Last minute agreements by the US and EU to reduce agricultural subsidies shed a ray of light on the WTO Ministerial in Hong Kong last December. The attention is now on whether Doha round agreements can be achieved before the middle of this year. more...

Like innovations in IT, bio-technology offers similar prospects and opportunities to drive economic development in industrialised and developing economies – so long as appropriate drivers are in place that reward innovation and protect intellectual property, writes Alan Oxley. more ...

FTA negotiations between China and Australia continue at a moderate pace but whilst agreements in goods are coasting, the same can't be said for services, and wool may be left out all together if a previous FTA between China and Chile is any measure. more ...

Unleashing technology is the key to growth in the future. U.S. business showed in the 1990s how the smart use of information technology can deliver record gains in productivity, and biotechnology offers similar prospects. The key to capturing these drivers is good intellectual property law, including patents that reward and protect innovation.

But a coalition of countries led by India and Brazil and supported by NGOs like Oxfam and the World Wide Fund for Nature either don't get this or don't want to. They have embarked on a campaign to weaken the protection that patents provide inventors. They are making clear this week at a United Nations conference on biodiversity in Granada that they want an international convention for that purpose negotiated this year.

Their complaint is that current patent law permits "biopiracy." Their scenario is that multinational companies, typically pharmaceutical manufacturers, secure local natural plants or substances in foreign countries for a pittance, convert them into profitable blockbuster drugs, protect them with patents and pile up the profits. The "traditional owners," often indigenous peoples, of these "genetic resources" are allegedly left with little in return.

In December, Indian Trade Minister Kamal Nath told World Trade Organization delegates in Hong Kong that any deal to open world markets must also include a change in the WTO rules that protect the rights of patent holders. In the name of fighting biopiracy, India wants governments to have the right to authorize any use of a patented product based on or derived from a genetic resource found in their territory.

For example, a hotly disputed case involves the properties of the neem tree, which India claims is indigenous and whose seeds contain a natural fungicide. An American company, W.R. Grace, developed and obtained a U.S. patent for a way to lengthen the shelf life of the fungicide. But India wants the right to say whether or not W.R. Grace can sell this important new product. If the WTO rules were amended as India wants, its approval would be necessary before another country could grant a patent on any product or process involving the neem tree. This clearly would produce a chilling effect on innovation.

Ethiopia, representing the African continent, is taking the anti-patent baton from India. Algeria's Ahmed Djoghlaf, the new executive secretary to the U.N. Convention on Biodiversity, is also on board. He sees this as a chance to negotiate "an international regime which will be the foundation of a new partnership between providers and users of the wealth of Mother Nature." That regime would create the same legal rights that India is seeking in the WTO, namely to control patented products containing derivatives of genetic resources.

The strategy has very radical consequences. The value of patents would be undermined if the patent holder had to defer to someone else about how the patented product would be used. No foreign investor -- be it in manufacturing, IT, biotech or other sectors -- would risk his money in a country that adopted such laws or international conventions. One would hope that the U.N. would want to be certain that biopiracy is a serious problem before going along with something with such a drastic impact.

Yet the U.N. has never undertaken such a review, even though a new private study by the APEC Center at Monash University in Australia highlights the need for one. The study finds no instances of forcible and illegal removal of genetic resources from foreign territory. Nor is there evidence that international companies are buying the rights to these resources for a song and then making billions -- fair contracts are in force in the search for these resources, also known as "bioprospecting."

Furthermore, the study found international companies are losing interest in bioprospecting. One reason is that some countries, like the Philippines and Peru, have tried imposing onerous controls on discoveries of genetic resources, similar to those proposed for the new convention. These measures deter foreign investment as well.

The APEC Center study also found there are simple and effective ways to use market instruments and standard contract law to provide the appropriate protection of sensitive local resources and to deliver benefits to governments and special interest groups. Take an arrangement Merck made with Costa Rica a few years back. Merck paid $2 million up front for a five-year bioprospecting program, a deal which included terms on use of any discoveries. In the end Merck made no commercial discoveries and Costa Rica used the funding for biodiversity programs. But had a stricter international standard for bioprospecting been in place, it's likely that Merck wouldn't have even tried -- and Costa Rica never would have gotten that $2 million.

Why would the U.N. ignore this reality and so casually jeopardize foreign investment in countries that need it so desperately? Other forces are at work. India, for one, has never liked the WTO's intellectual property laws. The laws oblige India to require domestic companies to stop pirating inventions protected by intellectual property elsewhere and to start paying royalties. Yet India has a thriving industry manufacturing such knock-off drugs and a leading company, Cipla, has big ambitions to expand. Restricting the field for foreign competitors and deterring investment in India would suit Cipla -- and protectionist Indian bureaucrats -- just fine. Brazil's position is almost identical.

Both India and Brazil have a long history of constraining foreign investment. The result is many low-growth industries with second-class technologies. Officials in countries that want to lock onto high-growth strategies and foster investment that will bring the latest and most productive technology should be wary about this anti-patent law campaign.

Alan Oxley is the Chairman of the Australian APEC Study Centre.

 

In his paper “Developing an effective international regime for access and benefit sharing for genetic resources using market based instruments” Bill Bowen analyses current efforts to support the development of an international regime to facilitate access to genetic resources.

Work is currently underway to support a regime with some pushing for a high level of regulation, arguing that genetic resources of developing countries constitute a potentially valuable source of income and that companies are likely to develop new products from this genetic material . They believe strict rules need to be imposed lest they not get their fare share of the “green gold”.

A lot of the focus is misplaced according to this paper. No new major drugs have been developed from bioprospecting by pharmaceutical companies in the genetic material of developing countries. There is no “green gold” bonanza. Bioprospecting is falling off and there is no evidence that bio-piracy is a major problem. Therefore, there is no failing in the system which a legally binding international regime might seek to correct. Establishing such a regime will have a negative effect, notwithstanding the fact it undermines national sovereignty and reduces flexibility to apply policies that protect and recognise the unique nature of biodiversity in each country.

There is a better way forward. A market-oriented approach based on the clear delineation of property rights to undertake bioprospecting in developing countries and developing a market where such rights can be freely traded. Such an approach, through better access and equitable distribution of benefits, would optimize the opportunity to develop effective policy responses to managing biodiversity and maximising capacity building.

The report sets out the requirements for a market-based property rights model that is relatively simple. Drawing on key criteria, an assessment of market-based and regulatory models is given including how a market-based system may be constructed and agreement models between host countries and pharmaceutical companies. In doing so this report sets out elements for a non-binding, international regime based on property rights.

For the full report click here.

 

The Managing Regulatory Change (MRC) in Financial Services training program was first developed by The Australian APEC Study Centre following the instability caused by the 1997 Asian financial contagion. The ensuing capital flight left many financial sectors debilitated, and in need of assistance to build capacity in order to stabilize and better manage the development of regulatory frameworks moving forward.

Since 2000, funding under the auspices of the Australian Government’s Overseas Aid Program (AusAID) has enabled a substantial number of regulators from APEC member economies including Indonesia, Thailand, Vietnam and China to gain exposure to government and industry experts in the field of life insurance, pensions and prudential regulation in banking. The results of the training enable APEC regulators to better manage the risks inherent in developing life insurance, pension and banking products for their burgeoning markets.

In late February, 24 participants were given instruction and resources that sought to build their knowledge in areas including the regulatory environment, annuities and unitized products, corporate governance and operational risks. Content for these programs is directed by the Australian APEC Study Centre’s Advisory Board on Capacity Building in Financial Services that includes members from Commonwealth Treasury, APRA, ASIC, AXA Asia Pacific, Standards and Poor’s and CBA amongst others, and is delivered by experts from both regulatory and industry environments over five to eight days of intensive training.

Significantly, these programs are endorsed by the APEC Finance Ministers’ Group, the G20, and provide Australia an opportunity to contribute its knowledge and expertise to participant economies. The benefits of how to develop risk management techniques that improve regulatory prescriptions result in more stable and less risky economies, and the ensuing outcome of more prosperous economies provides opportunity and stability in the APEC region.

For more information on MRC training programs click here.

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APEC Currents is edited and published by The Australian APEC Study Centre.
Copyright 2006, Monash University.

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