Captivated as India is by domestic issues in this election season, it has tended to ignore the relationship with the United States, which is at its lowest ebb in 20 years. The fact that New Delhi is absent from any long-term calculations in Washington, DC, and that the US trade representative has more or less been given charge of the India account, speaks volumes.
It was not always like this. In 1999, India went to polls having won the Kargil War and got the US to affirm that borders in the subcontinent, in Kashmir or otherwise, could not be redrawn by blood.
In the run up to the 2004 election, India and the US were discussing the Next Steps in Strategic Partnership, a protocol of cooperation in the space, nuclear and military spheres that eventually led to the nuclear deal.
In the months before the 2009 election, the two countries signed the 123 Agreement, ending the US nuclear boycott of India and reaching a key Indian foreign-policy goal. All of these were rich legacies. In contrast, UPA II will leave its successor with a trade war.
What is the trade war about? In a broader sense, it is a reflection of the weakening of the Indian economic story. Whether it is regressive taxes (including the retrospective tax on FDI structured in a certain manner), confused and ever-changing rules on domestic sourcing (from international retail chains to defence manufacturers, many are complaining) or the general policy paralysis that has slowed down decision-making, business sentiment on India has been negative in recent times. The US administration is voicing that.
A more specific issue is that of India’s intellectual property regime (IPR) and how compliant this is with global best practices and World Trade Organisation regulations. Here, the US is probably hitting India harder than it needs to. Certainly, Indian officials feel China has a lot more to answer in terms of IPR violations. It gets away, however, because its GDP is growing at close to eight per cent; India’s growth is down to below five per cent. Simply, that gives India less leverage.
Despite attempts to broad-base it, the India-US IPR dispute is almost exclusively a pharmaceuticals issue. Companies in other industries – Boeing for example – that have had a better experience are in fact speaking up for India’s IPR as part of a new diplomatic campaign in Washington, DC. What is not helping is that senior UPA ministers, donning a nationalist cloak just before elections and seemingly determined to leave a mess for a successor government, are resorting to kindergarten anti-Americanism. This will make the atmospherics that much more difficult for the new government.
What is the pharmaceuticals IPR quarrel about? It boils down to two things. First, in 2012 the Patent Office granted India’s first compulsory licensing order in favour of a local company, allowing it to manufacture Nexavar, an anti-cancer drug patented by Bayer. Compulsory licensing is used in case of national emergencies. It could be contended that the number of patients in potential need of the Bayer drug did not constitute a national emergency. The Indian argument is others have done worse. Egypt waived the patent and used compulsory licensing for, of all things, Viagra!
Second, in 2005 Parliament amended Section 3(d) of the Patents Act and declined to provide patent protection to incremental changes in drug formulations that did not result in “enhancement of the known efficacy of that substance”. Pharmaceutical companies use this process, known as ever-greening, to lengthen the life of patents beyond the customary 20 years. In 2013, following a challenge by Novartis, the Supreme Court upheld the validity of Section 3(d). In both cases, US companies fear a contagion effect: that other developing countries may borrow from the Indian example.
While an Indian compromise on Section 3(d) is impossible, an informal agreement to limit use of compulsory licensing to genuine emergencies is feasible, Indian officials say. It could form part of a grand bargain and a larger trade and economic conversation between India and the US. The UPA government has lost the chance of that conversation. This summer, it needs to be taken up in earnest.
This article has appeared in NDTV on March 12 2014.