The recent World Trade Organization (WTO) talks came a cropper: Despite intense negotiations over weeks, member states could not agree on critical “agricultural” issues. Under the circumstances, a number of member states are likely to resort to the WTO dispute settlement mechanism to extract more concessions out of scofflaw states. Brazil is one such country—it had won a WTO case against the US on illegal cotton subsidies several years back. But, despite a panel and appellate ruling in its favour, the US had refused to comply and had dangled hopes of further concessions at future WTO talks. As most of us know, those talks came and went, but Brazil’s farmers continue to suffer. So, Brazil is now seriously considering “retaliating” against the US in order to secure compliance with the WTO ruling.
What is unique about the Brazilian strategy is that, consistent with existing WTO norms, it wishes to “cross-retaliate” by suspending the intellectual property (IP) rights of US corporations. In other words, a Brazilian generic company could “legally” make copies of Pfizer’s patented drug. Contrast this with a “traditional” retaliation approach under which Brazil would have merely imposed tariffs on US goods imported into Brazil. The WTO framework has a number of agreements, and one of those—Trade-Related Aspects of Intellectual Property Rights (TRIPS) —obliges member states to guarantee a minimum level of IP rights protection. Since Brazil’s proposed retaliation is not under the same agreement that is under dispute (i.e., agreement on subsidies), it is popularly referred to as “cross-retaliation”.
Illustration: Jayachandran / Mint
The desire to cross-retaliate is easy to understand: Given the highly disparate value of trade between Brazil and the US and the relatively “lower” value that the US places on its exports to Brazil, “traditional” retaliation through tariffs, etc., would not hit the US hard enough. Besides, given the much “higher” relative value that Brazil places on US goods, such a retaliation may be tantamount to Brazil shooting itself in the foot.
The story is the same for a number of developing countries including India, which find that traditional retaliation is more a bane than a boon. The Byrd Amendment case at WTO is an excellent example— where a group of 11 WTO members jointly filed an action against a US law that granted illegal subsidies to US companies. While eight of these countries sought and were granted the right to retaliate, the only countries that exercised this right by imposing duties were the “developed” ones i.e., the EU, Canada and Japan. Barring Mexico, developing countries, including India, Brazil and Chile, shied away from exercising their right to retaliate. One can hazard a guess that part of the reason must have been their lack of confidence in the traditional “retaliation” machinery.
Cross-retaliation is “legal” under the WTO framework and DSB (Dispute Settlement Body) has already sanctioned it in three cases: the Ecuador bananas case; the Brazil cotton subsidies case and, most recently, the Antigua gambling case. But this remedy is not automatic and has to be pleaded for in every separate case: It is more the exception than the norm. Importantly, despite such authorizations from WTO, countries have never exercised this right, not least because of the uncertainty involved in implementation. So, there is no clarity how a country could suspend the IP rights of foreign corporations and still recover only what is due to it (as a result of the scofflaw state maintaining WTO-inconsistent measures) and no more.
Leaders of the less developed bloc such as India and Brazil need to urgently work out an effective cross-retaliation model that can be translated into domestic legislation. Much like section 3(d) of Indian’s Patents Act, a unique provision brought in to rein in “evergreening” of pharmaceutical patents, that is now being copied by other developing countries, India should take the lead here as well. One such model has been proposed by the author in a recent paper. It includes the following elements:
1. In the event of a WTO ruling permitting India to cross-retaliate by suspending TRIPS obligations against any member state, all categories of IP rights belonging to such member state shall stand suspended.
2. Any new rights that are subsequently registered stand suspended from the date of registration till the date of removal of the WTO-inconsistent laws or till the parties settle. Such determination of dates shall be made exclusively by a designated government office/person.
3. Subsequent to a WTO ruling granting India the right to cross-retaliate, any domestic entity can register with a designated government office and declare its intention of working the suspended IP rights. Such entities would then have to file statements each month or quarter of how they have used the “suspended” IP and the profits earned from the sales of goods/services made using the “suspended” IP. A government office/person shall be entitled to audit accounts, etc., of the said entities to ensure their filings are accurate. One could then use such “profits” of Indian entities as a proxy for the amount of losses that accrue to the US by such IP suspension. Or one could impute a hypothetical royalty that might have been paid, had the IP right been in force, and use such royalties as a proxy for those losses.
“Cross-retaliation” does not suggest blatant disregard for IP rights: Rather, given the strong IP lobbies in the developed world, it serves as an effective threat and is likely to induce compliance by scofflaw states. In many cases, if the threat is strong enough, countries may not even need to work their cross-retaliatory models.
Importantly, such a remedy is likely to make the WTO framework more meaningful to a large number of developing countries that continue to see it as representing an inequitable bargain. The WTO bargain effectively represents a give and take between the developed and developing country blocs—where the former offered to open their markets to the latter’s goods such as textiles and agriculture, and the latter promised to implement minimum standards in IP so that developed country “knowledge” goods could be sold unimpeded in international markets. It is therefore only fair that TRIPS obligations be suspended by developing countries when developed countries fail to live up to their commitment to open up their markets.
All this rests on developing countries providing for this possibility within their domestic regimes.
Shamnad Basheer is associate, Oxford IP Research Center, and founder of SpicyIP Blog. Comment at email@example.com