EU-India BTIA: A modern example of the classic north-south divide

The EU-India Bilateral Trade and Investment Agreement (BTIA) saga is a culmination of a series of negotiations (launched in 2007) which set an ambitious agenda comprising of contentious market access, investment protection and intellectual property enforcement issues.

The talks were designed to enhance trade relations between two large economic partners.

While much has been written on the outstanding issues in the BTIA negotiations, this piece will briefly highlight these issues in order to contextualize the arguments regarding the EU’s recalcitrant and arm-twisting approach in this whole process.

The EU concern

From their perspective, EU negotiators are seeking a reduction in automobile duties; reduction in tax for wines and spirits and dairy products coupled with a stronger intellectual property regime, which is in alignment with European pharma’s business agenda.

In addition, the EU wants further liberalization in key services such as the insurance and legal sectors.

It must be noted here that the Indian Parliament last March passed the Insurance Bill, which allows 49 per cent FDI in the insurance sector.

“The EU has again resorted to arm-twisting tactics with its recent ban on 700 pharma products made in India” [Xinhua]

This was one of the longstanding demands of the EU government as part of the BTIA. The measure is estimated to attract $8-10 billion in capital to the Indian insurance industry and offer greater leverage to foreign investors.

The Indian concern

From Delhi’s standpoint, one of the most pressing goals for Indian negotiators is to reach a favorable agreement on acquiring data secure nation status, which would allow Indian IT companies greater market access under Mode 1.

There are four Modes – or types – of services trade stipulated under the 1995 General Agreement on Trade in Service (GATS). Mode 1 refers to cross border trade.

Acquiring this status is vital for India.

Current EU laws demand that European nations outsourcing business to nations, which do not qualify as data secure, should establish onerous contractual obligations that significantly raise operating costs and affect business competitiveness.

While India has made changes to the Information Technology Act, to align it further with the EU legislative requirements, Brussels has been reluctant to grant India a data secure nation status because of the lack of a law that recognizes privacy as a comprehensive and fundamental right.

To India’s credit, Delhi has been mulling a national privacy law since 2010 and has also shown willingness to work with EU counterparts in developing a compliant data secure regime.

India has also been pushing for changes in Mode 4, which covers the movement of skilled professionals – like software engineers – and allows them to temporarily reside and work in EU countries.

This would naturally entail significant changes to visa requirements, work permits as well as directives of recognition of professional qualifications and wage-parity conditions.

It must be noted here that software and Mode 4 services exports to the EU have declined in the past six years, according to data published by the Reserve Bank of India.

Enduring friction

While resolution of these issues is extremely crucial for any conclusive deal between these mega-trading partners, a thorny issue that has remained a source of constant friction between India and the EU, since the establishment of the generic pharmaceutical industry in India, is the difference in outlook towards intellectual property protection.

It is important to note here that the Indian intellectual property regime is entirely compliant with the Trade Related Intellectual Property Rights (TRIPs) as stipulated by the World Trade Organization (WTO).

However the EU has been pressuring India to adopt TRIPs plus provisions as part of the BTIA. In fact, the text of the IP Chapter in the BTIA leaked about two years ago highlights the widespread ramifications that an EU oriented IP Chapter would have on access to affordable medicines.

Upon analysis of the IP Chapter, it becomes increasingly clear that EU is trying to advance its failed attempt at securing a deal on the Anti-Counterfeit Trade Agreement (ACTA), through bilateral channels.

In an analysis for reputed news magazine Frontline, veteran journalist Sagnik Dutta has argued that the provisions in the leaked text, which stipulate issuance of injunctions and seizure of medicines on a mere suspicion of a patent infringement coupled with measures such as freezing of assets of generic drug industries, will severely curtail the access to affordable generic medicine being exported from India to the developing world.

Not a new tussle

The tussle between the EU and India over generic pharma is one which has continued ever since India developed its generic pharmaceutical industry.

The EU has tried a number of times to use various non-tariff barriers to block the transit of these goods headed for developing countries.

In 2010, India was compelled to initiate dispute settlement consultations at the WTO over EU seizure of Indian generic medicines headed for Latin America and other countries.

The consultations eventually ended in a settlement and subsequent release of the generic medicines in transit.

However, the EU has again resorted to arm-twisting tactics with its recent ban on 700 pharma products for alleged manipulation of clinical trials conducted by Hyderabad-based GVK Biosciences.

It appears that this move is a conscious attempt at driving the point home on EU’s demand for data exclusivity, which has been a contentious issue in the negotiations.

However, it remains curious why Brussels would follow such a course of action when the EU has itself admitted that the so-called manipulations in the ECG readings at GVK Biosciences have no significant effect on the bio-equivalence of the generic drug with the original, and that there are ‘minor discrepancies’.

Further, the EU has not followed any established standards while imposing the ban. In fact the inspector sent by the French agency, ANSM, to check on the clinical trial data was not a cardiologist and hence was not in a position to interpret the data correctly.

The fact that these discreditable tests were only carried out on 40 drugs – an initial ban was proposed for 1000 drugs and later finalized to a list of 700 drugs – reeks of foul play on the EU’s part.

Data exclusivity is a type of a non-tariff barrier, which requires that generic producers cannot use any data generated by the innovator as part of clinical trials for a certain period, even if the patent on that particular drug has expired.

In essence, a generic manufacturer would only be able to initiate marketing of a product after it has conducted clinical trials anew, thereby increasing the costs of operation and depleting the competitiveness of such products.

The current ban is estimated to result in a loss of $1 billion to the generic industry, including the international players that operate out of India.

At the same, the continuance and erection of similar measures by other countries will result in denial of access to affordable medicines to many people in developing countries, and a huge loss to the Indian pharmaceutical export market, which stood at $14.55 billion in the year 2013-14.

In this continuing struggle for a righteous cause, India has been consistently hounded by the US also.

Through an annual report titled Special 301, Washington has unilaterally identified India as having a weak intellectual property regime that doesn’t align with US industry interests.

India has been on the US priority watch list since 1974 and last year Washington contemplated downgrading India’s status to a ‘Priority Foreign Country” based on a flawed methodology as has been highlighted by Swaraj Paul Barooah, an international IP policy, innovation, pharma patents and digital freedoms legal expert.

Even though the US eventually decided not to downgrade India’s status to the worst IP offender, it has conducted an Out-of-Cycle review (OCR), which is just a part of a larger coercive measure comprising of periodic reviews in between two 301 reports with the objective of pressuring Delhi to adopt intellectual property practices that complement the interests of the US pharmaceutical industry.

The way forward

In August, the two trading partners agreed to resume negotiations after a hiatus of two years.

Following the recent ban on 700 generic drugs, the opinion has been divided on the recent steps taken by India to defer negotiations on the BTIA.

File photo: German Chancellor Angela Merkel speaks to press while arriving to attend the European Union (EU) summit in Brussels, Belgium, on June 25, 2015 [Xinhua]

Many policymakers and former bureaucrats feel that India retaliated in a disproportionate manner and should have pursued alternate means toward resolving the issue rather than cancelling negotiations for an indefinite period.

These policymakers argue that two-way commerce reached $100 billion in 2014-15 making the EU, India’s largest trading partner.

They fear that the cancellation of talks over this issue will affect the significant boost that the Indian economy would receive from a successful BTIA with the EU.

They further argue that such delays come at a huge opportunity cost, considering the fact that the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) agreement to be negotiated between the European Union and the US are creating structures, which disregard the principles of “most favored nation”.

In this light, aligning India with new trade rules will be an extremely arduous task.

However, India’s conduct in pursuance of the BTIA negotiations has been very accommodative as evidenced by the efforts to meet EU interests in the services sector and the willingness to work with Brussels to ensure that India meets the data secure nation status.

On the other hand, the EU has done very little to convince India that its concerns are being addressed in a serious manner. On the contrary, the EU has sent a very negative message through its recalcitrant attitude reflected by this questionable hectoring tactic.

To this extent, India’s stance is principled and in the interest of a huge population, which relies on Delhi for the provision of life-saving medicines at affordable costs.

This is not to suggest that India should cancel the talks altogether, but rather to send a terse message to the EU.

India has essentially done that, but must still explore methods to resolve this issue and execute the BTIA on mutually beneficial terms.

At the same time, it is imperative for like-minded countries to mount pressure on the EU to forgo bullying practices lest they threaten the very essence of humanity.