Investigating India’s Trade Policies

Samir Nair

In August 2013, the United States International Trade Commission (USITC) announced that it would be conducting an investigation into “a wide range of Indian policies that discriminate against U.S. trade and investment.” Last week, USITC held a public hearing in conjunction with the ongoing investigation that included testimonies from a wide range of stakeholders on both the U.S. and Indian sides. The investigation is a manifestation of a broader tension between certain U.S. industries and the Indian government, which has now spread to Capitol Hill. Members of the U.S. Congress have become increasingly vocal in their criticism of the way U.S. companies have been treated in India and have begun to pressure the administration into taking a stronger stance against India’s trade practices.

At the hearing, representatives of U.S. industry advocacy groups leveled criticism against India’s business environment, arguing that it is overly restrictive and discriminatory, with weak protections for intellectual property. The pharmaceutical industry focused specifically on the invalidation of several pharmaceutical product patents in India, a practice known as compulsory licensing.

The U.S.-India Business Council (USIBC) stressed the need to manage such concerns through existing dialogues such as the U.S.-India Trade Policy Forum and the U.S.-India CEO Forum, both of which already facilitate engagement between public and private sector leaders in both countries on policy issues impacting bilateral trade and investment.

Ron Somers, President of USIBC, impressed upon the Commission that the U.S. must use disciplined engagement and constructive dialogue and avoid any resort to punitive action or acrimony. He conveyed that the Indian government is listening and responding to business concerns, as evidenced by the recent decision to exempt the private sector from its preferential market access (PMA) policy. A spokesperson for a leading Indian business association emphasized that reform is happening, though perhaps not at the pace many would like, and that FDI restrictions in a range of sectors from aviation to telecom to retail have either been eased or eliminated.

Several U.S. industry representatives reiterated that the IP-related challenges global pharmaceutical companies are facing in India could impact India’s innovative potential in the long run. They pointed to the fact that the number of patents filed in China is fifteen times higher than the number filed in India, and argued that recent rulings that have revoked or denied patents and granted approval to generic drugs during a patent’s term have created an inhospitable environment for many pharmaceutical companies.

Other industry sectors took a different approach.  Boeing, which happens to be the single largest U.S. exporter to India in dollar terms, said that in the defense sector, where the sharing of sensitive technologies is so intrinsic, two-way trade has crossed $12 billion and IP concerns are almost non-existent. The case of Boeing ties into an overarching point that economist Arvind Subramanian attempted to make during his testimony, namely that sectoral concerns should not overshadow or obscure positive developments in the broader trade relationship.

Several organizations, including Doctors Without Borders and Knowledge Ecology International, defended India’s recent actions, and explained that issues of affordability and access cannot be overlooked. They noted that India’s per capita income is $1500. Charging $5000 a month for life-saving medicines in countries like India – as Bayer did with its cancer drug Nexavar – makes these medicines unaffordable for the vast majority of people who need treatment. Representatives of the U.S. pharmaceutical industry countered that some of these same companies were providing medicines free of charge to a substantial number of people through various patient assistance programs. Poor access, they said, is a function of extremely low public spending on healthcare – the Indian government spends only 1.2% of GDP on health, about the same as the country of Niger. 

U.S. business groups expressed concerns about the use of compulsory licensing in India extending to other sectors such as green technology. However, it was noted that the only compulsory license India has issued so far has been for Nexavar. As D G Shah of the Indian Pharmaceutical Alliance said, “over 1500 patents have been granted [by India] to the top nine global pharmaceutical companies alone” since 2005.

Some witnesses highlighted that India is under tremendous demographic pressures. With half of its population under the age of 25 and as many as 12 million people entering the labor force every year, India needs to find a way to generate enough jobs to match labor force growth. In addition, it is facing a serious shortage of skilled workers with 90 percent still belonging to the informal sector. Against this backdrop, local content requirements are being implemented to promote domestic manufacturing and scale up key sectors of the economy, generate employment, upgrade the skills of Indian workers, and improve the competitiveness of Indian SMEs in the long-run.

Though participants differed on the specifics, there was a general consensus that India could do more to improve business sentiment and facilitate market entry. Expediting the land acquisition process, improving basic infrastructure, and liberalizing the insurance sector were a few of the recommendations made. As the USITC continues its investigation, observers will have to wait and see what conclusions it draws and what further steps, if any, the U.S. government will take.

For a full list of hearing participants, see here