India in the WTO

The United States has withdrawn the enhanced customs bond requirement for anti-dumping duties levied on imported shrimp. India had joined Thailand in challenging this requirement before the Dispute Settlement Body of the WTO. The Appellate Body report issued on 16 July 2008 had affirmed the panel finding that the enhanced bond requirement was inconsistent with Article 18.1 of the Anti-Dumping Agreement on account of its inconsistency with the Ad Note to Article VI:2 and 3 of the GATT 1994.

Reuters reports:

…

U.S. Customs and Border Protection notified the industry on Wednesday that it would end its "enhanced bonding requirement" for cheap shrimp imports that the WTO ruled against last year after complaints from Thailand and India.

…

In a federal notice published on Wednesday, U.S. Customs said it continues to explore options to address the issue.

"CBP is not abandoning its duty to protect revenue or its requirement of sufficient security," the agency said.

I tried looking for this notification on the US Customs and Border Protection Agency website, but couldn’t find it. 

This Economic Times story reflects Indian industry and policymakers sensitivity on the issue of any protectionist clamp-down on outsourcing. Though I think the Economic Times jumped the gun here a bit. Its too early to be talking about WTO contests especially since the whole story seems to be based upon this sentence in President Obama’s speech to Congress:

We will root out the waste, fraud, and abuse in our Medicare program that doesn’t make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas. 

The news report captioned “India may contest Obama’s move against outsourcing in WTO” seems to be based upon Minister Kamal Nath’s response on being asked whether India would respond to the suggestion in Obama’s speech. This is what Nath is reported to have answered:

We have to ensure what they (US) are doing is WTO compatible when we are talking about trade, movement of goods, movement of people and movement of services," Commerce and Industry Minister Kamal Nath said here.
"Yes, of course," he said when asked if India will take up the issue of outsourcing with the US administration.
…

Nath said, "One has to see how the US companies using India as a base for technological development respond to their own government." Outsourcing of technology development by large companies cannot be switched on and off, he added.

It should be interesting to see what shape the US measure on discouraging outsourcing takes. A PTI story has more:

Nearly 1,000 US firms, which have shipped their jobs overseas are anticipated to be affected with the proposed elimination of tax incentives. The plan mainly refers to one of the provisions in the tax code that allows companies to pay lesser taxes for profits earned from foreign shores.

Here’s another interesting aspect linking the outsourcing issue with H-1B visas. A Computerworld story discusses this:

The U.S. government’s H-1B visa usage data for fiscal 2008 shows that offshore outsourcing firms based in India are employing a growing number of H-1B workers — a hiring trend that is affecting the IT workforces in communities such as Oldsmar, Fla.

Oldsmar is the home of a technology center operated by The Nielsen Co., which measures TV audiences, consumer trends and other metrics for its clients. Nielsen last year began laying off workers at the facility after announcing in October 2007 a 10-year global outsourcing agreement valued at $1.2 billion with Tata Consultancy Services Ltd.

And while Nielsen cut employees, Mumbai, India-based Tata was increasing its hiring of H-1B workers. Tata received approval for a total of 1,539 H-1B visas during the federal fiscal year that ended last September, according to government data released this week. That was nearly double the 797 visas that the outsourcing and IT services vendor received in fiscal 2007

 

Kamal Nath has clarified that the six-month ban on chinese toy imports into India was for public health and safety reasons. Reuters reports:

India’s trade minister said on Friday the government’s decision to ban imports of Chinese toys was taken on the grounds of public safety and the move was compatible with World Trade Organisation rules.

Last month, India banned imports of several types of toys from China for six months "in the public interest" but without giving further details of why, a move that pleased local manufacturers but shocked importers.

"The question of banning Chinese toys was on the grounds of public health and safety," Trade Minister Kamal Nath told reporters after a conference.

"It is a matter which is of public concern rather than commercial, and public concern has to be given priority over commercial concern," he added.

On Wednesday, the China Daily newspaper reported that China may ask the WTO to investigate the six-month import ban, citing a source close to the matter.

The Chinese government will probably ask the global trade regulator to look into whether the move violates its laws, the state-owned paper said, quoting a source who asked not to be named.

"Of course, it is for China to establish this," Nath said.

"We are fully compliant with WTO … Before we take any action we make it sure it is WTO compatible," he added.

To scotch any potential challenge or complaint from China, it would probably be advisable for the DGFT to issue a fresh notification imposing the ban but this time stating these reasons clearly in the notification. This would overcome any objection to the present notification on the ground that the absence of reasons violates principles of natural justice. Further, stating the public health interest in the notification itself will help counter allegations that the prohibition was issued for protectionist reasons. A fresh notification would pre-empt any challenge of the ban by way of writ petition by an Indian importer before a High Court or the Supreme Court of India. (Though the Foreign Trade Development and Regulation Act provides for appellate and revisionary jurisdiction, these provisions won’t apply here.) 

For some background on Indian administrative law and Supreme Court rulings on the obligation to give reasons in support of administrative action when such action affects rights or liabilities see here. The statute under which the notification has been issued [the Foreign Trade (Development and Regulation) Act, 1992] can be found on the DGFT website here under the notifications link.

India made the following statement to the General Council of the WTO in its intervention on the seizure of Indian generics (bound for Brazil) by the Dutch authorities:

WTO General Council Meeting February 03, 2008

INTERVENTION by INDIA (under agenda item ‘Other Business’)

Mr Chairman,

In the last few months, Dutch customs authorities have seized several consignments of generic drugs of Indian companies on grounds of alleged IP violations. Seizure of the consignment of losartan potassium in December, 2008 was one such case of what is emerging as a clear pattern. Such instances cause us great concern due to their systemic and far reaching implications. In addition to going against the spirit of a rule based trading system and impeding free trade, such acts represent a distorted use of the international IP system and circumscribe TRIPS flexibilities. Repeat of such actions may have an impact on exporters’ choice of transit routes, which may affect the economics of trade of pharmaceutical products and consequently, have a deleterious effect on access to essential drugs and public health budgets of recipient countries.

Losartan Potassium, used in treatment of hypertension, is a perfectly IP legitimate generic drug in both India and Brazil. Trade of such a drug is also perfectly legitimate. The WTO rule based system provides for freedom of transit by the most economical and convenient routes and without unnecessary delays and restrictions. The act of seizure by the Dutch authorities is therefore, a denial of the rule based system which we seek to build and strengthen in the WTO. The concept of ‘territoriality’ is a key stone in the edifice of the TRIPS Agreement. There are no indications that the drug consignment was meant for the markets of the EC. Seizure, and initiating procedures for destruction of such consignments, violates this key principle. Members have always strived for a balance between public health concerns and protection and enforcement of IPRs. The decisions on Public Heath are a valuable part of the WTO acquis and need to be adhered to in letter and spirit. It is ironical that while on one hand WTO has taken steps to promote access to affordable medicines and remove obstacles to proper use of TRIPS flexibilities, on the other hand some Members seek to negate the same by seizing drug consignments in transit.

Mr. Chairman, the importance of generic drugs and their essentiality may vary in inverse proportion to the level of development of a country. Therefore, high importance is attached to generic drugs in developing countries and particularly in the LDCs. Barriers to legitimate trade of generic drugs will seriously impair the efforts of organizations like the Medecins Sans Frontieres (MSF), Clinton Foundation, Bill and Melinda Gates Foundation and a whole lot of other organizations engaged in providing medicines and improving public health in the least developed parts of the world.

I would also like to draw the attention of Members to another trend that is acquiring huge dimensions. This is the effort to implement the protection and enforcement of IPRs in a maximalist manner and thereby upset the delicate balance between rights of IPR holders and the public policy objectives under the TRIPS Agreement. A coordinated approach is being witnessed in several international fora like the World Customs Organisation, World Health Organisation, Universal Postal Organisation etc. to promote the IP maximalist agenda. We also note with dismay efforts by some Members to link safe and efficacious but low cost generics with counterfeit medicines, which is essentially an IPR issue. There is an attempt to enlarge the definition of counterfeits beyond its definition in the TRIPS Agreement, to set maximalist enforcement norms, and to include TRIPS plus provisions in RTAs. These are subtle and concerted ways of circumscribing the flexibilities of the TRIPS Agreement. They also run counter to the spirit of the TRIPS Agreement which is a minimum standards agreement. And, this is certainly counter to the understanding given to developing countries when the TRIPS Agreement was being negotiated.

Mr. Chairman, India attaches the highest importance to protection and enforcement of IPRs in accordance with the TRIPS Agreement. However, we do not see the Agreement as divorced from the Objectives and Principles set out in Art 7 and 8 of the Agreement. Efforts to enshrine new, maximalist TRIPS plus provisions in other forums will seriously undermine the delicate balance in the TRIPS Agreement and raise systemic issues.

I would like to conclude, Mr Chairman, by reverting to the issue of seizure of various drug consignments by the Dutch authorities. We have raised the issue here with the expectation that the EC will urgently review the relevant regulations and the actions of the national authorities based on such regulations, and bring them in conformity with the letter and spirit of the TRIPS Agreement and the rules-based WTO system.

For statements made by Brazil and the EU, see here.

See previous posts on this issue click here. 

Whats new?

The China Daily reports that the Chinese government is considering complaining to the WTO DSB against the recent Indian notification that banned imports of Chinese toys but omitted to specify the reasons for the ban.

The Chinese government is mulling a response to India’s recent ban on Chinese toy imports and will probably ask the World Trade Organization to investigate whether the ban violates WTO laws, said a person close to the issue on condition of anonymity.

This comes after a similar move in which China asked the WTO to investigate anti-subsidy and anti-dumping duties imposed by the US on four categories of imports from China in December.

Experts said it is a sign that China will be leveraging WTO rules to help protect its manufacturers from illegal trade barriers and punitive measures by its trading partners at a time when protectionism is growing amid the global economic recession.

…

"The ban cannot hold water. The Indian side is doomed to lose in the court if the Chinese government appealed to the WTO Dispute Settlement Body," said Fu Donghui, managing director of Allbright Law Firm Beijing, which deals with WTO-related cases.

…

"In the past, the Chinese government always kept silent. But the situation is changing, and resorting to the WTO is a right choice to prevent the trade partners from abusing the WTO regulations," said Fu.

The notification issued by the Directorate General of Foreign Trade should be here but is not. GATT article X calls for prompt publication of such notifications "in such a manner as to enable governments and traders to become acquainted with them" No doubt the notification has been published in the official gazette, but it is not on the DGFT website. How are traders to find the notification?

Correction dated 7 January 2008: The DGFT notification is on their website here.  For some reason did not find it before.

This report from a local mumbai news site has some more. Apparently, the notification mentions it is issued in public interest but gives no reasons as my earlier post had noted.

The notification "without reasons" clearly violates Indian administrative law as clarified by numerous Supreme Court decisions and could be challenged in an Indian Court by an importer or consumer of chinese toys. Further, even GATT article X:3(a) requires that WTO member governments administer their laws in a uniform, impartial and reasonable manner. The absence of reasons would seem to make out a case under this provision also.

There seems to be another problem with the notification. Apparently, and this is from news reports only, the notification bans direct imports from China but does not address imports of Chinese toys from third countries. This could also lay open the notification to legal challenge. The argument would be that the notification fails to achieve its objective of "safety" and the ban is being applied in a non-uniform manner.

Meanwhile, the Economic Times had reported earlier that the reason for the six month ban was to enable the government to formulate acceptable safety standards in this period. Why did the government not decide to issue emergency safety standards immediately? I suspect this was because many Indian toys would probably also have failed to comply. An Economic Times report noted that Indian toy manufacturers in the unorganized sector needed time to be able to comply with safety standards.

The background for this whole development seems to be a public interest litigation (PIL) that was filed before the Mumbai High Court by a consumer organization in 2007. The Maharashtra Pollution Control Board had apparently informed the Court in April 2008 that Chinese toys in India were found to contain unacceptable levels of toxins. See here. This PIL deals with both imported and Indian-made toys.

An outlook article has more on the lack of standards issue:

Following a report by Delhi-based NGO Toxics Link in 2006-07, highlighting the presence of toxic materials in a range of toys priced below Rs 150 ($3) found across the country, the Consumer Welfare Association of Mumbai filed the PIL. An added provocation was the government failure to check imports of ‘harmful’ toys. Says Rajiv Chavan, the advocate representing CWA, "There are two issues we have raised: the import of toys and the manufacturing of Indian toys." Indian toys meet around 50 per cent of the Rs 10,000-crore domestic market. According to Toxics Link, high levels of lead, cadmium and phthalates (a chemical used for softening plastics) can be found in most cheap toys—be they Indian or imported—bought by a majority of urban children. "How does the ban on Chinese toys protect consumers’ interest considering half the market is mostly cheap made-in-India toys with no control on quality," asks Ravi Agarwal of Toxics Link. "There is need for a mandatory standard to protect young consumers," he adds.

And spurred on by the judiciary, various ministries—consumer affairs, health, commerce, micro, small and medium enterprises (MSME)—have begun to study ways to enforce quality standards. The bad news: don’t expect safer toys in a hurry. Take, for instance, the norms put out by the Bureau of Indian Standards (BIS), which fall far short of global standards. While the European Commission had 11 safety standards for toys, India had only three—which deal with the mechanical and physical safety and flammability of toys. "The BIS calls these three standards equivalent to European standards…. But for other areas like organic, chemicals, paints and solvents used, we have nothing," complains A.M. Mascarenhas, secretary, Mumbai CWA.

Consumer affairs secretary Yashwant Bhave admits many issues are yet to be looked at. Though BIS has standards, "the issue is of making them compulsory", he says.The ministry is studying the legality of making the standards mandatory and whether it would require "mere notification or bringing in legislation", which would mean seeking Parliament approval. Pillai reveals there’s a proposal to make quality standards mandatory for certain products for young children. Simultaneously, the MSME ministry is studying ways to gradually introduce mandatory requirements to regulate toxicity of chemicals used in toys. "We have been told that in the first stage rules will be set for PVC and metal toys," says Ashok Jain, president, All India Toy Manufacturers Association. To support industry, more toy-testing labs will be set up (there are only four now).

Then, recently, the health ministry constituted a committee headed by Dr Y.K. Gupta of the AIIMS pharmacology department to study the veracity of the Toxics Link report. Says Dr R.S. Dhaliwal of ICMR and coordinator of the seven-member panel, "The health effects of metals are already known. What we are studying is the levels of toxicity in toys and its uptake or migration into the human body." While the domestic toy industry is ready to abide by better quality standards, this will take time: the court has been informed that the process to gauge levels of chemicals in toys can take up to two years.

Why can’t the government issue emergency safety and health standards under Article 2:10 of the agreement on technical barriers to trade?

There has been some discussion in the blogosphere on whether the Indian Supreme Court ruling from 1984 in Gramophone  Company of India Ltd v. Birendra Bahadur Pandey and Others, [(1984) 2 Supreme Court Cases 534] supports the Dutch seizure of Indian generics bound for Brazil.  See previous posts on this issue. The decision can be found here.

I do not agree with SpicyIP bloggers that this 1984 decision would help the Netherlands on the generics seizure issue. Before I set out my reasons, let me first quote the arguments made by SpicyIP that I disagree with. 

Shamnad Basheer of SpicyIP writes on the International Economic Law and Policy blog:

However, countries may define import more broadly. And this is exactly what the Indian courts did in the Gramophone Company of India case that Brian cites in his post (involving pirated casettes to Nepal). We discuss this case in an article dealing with the infamous Novartis case and whether the Indian court was correct in ducking the TRIPS issue claiming it had no jurisdiction to rule on this. If you’re interested, is is available on SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1329201

In the Gramophone case, the Supreme Court interpreted "import" to mean any inflow into India, whether or not it was meant for the Indian market. Sample this extract from the court:

"36. It was submitted by the learned Counsel for the respondents that where goods are brought into the country not for commerce, but for onward transmission to another country, there can, in law, be no importation.

It was said that the object of the Copyright Act was to prevent unauthorised reproduction of the work or the unauthorised exploitation of the reproduction of a work in India and this object would not be frustrated if infringing copies of a work were allowed transit across the country. If goods are brought in only to go out; there is no import, it was said.

It is difficult to agree with this submission thought it did find favour with the Division Bench of the Calcutta High Court, in the judgment under appeal. In the first place, the language of Section 53 does not justify reading the words ‘imported for commerce’ for the words ‘imported’. Nor is there any reason to assume that such was the object of the legislature."

Since the term "import" has not been defined by the TRIPS agreement, a panel is more likely to defer to the concerned member states’ definition (within reasonable bounds of course). I’m therefore not entirely sure that a panel would necessarily interpret import in the restricted way that you envisage. Therefore, at least on this count, my own view is that the EC may prevail in a TRIPS challenge by India or Brazil.

His co-blogger on SpicyIP Prashant Reddy writes that India has also seized goods in transit in the past for IP issues. He goes on:

“In fact the irony is that India itself has been impounding shipments destined for Nepal whenever those transit shipments infringe Indian intellectual property laws. In the 1984 Supreme Court case of Gramophone Company of India v. Birendra Bahadur Pandey Indian custom authorities had impounded a shipment of pirated cassettes that were being sent through India to Nepal by a Singapore based company. The case eventually reached the Supreme Court and in an excellent judgment by Justice Chinappa Reddy the Court held that the term ‘import’ used in the Copyright Act covered the activity of transit. In para 39 of the judgment the Supreme Court held that

39. We have, therefore, no hesitation in coming to the conclusion that the word ‘import’ in Sections 51 and 53 of the Copyright Act means ‘bringing into India from outside India’, that it is not limited to importation for commerce only but includes importation for transit across the country. Our interpretation, far from being inconsistent with any principle of International law, is entirely in accord with International Conventions and the Treaties between India and Nepal.

…

Given the fact that India itself has defined ‘import’ as covering even those goods which are under ‘transit’ it is rather hypocritical of India to expect the E.U. to follow a different set of rules.”

Why do I think this old decision does not help the Netherlands case?

Well, first the Gramophone decision itself states in para 27 that “import” can mean different things in different places and takes color from the context where it occurs and that the sense of the statute is important. The Supreme Court expressly relied upon international opinion that protects copyright (para 29)as established by both international copyright and transit trade conventions. The Court ruled (para 29) “If this much is borne in mind, it becomes clear that the word “import” … cannot bear the narrow interpretation sought to be placed upon it to limit it to import for commerce. It must be interpreted in a sense which will fit the Copyright Act into the setting of the international conventions.”

This is the context in which the Supreme Court ruled that import would include importation for transit in addition to importation for commerce. The gramophone case dealt with copyright violation on which international opinion was clearly against such violations.

The present case is of patent infringement or alleged counterfeiting of generics. The policy context as well as international opinion as manifested by international law and treaties is completely different here. I think the Supreme Court (if this issue were ever to come before it) would take the different context into account and rule differently.

Both the export of generics by India and their import by Brazil are legal and supported by the flexibility provided under the TRIPS agreement in balancing public health and IP rights.

Second, and I will not discuss this here, the Gramophone decision is not in my opinion well-reasoned at all. It is dated and on many issues might not stand the test of time. Most obviously, it cannot be applied without modification to the TRIPS era and to the new IP regulation in India.

Are there any later Indian Supreme Court decisions after 1984? Prashant writes that “India itself has been impounding shipments destined for Nepal” but then only cites this one case from 1984.

I also have a question: Was the Dutch action based upon alleged patent infringement or on alleged counterfeiting?

Update

I have had an interesting discussion on this issue with Shamnad Basheer of SpicyIP on the International Economic Law and Policy Blog. I had posted the above post as a comment in the thread running there. For sake of continuty, here is the conversation:

Shamnad Basheer said…

Dear Seema,

Thanks for your post. I think you must keep my post/analysis on this issue (on this blog) separate and distinct from Prashant’s analysis on SpicyIP. As you will appreciate, although we’re part of the same blog, we think independently as well.

My short point in pointing to the Gramophone case was this: the term "import" does not have just one meaning. It is not defined in TRIPS. How then is it to be interpreted?

Henning makes some really valid points about how it might be differentially interpreted even within TRIPS keeping the context in mind. And you may perhaps be right (as Henning also argues) that given the context of Article 51, imports cannot include "in transit" consignments that violate patent rights..

ps: The Dutch action had nothing to do with counterfeiting–but was based on patents (to be best of my knowledge)

Reply January 30, 2009 at 04:31 AM

Seema Sapra said…

Dear Shamnad,
Mea culpa! I was responding to both Prashant’s SpicyIP post as well as your initial comment in this thread.

But leaving aside my references to Prashant’s post, my comment on the substantive issue of the relevance of gramophone was also addressed to your initial comment in this thread, when you wrote that:
“However, countries may define import more broadly. And this is exactly what the Indian courts did in the Gramophone Company of India case that Brian cites in his post (involving pirated casettes to Nepal). … Since the term "import" has not been defined by the TRIPS agreement, a panel is more likely to defer to the concerned member states’ definition (within reasonable bounds of course). I’m therefore not entirely sure that a panel would necessarily interpret import in the restricted way that you envisage. Therefore, at least on this count, my own view is that the EC may prevail in a TRIPS challenge by India or Brazil.”

But I agree with you that reference to domestic interpretations would be relevant, and that policy contexts would also determine the meaning of import.

Apparently there is an ECJ decision Montex Holdings Ltd. v. Diesel SpA (Case C-281/05), where the court held that there could be no infringement by virtue of goods merely passing through a member state if the goods are not in free circulation there. I get this reference courtesy a comment posted on SpicyIP. For the link see http://www.jenkins.eu/mym-spring-2007/keep-on-trucking.asp

This brings some more information to mind that I found while googling. Don’t know what to make of this or whether this would influence the issue we are discussing. According to http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=1907716:
“Spanish Court Finds in Favor of Stada in Generic Losartan Case Against Merck, Sharp & Dohme 10/4/2007
A high-level Spanish tribunal (APB) in Barcelona has found in favor of the Stada against Merck, Sharp & Dohme, a part of US drugmaker Merck & Co., in a case that followed the commercialization of Stada’s copycat version of the angiotensin receptor blocker Cozaar/Hyzaar (losartan).” Losartan is the very same product seized by the Dutch.”

Thanks for clarifying about whether the Dutch action was for patent infringement or counterfeiting. I ask because the EC regulation allows action for both and a lot of the news reports talk about the relevance of the WHO’s discussions on how to define counterfeiting. Plus I think I read somewhere quotes from some Indian pharma guys as well as Commerce Secy Pillai which mention the issue of counterfeiting in the context of the Dutch action. Let me see if I can dig up one of these reports again.

Reply January 30, 2009 at 05:27 AM

Shamnad Basheer said…

Dear Seema,

No worries. I think I might have made a mistake as well in assuming that the prospect of a successful TRIPS action by India was really weak. I am now reconsidering my position and have just shot off my initial thoughts to Bryan and Henning on private email. Once I am clearer on this, I will run another post on SpicyIP and I will look forward to your insights and inputs.

Reply January 30, 2009 at 08:22 AM

Shamnad Basheer said…

you’re also right abotu the fact that the WHO anticounterfeiting issue has been conflated with this issue. And I warn against this conflation in my very first interview with Mint on this theme. And yes, some EU cases suggest that the "transhipment" part of the EU council regulations have been read down–which might mean that India could moot a challenge in the EU courts itself. I am still studying these cases.

The whole thread can be accessed here.

The Hindu Business Line reports that Indian authorities have launched their first anti-subsidy investigation against China.

Following a petition by Deepak Nitrite Ltd, which accounts for more than 50 per cent Indian production, the Designated Authority in the Directorate General of Anti-Dumping & Allied Duties has initiated the countervailing duty probe on imports of sodium nitrite from China. The petitioner has alleged that producers of sodium nitrite from China have benefited from a host of countervailable subsidies. They advanced evidence showing existence of certain schemes/programmes claiming that the same constitute countervailable subsidies to vindicate initiation of a probe.

The actionable Chinese subsidies alleged by the Indian petitioner include "China’s grant programmes, preferential lending, income tax programmes conferred by the Chinese authorities for foreign invested enterprises (FIEs), corporate income tax refund programme for reinvestment of FIE profits in export-oriented enterprises, preferential tax policies for R&D for FIEs, income tax credits on purchases of domestically produced equipment applicable to domestically owned companies, provision of electricity, natural gas, water utilities for less than adequate remuneration and provision of land for less than adequate remuneration."

The period under investiigation is from April 1, 2007 through to March 31, 2008, and China claims that many of its schemes and programmes had been revoked or modified in this period.

India already imposes anti-dumping duty on Chinese sodium nitrite and the news report states that a mid-term review of these has been carried out.

Xinhua reports that the Chinese government has expressed serious concerns over this investigation. It also protested an Indian special safeguards investrigation launched into sodium carbonate imported from China. 

I can’t find details online regarding this subsidy investigation by the Indian authorities, but India seems to have taken the unilateral option of an anti-subsidy investigation. I suspect the measures under challenge may overlap with those challenged by the US and others before the WTO dispute settlement mechanism in WT/DS387/1 as prohibited subsidies under Article 3 of the SCM agreement.  In this request for consultations made as recently as 7 January 2009, the US has listed as many as 107 Chinese measures and claimed that these constitute prohibited subsidies, violate China’s accession protocol, and appear to violate China’s national treatment oligations under GATT article III.  In an earlier request for consultations (WT/DS358/14) the US had made a similar complaint about Chinese subsidies which was mutually settled by an MoU between China and the United States in January 2008.

Well, this should be a long and difficult investigation by India. I suspect that the issue will eventually be mutually settled.

Well, the issue has heated up now …

The background

Dutch authorities seized Indian generic exports of blood pressure drug bound for Brazil. The Dutch action took place under EC regulation 1383/2003.

Indian commerce secretary has described it as an act of piracy by the EU and both India and Brazil are threatening complaints to the WTO. See previous posts.

The Business Standard has a good story that provides some additional background information.

This might seem like a singular attempt by the EU to show extreme zeal in protecting the rights of pharmaceutical patent holders in the EU. But it has to be viewed against the backdrop a of a host of moves initiated by the developed world to ramp up intellectual property (IP) protection, far in excess of what is required under the TRIPS regime of the World Trade Organization (WTO), under the guise of public health concerns. These initiatives to enforce ever higher standards of IP protection have roped in global organisations with completely different mandates, such as the World Health Organisation (WHO), the World Customs Organisation and Interpol among others.

Leading the charge is the EU which apart from Regulation on trans-shipments is also planning to amend another directive (2001/83/EC) that seeks to prevent the entry of “medicinal products which are falsified in relation to their identity, history or source” into the legal supply chain through a change in the definition of such products. Interestingly, the new definition is based on the proposal accepted at a 2007 meeting of the controversial WHO agency IMPACT or International Medical Products Anti-Counterfeiting Taskforce which critics claim is a cover for protecting IP rights of MNCs. The US and other Organisation for Economic Co-operation and Development (OECD) countries are not far behind in ratcheting up IP enforcement through a host of initiatives ranging from a secretive multilateral treaty called ACTA, or the Anti-Counterfeit Trade Agreement, to a purely regional arrangement like The Security and Prosperity Partnership of North America that brings together North American Free Trade Agreement (NAFTA) signatories (the US, Canada and Mexico). But more on these initiatives later.

A new battleground between big pharma and public health activists over generics is emerging. The Business Standard story goes on:

Big Pharma is very clearly setting the agenda for these changes, according to public health activists promoting access to medicines and domestic industry associations. This charge has been affirmed by trade analysts and academics who point out that recommendations made by Pharmaceutical Research and Manufacturers of America (PhRMA), the powerful lobby of the world’s biggest drug corporations, to the US Trade Representative on ACTA are identical to the ‘Principles and elements for national legislation’ endorsed by IMPACT. The latter is supported by the International Federation of Pharmaceutical Associations (IFPMA) and there are reports that suggest 8 per cent of the funding for the WHO agency is provided by industry.

Developments at the WHO on this issue are being reported by ICTSD:

In a particularly contentious exchange at the WHO meeting, the Brazilian ambassador criticised the seizure. She stated that the “Brazilian Government considers that the decision by the Dutch authorities to detain an input which is strategic to public health in a developing country, and exported in conformity with the existing international norms, represents a grave drawback in the treatment of the issue of the universal access to medicines

The Netherlands’ decision represented a “distorted use of the international intellectual property system, supposedly upheld by European Union legislation, and contrary to the spirit and provisions of the Doha Declaration on TRIPs and Public Health,” the ambassador added.

Brazil indicated that “other possible reactions will be taken into consideration according to how this problem evolves, including within the World Trade Organisation (WTO)”.

This ICTSD story has more. Here is the full story:

Intellectual property was one of the contentious issues debated at the recent World Health Organisation Executive Board (EB) meeting, which concluded on Tuesday after just over a week of talks. Discussions centered on the WHO report and draft resolution on counterfeit medicines and on the global strategy and plan of action on public health, innovation and intellectual property.

Controversy over Counterfeit Medicines

The recent seizure of a shipment of generic medicines, headed to Brazil, by the European Union (EU) customs officials energized debate on the issue of counterfeit medical products. Brazil expressed “great concern” over retention of the hypertension medicines by the Dutch Authorities and indicated that it was considering taking further action in response. (see related story, this issue).

This debate also sparked questions regarding the definition of the term ‘counterfeit’, especially as it relates to the WHO mandate. . Some developing countries, as well as an NGO pointed out that as it stands the term ‘counterfeit’ is associated with trademark violations as defined in the WTO’s Trade-related Aspects of Intellectual Property Agreement (TRIPS). The Swiss delegate suggested that perhaps given the mandate for WHO in the protection of public health, the term ‘counterfeit medical products’ is more appropriate.

At the same time, however, some members questioned why the WHO is focusing on the definition of ‘counterfeit’ rather than directly addressing health issues associated with spurious and substandard drugs. Furthermore, a source present at the meeting suggested that the delegates were apprehensive to use the term ‘counterfeit’ as it can be used to facilitate and expedite the IP enforcement agenda under the guise of working to combat the falsification of medical products and other such illegalities that are a risk to public health.

But the US delegation indicated that it was disturbed that the “WHO secretariat originally circulated a document with a draft resolution with language that significantly widened the scope of the ‘patent’ exclusion to an exclusion for “all intellectual property.” The original WHO report stated that “disputes about, or violations of, intellectual property rights are not to be confused with counterfeiting.” However the US representative added that “such a broad exclusion is technically incorrect” and asked the “secretariat to explain how such a mistake occurred, given the importance of this issue to member states.”

In response, Director General Dr. Margaret Chan apologised, stating that use of the term “intellectual property was unintentional.” The WHO consequently issued a correction to the definition, reverting to the term ‘patents’, as set out in the IMPACT version, instead of ‘intellectual property’.

Concerns about IMPACT

Some members, primarily developing countries, expressed some concerns over the role and working methods of the IMPACT, which was launched in 2006 following a WHO conference in Rome. Included in the mandate of IMPACT, as outlined in the Rome Declaration, is the task of raising awareness among national authorities and decision-makers about counterfeit medicines, and calling for effective legislative measures to combat the spread of the spurious drugs. The taskforce is also charged with promoting coordination among different anti-counterfeiting initiatives.

Members’ concerns focused on the fact that the chair of IMPACT’s working group on technology is also the Director General of the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), an association of multinational companies. Other members of the IMPACT board include the Organisation for Economic Cooperation and Development (OECD), INTERPOL, and the International Federa¬tion of Pharmaceutical Wholesal¬ers.

Developing countries and several NGOs were also uneasy about what appears to be an endorsement of IMPACT’s work by the WHO. The Secretariat’s report and draft resolution for the Executive Board meeting were propelled largely by the work of its partnership with IMPACT.

Such direct private-sector participation in a WHO initiative could raise serious issues of conflict of interest, some members say. One non-governmental source expressed concern that such endorsement could establish a significant precedent of private sector involvement in WHO activities.

Given these issues, many members were not keen to adopt the proposed resolution. Paraguay on behalf of the group of Latin American and Caribbean Countries (GRULAC) stated that its members were not ready to support the draft in its current form. This position was endorsed by other countries, including Barbados and Uruguay. Ultimately, members agreed that the WHO Secretariat should prepare further reports on the impact of counterfeit medicines on public health, as well as a new document, without resolution, on the way forward to the World Health Assembly in May of this year.

Public Health, Innovation and IP

While the issue of counterfeit medicines gave rise to extensive discussions, the agenda item on public health, innovation and intellectual property was dealt with more swiftly.

The WHO revealed the costing estimates for the implementation of the WHO strategy on global public health and intellection property, giving a detailed breakdown of the funding required from 2009 to 2015 to “carry out the activities associated with each specific actions at two levels: national and international.” The activities include building and improving innovative capacity, promoting the transfer of technology, and improving the application and management of IP. The total cost of the estimated needs (excluding research and development) exceeds US $2 billion; national-level activities constitute approximately 60 percent of this total figure.

On research and development the funding is expected to be as much US $147 billion. Those funds will cover R&D, the education of R&D workers, R&D infrastructure, and support units. Taken together, the implementation of the strategy and action plan is budgeted at US $149 billion, or US $20 billion per year.

These estimated funding needs were one of the outstanding components of the plan of action that the member states had requested the Director General to finalise during this meeting of the EB.

The Medecin Sans Frontieres’ Campaign for Access to Essential Medicines contended that “further work is needed” by the WHO Executive Board on this issue. James Arkinstall, an MSF spokesman called for specific actions on this front, and urged the EB to adopt qualitative indicators as part of Global Plan of Action. “It’s not just the number or the process that needs to be measured, it is the effect and the impact,” the spokesman said.

Barbados and Bolivia presented a proposal on ways to use the ‘prize fund model’ to encourage research with respect to diseases that disproportionately affect developing countries. Both countries requested confirmation from the Secretariat that the proposals would be examined by the expert working group the Director General had established. The Secretariat indicated that the proposals would be examined at the second meeting of the working group later this year. The WHO has also encouraged other member states to submit proposals on ways to encourage research into diseases that disproportionately affect developing countries.

Discussions on counterfeit medical products and the global strategy and plan of action are likely to receive significant attention at the next meeting of the World Health Assembly.

ICTSD reporting; “India may drag EU to WTO on Seizure of Drugs,” HINDUSTAN TIMES, 18 January 2009; “Brazil to object to Dutch Seizure of generic drug,” REUTERS, 23 January 2009; “WHO Puts nearly $150 Billion Proce Tag on Global R & D Strategy for Neglected Diseases,” IP-WATCH, 22 January 2009; “Hope for Consensus on WHO and Counterfeits Moves to May assembly,” IP-WATCH, 27 January 2009.

For some animated discussion in the blogosphere, see the exchange at the International Economic Law and Policy Blog.

In an earlier post I had written about the Indian government’s protest against the EU seizing certain Indian generic pharma exports in transit to third country importers.  Reuters is now reporting that the Brazilian government has issued a statement threatening a WTO complaint against the EU. A new battleground in the fight to the right to public health versus patent protection seems to be emerging here … will keep an eye on this.

Brazil said it would file a complaint at the World Trade Organization over the seizure by Dutch authorities of a shipment of a generic high blood pressure drug made in India.

Local foreign and health ministries said a company claiming to have intellectual property rights to the arterial hypertension drug losartan in the Netherlands requested customs authorities seize a shipment of a generic version of the drug in transit from India to Brazil, two countries where the patent is not protected.

The Brazilian government can withhold intellectual property rights for a drug if it considers it “in the public interest.” Its health-care system provides free drug treatment for certain conditions such as AIDS and high blood pressure.

“The Brazilian government feels that the decision by the Dutch authorities to detain the basic material critical for the public health of a developing country … a serious step backward on the question of universal access to drugs,” said the note released by the Brazilian ministries late Thursday.

The statement also said the government would take its complaint to the executive council of the World Trade Organization in Geneva.

High blood pressure is one of the leading causes of death among Brazilians.

The cargo of generic losartan that was seized in Rotterdam was sent back to India, where it was manufactured by Dr. Reddy’s, the ministries’ note said. The drug was being imported by Brazil’s EMS.

Losartan is the generic name for the drug Cozaar that was co-developed by Merck & Co and DuPont Co.

Brazil’s statement that it can withhold IP rights in public interest is interesting. Is there a compulsory licence issue here?

Doesn’t look very likely though…

I came across this report in the Economic Times recently, quoting Indian commerce secretary that India might ask for DSU consultations with the EU on what has elsewhere been described as acts of piracy committed by the EU.

The Economic Times report was not very illuminating as to what the issues were. A Mint story is more enlightening. Also see the post on this story by the blog Spicy IP.

Here is the Mint story in full:

Dr Reddy’s consignment of drugs to Brazil seized

This is the first time a shipment of a large Indian company has been held on charges of patent infringement

Radhieka Pandeya

New Delhi: A consignment of drugs sent by Dr Reddy’s Laboratories Ltd (DRL) from India to Brazil has been seized in transit by Dutch customs on charges of patent infringement.

This is the second such action in the Netherlands in three months. IPA has urged serious action

India’s commerce department has reacted strongly against such seizures in the European Union (EU), this being the second such seizure in the Netherlands in three months.

DRL’s consignment, worth $500,000 (Rs2.4 crore), was of bulk drug losartan used to lower blood pressure. The patent for losartan in the Netherlands is held by US-based DuPont under the Cozaar brand.

Commerce secretary G.K. Pillai said the department has taken up the matter with the European Commission (EC) and has written to them. “This is an act of piracy by the European Union. The consignment was going to Latin America and was seized in Europe… This is a dangerous thing happening, which is totally uncalled for. It is part of the strategy by these countries to target generic drugs from India.”

Mint had reported on 12 December that an increasing number of shipments of Indian small and medium-sized bulk drug makers were being seized at European ports on charges of patent infringement. This is the first time a shipment of a large Indian company has been seized.

To be sure, some Indian patent lawyers argue that the EU is following local laws and India cannot question their implementation.

“If the consignment does infringe a patent, then you cannot question the EU for seizing it under their patent laws,” said Shamnad Bashir, a professor in intellectual property law at the National University of Juridical Sciences, Kolkata.

Rajeshwari Hariharan, a partner at law firm K&S Partners, agreed. “There are cases where a product is in transit and is seized at a transit point. If this DRL product was in transit via the Netherlands, and was seized there due to patent infringement, it is a valid argument for the EU,” she said. “In fact, India takes the same stance.”

Others, however, view this as a public health issue. “The EC regulations that have led to the seizure of Indian generic drugs in transit to Brazil have created barriers to the export of affordable, quality, low-cost generic drugs from India to other developing countries. This is part of the IP (intellectual property) enforcement agenda,” said lawyer Leena Menghaney, who is also India project manager for the Campaign for Access to Essential Medicines, an initiative of Medecins Sans Frontieres, a non-profit organization.

“The fallout will be on patients’ lives in the developing world who will not be able to access affordable life-saving drugs from India,” she said.

Industry lobby group Indian Pharmaceutical Alliance (IPA) has also urged serious action on the matter.

“We are concerned that all our exports of generic medicines to South America and Africa passing through Europe will come to standstill unless the government were to challenge the EU Council Regulation of 22 July 2003 and seek its amendment,” D.G. Shah, secretary general, IPA, has written in a letter to the commerce department.

A medium-sized Indian company, whose consignment worth $100,000 was also seized at a European port while going to Latin America, said it now sends the drug through a different route. It also said it was not big enough to fight an expensive legal battle in the EU.

The commerce department seems to be gearing up to tackle that, too. “We are willing to assist the company through the Pharmaceutical Export Promotion Council (Pharmexcil),” secretary Pillai said.

However, Pharmexcil executive director P.V. Appaji admitted that India should not expect drastic changes in EU regulations since “we cannot dictate our terms on them”. At the same time, Pharmexcil is encouraging smaller drugs makers to get advise the issue. “We will provide the company with our adviser, who will highlight all potential legal issues with regard to patent before they ship a consignment through a particular route. This adviser will be available to these companies at throwaway prices,” Appaji said.

Emails to the European Commission, World Health Organization and World Trade Organization remained unanswered. A DRL spokesperson said the company was unavailable for answer owing to a holiday.

Asit Ranjan Mishra in New Delhi contributed to this story