Lords are Losing?

An atmosphere of uncertainty surrounds India's position on the Patents Act. Indian courts have ruled in favour of loosening the Patents Act. This has made available cheap drugs to the people. On the other hand, the Joint Statement issued by President Obama and Prime Minister Modi talks of establishing a "annual high-level Intellectual Property Working Group with appropriate decision-making... meetings." Observers are unanimous that this is a strategy by the US to foster a stronger Patents Act upon India. Just before Modi's US visit, the Indian Government killed a proposal to impose anti-dumping duties on solar panels imported from the US, Taiwan and China. This too is seen as an attempt by the Indian side to appease the US. The judiciary and the government appear to be pulling in opposite directions. It is necessary to put the problem in the overall context of the WTO so that the matter can be appreciated.

There are two main components of the WTO. First component is of free trade. Every member country is prohibited from imposing import taxes above a specified level. This provision is especially beneficial for the developing countries. Cost of production of goods produced in the developing countries is less due to low wages. These low-priced goods and services are being exported to the developed countries in large quantities. China's economic prowess is rooted in this low-cost manufacture. Industries and services in the developed countries are being wiped out leading to chronic unemployment, low tax realization and increasing fiscal deficits. US President Obama repeatedly mentions the need to tighten one's belts to face the challenge from India and China.

The global recession of 2008 was rooted in this free trade regime created under the auspices of the WTO. Cheap goods produced in the developing economies were able to enter the developed economies. Industries in the developed economies came to a grinding halt. The production of textiles and clothing, for example, has wholly been transferred to Asia. This led to fewer jobs being created in the United States. The salaries obtained by the US workers were less. They had borrowed heavily in expectation of continued employment and high wages. Collapse of the job market pulled the rug from under their feet. Their incomes dropped and they were not able to repay the housing loans. This ballooned first into a national banking crisis and later engulfed the global economy. The developed countries are slowly realizing the peril in which they have placed themselves. The tightening of rules for the grant of H1B visas and increase in the fees is one step taken by the United States to deal with this problem. Indirectly this is criticism of the WTO which has led to the transfer of these jobs abroad.

The second component of the WTO is that of patents. This is almost wholly in favour of the developed countries. At the time of signing of the WTO Treaty the developed countries thought that new inventions will continue to happen and they would continue to reap huge benefits by selling these patented goods at high prices to the developing countries. They thought that they will gain much more from income from patents than loss incurred by them due to the transfer of low-paying blue collar jobs to the developing countries. But the developed countries are not reaping the expected benefits because there is a hiatus in new inventions. No major invention has been made after the internet in the nineties. The 3G and 4G platforms too, for example, are not providing many benefits because developing countries are fast copying these inventions. Moreover, high-tech inventions like the supersonic passenger plane Concorde have failed. The shares of drug companies are on the downhill because they are not able to discover new molecules that would enable them make a new stream of patented medicines that they could sell at high prices. Indeed the United States continues to lead in the global market for inventions. But the depth of inventions appears to be less. Nevertheless the dominance of the developed countries in the world economy is rooted in these technological innovations. The situation is like the Zamindar who has lost his Zamindari. He yet continues to hold the dominant position in the village for many decades. Similarly the developed countries are dominating the global economy even though new inventions are not taking place as previously.
[contributed]

Frontier
Vol. 47, No. 18, Nov 9 - 15, 2014