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TRIPS Agreement and the WTO’s Crisis of Legitimacy

by Martin Khor

Penang 30 March 2001 - - When the Uruguay Round was launched, several developing countries resisted the entry of Intellectual Property Rights (IPRs) into the agenda. But under pressure from the US (and its S.301 threats) they yielded, resulting in the Agreement on Trade-Related Intellectual Property Rights (TRIPs) as a part of the WTO agreements. The industrialized countries (and the industries of the North that were the driving force behind TRIPS) succeeded in setting rules that are viewed by several economic experts of developing countries as having the potential to cause most damage to development prospects.

In the 6-year life of the WTO, there has been increasing evidence of many social and economic problems - some quite dramatic and serious - caused by TRIPs. This has increased public awareness that the WTO/TRIPs system is heavily tilted in favour of IPR holders and the big corporations of the industrialized world, and against public interest. All this has created a crisis of legitimacy for the WTO and TRIPS and, in a number of cases, aroused public outrage and street demonstrations. Among the problems are:

·        jacking up of prices of consumer products, including essential items such as medicines, by companies owning IPRs, with consumers in developed and developing countries losing out;

·        the high costs that developing countries have to pay by way of royalties for use of technology, or inability to get permission from the IPR holders, with producers in developing countries being severely constrained from upgrading their technology; and

·        the phenomenon of “biopiracy” - corporations, mainly of the North, patenting biological resources and the knowledge of their use, mostly originating in the South, and resulting in misappropriation of the knowledge of farmers and indigenous people (especially in the South), and on top of it, adversely affecting their ability to continue to use their resources and knowledge, and with consumers everywhere losing out.

In all cases, the IPR holders, mainly large corporations of the North, have been given special monopoly rights, preventing competition from others, and enabling them to obtain super and monopoly profits. This rentier income is at the expense of consumers and the fulfilment of human needs; other producers; researchers and scientists who in many cases are prevented or constrained from making use of patented materials; economic development, as well as the environment.

As the imbalances and problems generated by TRIPS become more obvious, there is mounting public demand for change. The range of demands include: more time, flexibility and freedom for developing countries to choose options in implementing the agreement; restraint by developed countries and their corporations from taking actions against developing countries; and a thorough review and revision of TRIPS to remove the problematic aspects and better operationalisation of positive aspects (such as provisions on technology transfer); as well as the removal of TRIPS altogether from the WTO.

IPRs are not “natural rights” but statutory privileges granted to reward inventions and provide an incentive. Any IPR system has to balance this privilege with public interest, including consumer welfare, the right of other producers to use technology, the right to development, and environmental protection.

TRIPS has resulted in a very significant shift in the balance - away from public interest towards the monopolistic privileges of IPR holders. As a legally-binding international framework enforceable at the WTO through threat of trade sanctions, TRIPS has created a “one-size-fits-all” system for all WTO members, at differing levels of development. While it is in the developing countries that the effects of many of the inappropriate provisions are most adversely and acutely felt, even in developed countries, consumers, the public and the scientific community in general also suffer adverse effects.

Consumers are becoming aware that prices of many IPR-protected products are jacked up, in some cases many times above the cost of production, since corporations owning a patent or copyright are enabled to prevent competition from others.

Before TRIPS, countries were able to set their own IPR policies, and many developing countries exempted essential consumer items, especially pharmaceutical drugs, food products and biological materials (including seeds and plant varieties) from patentability.

Now under TRIPS, exclusions are possibly only where the agreement explicitly provides for this. Drugs and food products are not; and some biological materials and processes appear to be included as items that must receive patents; and plant varieties are also to be protected.

Prices of some consumer products are fixed by companies owning IPRs far above the levels that would prevail had there been free competition. The most obvious and outrageous example is pharmaceutical drugs, as shown dramatically in the recently highlighted case of AIDs medicines.

A year’s supply of a combination of AIDS medicines costs 10,000 to 15,000 US dollars, while the price for a similar combination offered by an Indian generic drug producer is around $300. The margin of profit for the branded product covered by patent is thus astronomical. TRIPS requires that if a patent for a medicine has been registered in a developing country, other producers are not permitted to produce, import or sell the medicine (without the permission of the patent holder). Patients in developing countries will thus be unable to afford medicines that are patented, as the AIDS drugs example shows.

Developing countries are under pressure not to exercise their right, under TRIPS, to relax IPRs in certain circumstances. This kind of bullying has given TRIPS a bad name, and shown that the TNCs that own patents, and governments of some rich countries, are so adamant in placing the right to monopoly and super profits above the right of patients to health and life.

When public outrage over this was expressed in South Africa and other developing countries, and echoed in developed countries through reports and actions by groups such as Medicine Sans Frontier, Oxfam, RAFI and GRAIN, and through the media, one of the drug firms announced it would supply a combination of two AIDS drugs at USD600 to developing countries, a price level at which, it said, it would not make a profit.

There was thus an implicit admission that the profit margin for selling the drug at USD10,000 and above (in the US) is astronomical. The offer to reduce the price for developing countries is seen by some as an attempt to limit the public outrage, save the patent system from a possible basic challenge, and offset the need of developing countries to exercise their option of compulsory license.

In the case of another product, computer software, the prices are also usually far above the cost of production. If they have to purchase software products at the high market prices, most consumers in developing countries would be unable to afford them, and this would shut them out of an important part of the “knowledge society” and be a major contribution to the global “digital divide.”

TRIPS also has an adverse effect on development Historically, technology transfer played a key role in industrialisation, and a large part of transfer took place by firms imitating, copying and adapting via reverse-engineering technologies used by others. Producers in developing countries will now find it difficult if not impossible to take this path.

Domestic firms wishing to make use of the technology would have to obtain permission from the patent holder (which may or may not be forthcoming, even if the applicant intends to pay the commercial rate), and pay expensive royalties.  Many firms may not be able to afford the fees; and those that can would find that the high cost reduces their ability to be competitive. The TRIPS regime thus places high obstacles to the efforts of developing countries to upgrade technology levels, modernise and industrialise.

The one-size-fits-all or rather minimum-size-for-all approach of TRIPS is a great disservice to developing countries. Many of the present-day developed countries did not adopt IPR legislation, or strict IPR standards, when they were going through the stages of development that the developing countries of today are attempting to go through. If at a similar stage of development, the developed countries had had to adhere to the minimum TRIPS standards, they would have been unable to attain the levels of technology and industrialisation that they achieved. Yet the developing countries of today are asked to adhere to IPR standards that would effectively prevent them from taking the same technology path as the developed countries. It is hard to avoid the conclusion that TRIPS is thus a protectionist, rather than a trade liberalizing device, and aimed to prevent developing countries from becoming successful competitors.

As Carlos Correa has pointed out, under TRIPS, reverse engineering and other methods of imitative innovation that industrialised countries used extensively would be severely restricted, making technological catching-up more difficult than before.

A study by Jayashree Watal has brought out how Indian industry, attempting to comply with India’s implementation under the Montreal Protocol to phase out use of ozone-depleting CFCs, by using HFCs was cited a very high price by a TNC holding the patent, and was asked either to agree to give the TNC a majority share in a joint venture with the Indian firm; or agree to restrict its exports of HFC 134a produced in India. Both options were unacceptable to the Indian firm, and the quoted price was also far too high.

This example shows not only the difficulty for a developing country firm to modernise its technology, but also for a developing country to meet its commitments under a multilateral environment agreement, even when a local firm is willing to pay the market rate to obtain permission to use patented technology.

Although some MEAs have provisions for financial-assistance and technology-transfer, in practice developing countries are finding that developed countries are not fulfilling their obligations.

The TRIPS Agreement also facilitates “biopiracy”, whilst the promises of benefit sharing have not materialised. Before TRIPS, most countries had excluded patenting of lifeforms, biological resources and knowledge on their use.  However, Article 27.3b of TRIPS allows patent exclusion only for plants and animals (but not microorganisms) and exclusion for essentially biological processes for production of plants and animals (but not for non-biological and microbiological processes).

Thus it seems WTO Members have to provide patents for certain types of lifeforms and living processes; if this applies also to naturally occurring life forms and processes, then the basic premises of the patent system rests is undermined, with patents given for mere discoveries and not inventions. There is also no scientific basis for allowing exclusions for certain organisms and not for others.

Several scientists also argue that there is no scientific basis for the patenting of life forms even if they are genetically modified. The patent system is inappropriate for rewarding innovations in the field of biological sciences or in relation to biological materials and processes.

Article 27.3b of TRIPS requires Members to grant IPRs for plant varieties, either through patents or a sui generis system, but the provision is now up for review. The Africa group at the WTO has proposed that the review process “should clarify that plants and animals as well as microorganisms and all other living organisms and their parts cannot be patented, and that natural processes that produce plants, animals and other living organisms should also not be patentable.” They also seek clarification that in implementing their option on plant varieties protection, developing countries should be able to have a sui generis law that protects the knowledge and innovations of indigenous and local farming communities, and for continuation of traditional farming practices including the right to save, exchange and use seeds and sell their harvest.

Meanwhile TRIPS has opened the floodgate to the corporate patenting of life, and to biopiracy. According to a report in the Guardian, as of November 2000, patents are pending or have been granted on over 500,000 genes and partial gene sequences in living organisms - with 9,000 patents pending or granted involving 161,195 whole or partial human genes. Patents have also been given on genes or natural compounds from plants traditionally grown or evolved in developing countries (including rice, cocoa, cassava) and on genes in staple food crops originating in developing countries (including maize, potato, soybean, wheat).  And patents have also been granted on plants used for medicinal and other purposes (eg as an insecticide) by people in developing countries.

The thousands of cases of life patents and the increasing evidence of biopiracy has aroused indignation among a wide range of people and institutions, including governments of the South and their delegations at UN Convention on Biodiversity (CBD) and WTO; organisations of farmers and indigenous people worldwide, development NGOs in the South and North; the environment and human rights communities.

Disenchantment over TRIPS has also arisen because some of the claims made on its behalf, have not been borne out, whilst some promises of benefits have not been fulfilled.

TRIPS has many references and provisions about technology transfer - Article 7 on promoting innovation and transfer of technology, Article 66.2 on obligations of developed countries to provide incentives to their enterprises and institutions to promote technology transfer to LDCs. However, little or nothing has been done by developed countries on these. There has thus been an erosion of confidence in the sincerity or intentions of developed countries to fulfil their claims and obligations, and an erosion of confidence and image of the IPR system and of TRIPS.

The TRIPS system has tilted the balance between owners and users of technology and knowledge, much too far in favour of IPR holders. Their privileges and rights have been overly protected, while their obligations to society and welfare of the public remain under-fulfilled or unfulfilled.

There are also asymmetries between North and South in the balance of benefits and costs. The worldwide establishment of strict IPR standards, will result in benefits accruing overwhelmingly to the developed countries, and paid for by the developing countries.

It is time to redress these imbalances and asymmetries. There should be a proper review of TRIPS, and appropriate changes made to the agreement, and thereafter developing countries should be given longer transition periods..

Developing countries, in implementing TRIPS, must be allowed the flexibility to choose between different options, without undue and inappropriate influence asserted on them. The various options should be explained to developing countries, together with the advantages and disadvantages of each option.

There should be no pressures on developing countries, bilaterally or through regional arrangements or in the accession process to WTO, asking them to agree to IPR standards even higher than those in TRIPS.

There should also be no pressures on developing countries to give up the use of options available to them under TRIPS, such as those being put on South Africa, not to exercise the right to compulsory licensing or parallel imports.

The mandated review of Article 27.3b of TRIPS should resolve the artificial distinctions between certain organisms and biological processes which may be excluded from patentability, and others which may not. The review should provide that there can be no patenting of any living organisms and their parts or any living processes. This clarification can be done through an amendment to Article 27.3b, and changes in national legislation carried out in line with this amendment. The transition period for implementing Article 27.3b should be extended to five years after the review is completed.

Plant varieties should also be excluded from patentability, but countries could be allowed to devise a suitable system of reward or incentive for plant breeders, if they so desire.

As for medicines needed for serious and life-threatening ailments, countries should be allowed flexibility to exclude them from patentability. Indeed, countries should be able o exempt pharmaceutical drugs in general and the drug industrial sector from patent protection. This can be done through an amendment to TRIPS.

Countries should also be allowed to exempt Environmentally-sound technology from patentability.

The transfer of technology provisions and objectives of TRIPS should be made legally obligatory and operationalised. Developed countries and their enterprises should be obliged to put into effect the transfer and dissemination of technology to developing countries.

Finally, WTO Members should reconsider whether TRIPS belongs to the WTO. IPRs are not a trade issue, and in fact constitute a form of protection, constraining the international transfer of technology; institutionalising monopoly privileges, resulting in rentier incomes and restraining competition. It is an aberration that TRIPS is located in a trade organisation. The joint NGO statement of March 2000, “WTO: Shrink or Sink”, endorsed by a thousand NGOs worldwide, has called for removing TRIPS from the WTO.

More recently, in a letter to the Financial Times, free-trade economist Jagdish Bhagwati, has argued that intellectual property protection does not belong in the WTO, and declared support for the NGO statement “asking for the IP leg of the WTO to be sawn off.”

The review of TRIPS should therefore include on the agenda the question of its removal from the WTO so that the trade organisation can return to its mission of promoting balanced trade relations.

(The above is based on a presentation by Mr. Martin Khor, at a seminar on ‘What Future for the WTO TRIPS Agreement?”, organized by Oxfam international in  Brussels on 20 March 2001).-SUNS4867

About the writer: Martin Khor is Director of the Third World Network.

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