness is needed to ensure MFN status is

not abused

• Issues are complex - rules try to establish what is fair or

unfair and how government can respond

• WTO agreements aim to support fair competition –

agreements on government procurement extends

competition rules to purchases

MFN & Developing Economies

• Generalized System of Preferences (GSP) -

developed countries grant preferential tariff rates to

developing country

• Enabling Clause (1979) - one-way tariff preferences

and certain other preferential arrangements

• In 2004, the WTO Appellate Body ruled a clause

that allows developed countries to offer different

treatment to developing countries

MFN & Developing Economies

• Generalized System of Preferences (GSP) -

developed countries grant preferential tariff rates to

developing country

• Enabling Clause (1979) - one-way tariff preferences

and certain other preferential arrangements

• In 2004, the WTO Appellate Body ruled a clause

that allows developed countries to offer different

treatment to developing countries

But what about tariff

barriers under

environmental issues, Child labor and Others

Singapore-India Economic Agreement

• The agreement provides:

– Investment liberalisation commitments

– Guarantees of 'national treatment' for investors and

investments alike

– Protection against direct and indirect expropriation

• It does not provide for:

– Fair and equitable treatment

– Full protection and security

– Provision for MFN treatment

Rounds of Negotiation

Round of Negotiations: Uruguay

• Agriculture

– Market access: Tariff only system

– Domestic Support: Green Box, Amber Box & Blue Box

– Export Subsidies: Reduction in subsidies

• Anti-Dumping

– Provision to apply for anti-dumping activities

• Safeguards

– Safeguard actions to protect a specific domestic industry

Uruguay Round: North-South bargain

• Reasons for this outcome

– Developing countries lacked of experience in WTO

negotiations

– Intensified mercantilist attitude

– WTO put small countries in a matter of concern

Bargain: The developing countries would take on significant commitments in new areas such as intellectual property and services, where industrial country enterprises saw opportunities for expanding international sales

Reasons for acceptance of unbalanced outcome

• Tradition of casual analysis

– No tally attempted to calculate tariff concessions given versus

received at the round

• Information was not available

– No data was available for analysis

– Argentina had limited information on the service sector and the

one which was available was inaccurate

• WTO creation changed developing countries options

WTO Rounds

• Singapore Ministerial

– Conference from 9 to 13 December 1996

– Examined issues related to the work of WTO's first two

years of activity

– Established permanent working groups

• Transparency in government procurement

• Trade facilitation

• Trade and investment

• Trade and competition

WTO Rounds

• Geneva Ministerial

• Millennium Round

WTO Round

• Doha Ministerial

– November 9-13, 2001

– Negotiations in agriculture and services

– Agreement on TRIPS

– Doha Development Agenda (DDA)

– Three pillars of the agricultural negotiations

– Special and differential treatment for developing countries

– Cancun meeting

Doha Ministerial: Other Negotiations

• Cotton

– Cotton subsidies

– C4 countries proposal for elimination

• Trade-distorting domestic support

• Export subsidies

• Services

– Reforming current GATS rules and principles

– Each member country to liberalize its service sector

Other Negotiations Contd..

• NAMA

– Reduction in tariff and non-tariff barriers

– Tariff peaks

– Tariff escalation

• Rules

– Agreements on Antidumping (AD)

– Subsidies and Countervailing Measures (ASCM)

Doha: Importance & Difficulties

• World Bank report on full-liberalization

– Global gains from global trade $290 billion

– 30-70 to developing and developed countries

– Decline in poverty in economies which take advantage of

increased opportunities for agricultural exports

– Result of cut in farm subsidies in developed countries

– Preferential tariff

Doha Dreams: Still Distant

• Cancun, 2003: Meeting collapses

• Geneva, 2004: Agreement on broad principles

• Hong Kong, 2005: Very low expectations met

• Geneva, 2006: Doha Round “suspended”

• Potsdam, 2007: Meeting collapses

• Geneva, 2008: Nine-day meeting collapses

“Doha Lite”

The deal on the table in July would have:• reduced tariffs that high-income countries impose on

agricultural products from an average of about 15% to about 11%

• reduced tariffs that developing countries impose on agricultural products from an average 13.4% to 13.3%

This deal was still just a portion of what a final agreement would constitute; negotiators had not yet dealt with other issues such as anti-dumping and services.

(source of figures: World Bank)

But: “Anti-protectionism insurance”

• For many countries, “bound” tariffs (legal ceilings) are much higher than “applied” tariffs (currently imposed levels).

• The deal that was on the table in July 2008 would have lowered bound tariffs fairly significantly – not enough to reduce applied tariffs much, but enough to help constrain protectionism.

• For example, developing countries’ bound tariffs on manufactured goods would have fallen from an average of 19.1% to 11.8%.

0

5

10

15

20

25

30

35

40

Brazil India Indonesia(Manufactured goods; bound tariffsIn light blue, applied in dark blue)

Indian Farmers

WTO & Indian Farmers

• Agriculture: Subsidies and Growth

• Most powerful instrument for accelerating

agricultural growth

• Seed-water-fertilizer revolution in 1970’s

• As the time passed subsidies resulted in huge

burden on the state and central government

Centre for Indian Development Studies,2006

WTO & Indian Farmers

Awareness to the Indian farmers about the policies of

the WTO and AOA

Response No. of Farmers Percentage

Yes 121 29.60

No 288 70.40

Total 409 100

Centre for Indian Development Studies,2006

Suicide of Indian farmers

Relation between suicide of Indian farmers and the WTO/AOA

Response No. of Farmers Percentage

Yes 128 31.3

No 137 33.5

Can’t say 144 35.2

Centre for Indian Development Studies,2006

Conclusion

• If WTO becomes a successful organization with zero tariff barriers, Free flow of trade, no discrimination, The volume would be of more priority than value. Thus Countries like India, which have more potential to grow the output in large volumes, have a very shining future.