US piles on the pressure

Patent law, domestic content rules in solar and ICT policy come under attack

By Latha Jishnu
Published: Wednesday 31 July 2013


THE onslaught has been concentrated and well-orchestrated. The opening salvo was fired at the hearing of the House of Representatives’ Ways and Means Trade Subcommittee on the state of India’s trade relations with the US. That was in March, and the testimonies of US industry chiefs portrayed India as protectionist and arbitrary. Then came a series of missives from industry organisations and lawmakers to President Barack Obama and Secretary of State John Kerry, all of them complaining about India’s patent laws and discriminatory trade practices. On June 27, there was a meeting of the House Subcommittee on Commerce, Manufacturing and Trade that was tellingly titled, ‘Tangle of Trade Barriers: How India’s Industrial Policy is Hurting US Companies’.

Three of India’s regulatory and policy requirements have been singled out for attack. The first is a crucial safeguard in India’s Patent Act of 2005, Section 3d, which bars extension of patents on new forms of a known substance. This is a regular practice known as evergreening that innovator companies use to extend the patent life of drugs. Pharma multinationals which have been engaged in a long running legal battle against the patent law faced their biggest setback in April this year when the Supreme Court upheld India’s patentability norms in the high-profile Novartis case involving its anti-cancer Glivec drug.

Since then, they have been using various forums to lash out at the country’s discriminatory policies (see ‘US pharma strikes back’, Down To Earth, June 16-30, 2013). The other two measures increasingly in the line of fire are mandatory local content in solar energy projects and the preferential market access (PMA) rules which impose local content requirements on procurement of information and communications technology (ICT) products by government and private sector entities. The US has already lodged a complaint at the World Trade Organization (WTO) on the solar issue.

Noting the seriousness of the charges on India’s patent regime which have hogged centrestage, Indian Ambassador to the US Nirupama Rao wrote to member of the Senate India Caucus in June that India’s patent regime was in compliance with the Trade Related Intellectual Property Rights (TRIPs) of WTO and that it was not discriminatory. “The highest share (20-30 per cent) of all patents granted in India has gone to US nationals and corporations. And, of all the patents granted for pharmaceutical inventions bet ween 2005 and 2011, more than 85 per cent were owned by foreign companies in India,” her letter pointed out.

To set right the misleading and exaggerated claims made by industry, the ambassador made it clear that just one compulsory licence (CL) had been issued so far. “It is important to understand the legal and public health context of such licensing. I wish to reaffirm that the provisions of the CL enshrined in the India Patent Act are in accordance with the provisions of the TRIPs Agreement and the Paris Convention.”

But this has been ignored by US experts commenting on India’s so-called discriminatory and protectionist measures. For instance, Stephen Ezell, senior analyst with the Information Technology and Innovation Foundation (ITIF), claims that India “has issued at least four CLs” and these were “granted on the specious grounds”. He has demanded the US International Trade Commission “initiate an investigation of how India’s mercantilist policies damage the US economy” as it did with China in 2011.

“If PMA (preferential market access) remains in place without major changes, it sets a highly unhelpful example, encouraging other governments to adopt similar policies to close off their own markets to foreign competition”
Dean C Garfield
President & CEO, Information Technology Industry Council
“Government and domestic Industry should take a serious note of actions by Pfizer, pharma lobby and US India Business Council. And it’s snowballing. ICT and solar industries have joined the bandwagon to change India’s policies”
Secretary General, Indian Pharmaceutical Alliance
“India’s solar policies have increasingly turned inward. Our only hope is that the US government’s recent decision to initiate WTO dispute settlement proceedings against the local content requirement will eventually cause India to reverse course”
Vice-President, trade & competitiveness, Solar Energy Industries Association (EIA), US
The complaints by industry—the powerful National Association of Manufacturers (NAM) is in the vanguard of the campaign—make it appear that India is going out of its way to annoy one of its top trading partners. “Over the past year and a half, we have seen a damaging pattern of actions in India that are discriminating against US exports of a wide array of goods,” Linda Dempsey, NAM’s vice-president for international economic affairs, told House Subcommittee on Commerce. She listed information and communication technology (ICT) equipment and solar energy products, in particular.

In the case of ICT it is the preferential market access (PMA) mandate announced in February 2012 by the Ministry of Communications and Information Technology that has unnerved the Americans. There are rich pickings in this sector if India opens up. However, the PMA gives an edge to domestically manufactured electronic products, including mobile devices and SIM cards with enhanced features, “to address strategic and security concerns of the government consistent with international obligations in procurement”.

The ministry hopes that domestic production will meet 80 per cent of the Indian telecom sector demand with a value addition of 65 per cent by 2020. President and CEO of the Information Technology Industry Council (ITI) Dean C Garfield told Congressmen, “The policy’s coverage in terms of market segments is so broad it could easily capture $9.3 billion, or roughly half of India’s $20.5 billion ICT market. If PMA remains in place without major changes, it sets a highly unhelpful example, encouraging other governments to adopt similar policies to close off their own markets to foreign competition.” This, in fact, is a recurring theme in the testimonies of different industry representatives who worry that other countries could emulate India’s stance (log on to for ‘India’s example sets off global ripples’).

Particularly galling for the US has been India’s adoption of local content requirements in its National Solar Mission (NSM). Vice-President, Trade and Competitiveness, of the Solar Energy Industry Association (SEIA), John Smirnow, claims these measures are in direct violation of its international trade obligations. SEIA, which represents over 1,000 solar businesses, including leading solar manufacturers and exporters, is facing the loss of “hundreds of millions of dollars of exports to India” because of what it terms the country’s inward looking policies that discriminate against the US.

It took India to the WTO in February and according to Tarun Kapoor, joint secretary, Ministry of New and Renewable Energy (MNRE), India had a consultation in March on the issue. But the US has not pushed for the next step, the setting up of a disputes panel, probably because it is waiting for the release of tenders for the 750 MW of solar projects in the second tranche of Phase I of the solar mission. Kapoor told Down To Earth: “MNRE has yet to decide on how much domestic content would be mandatory in this tranche.”

Under the first tranche US solar cells could be exported to India but were barred from competing for Phase I projects, Smirnow told the House hearing, because it was mandatory for solar PV projects selected in first trance, based on crystalline silicon technology, to use modules manufactured in India. “US crystalline silicon solar cells, and now panels, are thus barred from competing for NSM projects—a significant lost opportunity for US exports.”

There are additional irritants like barriers to foreign direct investment, particularly in the telecommunications sector, and what are described as “discriminatory taxes on US businesses”. At various hearings, American industry is in full cry and it has urged the Obama administration to take a tough line with Delhi since dialogue, it says, has yielded no results. Some sections want punitive measures such as India’s exclusion from the WTO-mandated Generalised Systems of Preferences (GSP) which provides reduced tariffs for Indian exports to the US. Others would like more cases to be filed at WTO. Since India is already on the US Trade Representative’s (USTR) Special 301 Priority Watch, analysts are asking if a trade war is in the making.

The signs are all there, according to the Indian pharma industry. The belligerence of Pfizer’s testimony at the March and June hearing of the House subcommittees where Pfizer’s chief intellectual property officer Roy Waldron urged the US government to “review all available trade policy tools in light of the deteriorating IP environment” has raised Indian industry’s hackles. The Indian Pharmaceutical Alliance(IPA), which groups the top drug manufacturers here, has rebutted the charges made by the US multinational and pointed out that Pfizer itself has secured 165 patents in India since it began granting product patents in 2005. However, Pfizer has sent back an equally terse rejoinder dismissing IPA’s facts.

Says IPA secretary general Dilip G Shah: “Pfizer has stated that Indian Parliament has erred; that the Indian Judiciary is biased; the Supreme Court order on Glivec is flawed; alleged that India does not have a rule of law. If one were to read the above statements and the earlier testimony by Pfizer in the light of USTR 2013 Special 301 Report, is there an indication that Pfizer is egging the USTR to launch a full scale trade war to pressurise the Government of India?” Shah’s contention is that US pressure is under way “to change India’s IP regime from the TRIPs compliant to the US compliant status!”

With inputs from Ankur Paliwal

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