India’s Attack on Innovation; New Delhi’s discrimination against U.S. firms harms jobs and intellectual property

September 25, 2013, 1:02 p.m. ET

India’s Attack on Innovation

New Delhi’s discrimination against U.S. firms harms jobs and intellectual property.

ROD HUNTER

Indian Prime Minister Manmohan Singh’s visit to Washington on Friday is an opportunity for President Barack Obama and the U.S. Congress to highlight a worrying development in the bilateral relationship: the Indian government’s discrimination against American firms and misappropriation of their intellectual capital. These actions punish our innovators and stifle job creation.While India’s economy has expanded nearly eight-fold since turning from autarky to liberalization in the early 1990s, the Indian government now seems intent on returning to protectionism and intellectual property theft. During a visit to Washington earlier this year, Indian Finance Minister P. Chidambaram praised China’s “indigenous innovation” program of forcing transfers of new technologies from foreign firms as a model for India.

True to that vision, India has been demanding technology transfers and local content, erecting barriers to investment, and disregarding foreign intellectual property rights. The most flagrant abuses have been aimed at the pharmaceutical sector.

Over the last 18 months, India has denied, revoked or otherwise attacked the patents of 15 of the 45 or so patented medicines on the Indian market. In March, for example, Indian officials authorized a local company to copy Bayer’s innovative Nexavar cancer drug, citing the fact that the drug was not manufactured locally. Such local production conditions violate basic World Trade Organization non-discrimination principles.

Indian officials seek to justify their disregard for foreigners’ intellectual property rights by pointing to the need to ensure their citizens’ access to medicines. But patents are not the obstacle to treatment that these officials and activists allege.

For instance, 95% of the Indians who were prescribed Novartis’s Glivec received the cancer medicine for free. Nonetheless, the Glivec patent, recognized in over 40 other countries, was rejected in India.

The real obstacles to medical access stem principally from the Indian government’s failings. India devotes a derisory 1.25% of GDP to health care, a level lower than Haiti, and lacks the insurance, doctors, clinics and hospitals necessary to make effective use of the full potential of modern medicine. Health-care infrastructure problems won’t be solved by plundering foreign inventions.

For all the pretense of altruism, the motives for disregarding foreign intellectual property rights appear to be mercenary. Indian drug giants, many of which make the majority of their sales in the United States and Europe, want the technologies created by foreign R&D. Cipla Chairman Y.K. Hamied, a revered Indian business leader, has called for the “automatic license” of foreign patents to local champions.

Some may counsel forbearance in the face of India’s mercantilism because of the country’s poverty. But India isn’t the destitute land of yesteryear. It also has a burgeoning middle class of more than 150 million people and vibrant urban regions. Indeed, by some estimates, the Mumbai area’s GDP per capita is higher than Hungary’s. It does not have to depend on hand-outs or intellectual property theft.

In light of Indian policies’ impact on U.S. growth and jobs prospects, the Obama administration and Congress should reconsider the economic relationship with India. A new approach should include the following five components:

• Top-to-Bottom Review. U.S. Trade Representative Michael Froman should initiate a comprehensive review of the bilateral economic relationship that examines the impact of Indian industrial policy on the U.S. economy and how to respond, much as his predecessor (now Senator) Rob Portman did for China in 2005.

• Enforcement Resources. The U.S. Trade Representative’s Office and Commerce Department should expand their India-focused enforcement capabilities by dedicating lawyers and other trade-compliance staff, as they have with China over the past decade.

• International Coordination. The Obama administration should work with like-minded governments with innovative industries, starting with the European Union and Japan, to raise jointly their concerns in international fora such the WTO as well as directly with India.

• Leverage. Congress and the administration should consider all means of leverage. For instance, the United States includes India in a special poor-country program that allows Indians to import $4.5 billion in goods without paying any U.S. tariffs, even as India runs a $20 billion trade surplus with the United States. Congress needs to decide whether to reauthorize this program which lapsed this summer. Assuming Congress does so as expected, the Administration is entitled to withdraw that preferential treatment from any country that fails to respect American intellectual property.

• New Leverage. Congress and the administration should explore other avenues for ensuring respect for U.S. intellectual property rights. Some have suggested excluding from U.S. procurement any country that has not signed up to the WTO procurement code and fails to protect U.S. intellectual property. Such an approach would encourage India (and others such as China) to provide reciprocal procurement access as well as to respect U.S. intellectual property.

***

Failure to oppose India’s depredations would invite widespread imitation. It is time to return the U.S.-India economic relationship to a more balanced footing. In the meantime, President Obama should make clear to Prime Minister Singh that the discrimination and pillaging of foreign intellectual property need to stop.

Mr. Hunter, a senior vice president at the Pharmaceutical Manufacturers of America, served as a senior director for international economics at the White House’s National Security Council.