Fair Trade for All - Stiglitz and Charlton

I have two cases- one to challenge the anti globalization argument and another to debate the idea of “fairness” of an agreement.

Mumbai, India 2004 – The world converged at the World Social Forum (WSF) to re-iterate the need for social justice/equity and bash that one word “globalization”, used indiscriminately through the entire 6 day conference. Having read inside-out coverage of the event and been at the heart of the almost revolution like fervor, I was left confused, till an argument came through in Pg 36 in this book. There was a particularly fiery speech by an Indian author and activist, Arundati Roy that was published center-fold in the most popular Indian newspaper, where she says “Poor countries that are geo-politically of strategic value to the Empire/Hegemon (USA), or have a `market' of any size, or infrastructure that can be privatized, or, god forbid, natural resources of value — oil, gold, diamonds, cobalt, coal — must do as they're told, or become military targets.” This is the kind of argument where people link trade or market access to political motives, which is not necessarily true. The WTO will not make countries military targets if they do not comply, a much less violent form called the Dispute Settlement Board exists.

Activists talk about unfettered and rapid globalization- none, absolutely none, of the WTO globalization efforts force developing or LDC’s to implement immediately after deals are signed. There is an internal reform process/legislation that needs to be structured and followed by each country in a phased out manner with a deadline, before they are expected to completely comply with the regulations. The answer to the long drawn verbose arguments on globalization is that the activists are more concerned about government failure than about market failure. Their diagnosis of the cause lies not in globalization but in failure of governments. This comes back to the distribution effects of globalization argument, where governments are expected to do the redistribution process, and we know the fall outs of the winners vs losers are not measurable and losers are not adequately compensated. Such bottle necks can be eased out only through an internal reform process. An important Doha reform proposal by Stiglitz in this book is called the “Market Access Proposal” where WTO nations provide free access to countries smaller than them (by GDP or per capita GDP) and get free access to WTO members larger than them, this can adjust the returns and retaliations according to size of markets. The only problem is that the most developed countries have no incentive at all to move to this type of framework.

What is a fair agreement?

My college in India witnessed huge demonstrations and street plays against India Amending its Patent Act in Dec 2004 to comply with the TRIPS agreement. Before this amendment, India patented only manufacturing processes and not the chemical molecules themselves (product patents.) After Jan 2005, they would have to legalize product patents, this would eliminate generic drug manufacturing (Generic drugs use different processes to re-engineer the same drug.) This puts life saving drugs far from the reach of the poor economies and a whole lot of pharma manufacturers into panic. Yet the margins of profit for these life-saving drugs are not high enough for Pharma companies to push for reform unless governments do. They would rather fight entry into the US market to sell the generic version of Lipitor than to fight polio or malaria antibiotics entry into LDC’s. Cipla, an Indian drug manufacturing company, manufactured generic anti retroviral treatment for under $1 a day, but is phasing out production because the governments that need it most are not buying them as they are upholding patent rights of international pharmaceutical companies. It therefore is a lack of flexibility of the TRIPS that prevents countries from getting anti retroviral treatment. Is this fair?

Its costs an incredible amount of money for a developing country firm to challenge intellectual property in a case involving a pharma firm in a developed economy. (The high costs challenge Procedural fairness in the DSB)

The Indian Government’s domestic policies in the Union budget 07-08 for the pharmaceutical industry aren’t thorough enough and sometimes inadequate. The government offered a tax exemption for pharma R&D for 5 yrs upto 2012, but the pharma R&D processes is risky and lengthy requires atleast 12-15yrs of protection, the incentive ended up being inadequate. The government also introduced customs duty on life savings drugs– this means these pharma companies cannot offer lower prices in developing markets. The government also proposed a future move from customs duty to Value Added Tax (VAT) on some pharmaceutical products (A similar change in South Africa, yielded no change in pricing or government revenue). Governments therefore might not be giving the right incentives to the right industries and when they need it.

Questions:

1. Challenging the fairness in outcome arguments- “Do we care that the argument for accessible life saving drugs is morally right and saves lives or that we have committed to patent protection so must stick by it?” How can we bring about a flexibility of policies at the WTO? And ensure they cannot be misused.
2. In the MAP, the USA for example will have to give free market access in all sectors to all those countries which have a GDP lesser than America’s, but the upward corollary of this argument does not hold. What incentives can we possibly give to developed countries in the MAP to move towards it?