Swiss-Indian trade deal: bitter pill to swallow

Indian Minister of Commerce and Industry Anand Sharma (right) speaks to Francis Gurry, director general of the World Intellectual Property Organization in Geneva Keystone

Who has the high ground in the intellectual property (IP) rights talks between Switzerland and India? Differences between the two countries on this issue are one of the key reasons negotiations have stalled on a free trade agreement.

Talks between India and EFTA (Switzerland, Norway, Iceland, Liechtenstein) began in 2007. As recently as last month, Swiss Economics Minister Johann Schneider-Ammann expressed hopes the two sides were getting close to an agreement after so many years of negotiations.

However, on Sunday, the State Secretariat for Economic Affairs (SECO) said Switzerland had been informed by the Indian side that a deal was unlikely in the last week of February. From the beginning of March, a date will be set for Indian elections meaning the current government will no longer have the authority to take such an important decision.

Negotiations are expected to continue on a technical level. A large sticking point in the talks up to now has been the pressure on India to provide stronger patent protection that could make or break a deal.

Swiss pharmaceuticals are keen on an agreement with India on terms favourable to their industry. Observers speak of intense lobbying recently by the Swiss firms.

Thomas Braunschweig, who oversees trade policy matters at the non-governmental organisation, Berne Declaration, told swissinfo.ch that “they have asked the government to make more efforts to secure their interests citing that the pharma sector offers a significant number of jobs in Switzerland”.

Pharma, chemical and biotech industries

Switzerland’s chemical, pharmaceutical and biotech companies contribute 40% of all Swiss exports, making it the country’s leading export industry.

With 65’000 employees in Switzerland in 2012, this sector is one of the largest Swiss industrial employers, according to the industry association ‘scienceindustries’.

Total exports in 2013 for the three sectors rose 2.5%. In the same year, exports to India dropped by 23.8% to CHF700 million. That puts India in 21st place, accounting for 0.86% of all Swiss exports from these sectors.

Market research company Deloitte estimates that sales of pharmaceutical products produced in India will increase 14% to $27 billion in 2016 from about $23.6 billion in 2013.

Swiss demands

There are two specific demands from the Swiss pharmaceutical industry that are being resisted by New Delhi.

One is the call to do away with the Indian rule against patent ‘evergreening’ – when companies apply for patents on obvious modifications and ‘new use’ of existing medicines. This was at the heart of the case against Novartis in India where the Indian Supreme Court denied a patent on a new version of the anti-cancer drug Glivec.

Second, Switzerland’s Big Pharma wants to introduce the provision of so-called data exclusivity that undermines the registration of generic versions of even off patent drugs. This would oblige generic companies to repeat clinical trials and also gives rise to monopolies that can keep prices high.

Both these demands have so far been rejected by the Indian side since they go beyond what has been accepted multilaterally under the World Trade Organisation (WTO) system in an agreement on Trade Related Aspects of Intellectual Property (TRIPS).

Indian trade minister

Signature : (SRF/swissinfo.ch)

TRIPS

As far as pharmaceutical products are concerned, TRIPS sets global minimum standards for protecting and enforcing IP rights, including those for patents. However, it also grants countries a degree of freedom to modify regulations to ensure affordable access to medicines.

Marcel Sennhauser, at scienceindustries, the association representing Switzerland’s chemical, pharma and biotech industry, told swissinfo.ch that “although India has signed the TRIPS agreement, it violates its international obligations.

“Most disturbing and in contradiction to the spirit of free trade is India’s refusal to recognise that the import of a product is also considered an exercise of the patent. Instead of facilitating and promoting trade, India forces foreign companies into local production,” Sennhauser added.

Signature : (SRF/swissinfo.ch, 2013)

Washington pressure

The Swiss pharma industry is not alone in hardening its stance on what is seen as restrictive Indian IP policies. The United States Chamber of Commerce has been lobbying Washington hard to put pressure on India in this regard. In early February, the chamber called on government authorities to change the US’s classification of India which could trigger trade sanctions.

Activists feel that the pressure on India could threaten the supply of affordable generic medicines.

“They should not impose through the free trade agreement stricter intellectual property rules than TRIPS as this would undermine India’s ability to provide affordable generic medicines to MSF medical projects and developing countries,” said Leena Menghaney, responsible for the Access Campaign of Médecins Sans Frontières (MSF) in India.

So does India stand to benefit from the agreement with EFTA? Experts that include Braunschweig and former negotiators who spoke on the condition of anonymity are of the view that perhaps the only significant gain for New Delhi is greater access to the Swiss job market for skilled Indian labour. This might not be easy.

Despite tough negotiations on India’s part, immigration is a politically sensitive subject in Switzerland. Only two weeks ago, Swiss voters backed an initiative to curb immigration and re-impose quotas for workers from the European Union.

Immigration

“Negotiators are political beings and they routinely play up or down domestic concerns. Immigration is one such example,” said Suparna Karmakar from Bruegel, a European think tank based in Brussels, interviewed by swissinfo.ch a few weeks before the vote.

“Movement of persons in an FTA is not the same as immigration. The provisions under the General Agreement on Trade in Services (GATS) for movement of service providers are different from what politicians make them out to be.” Depending on where in the political cycle countries are, politicians tend to not clearly distinguish between this thin line between immigration (legal or illegal) and temporary movement of persons negotiated under FTAs.

In trade agreements, movement of persons implies high-skilled (and sometimes middle-skilled) workers, generally to meet a gap in the recipient country. They are also allowed in on temporary basis – usually for three years, five at most – beyond which entry conditions must be renegotiated, Karmakar explained.

Switzerland currently sets quotas for non-EU/EFTA nationals, and – following the February 9 vote – will have to devise a system for the introduction of quotas for all foreigners. Labour supply, economic growth and demand by industries go into determining the numbers. According to a person close to the negotiations who spoke to the Sonntags Zeitung newspaper, the vote outcome prompted India to withdraw concessions on the number of Indian information technology specialists eligible for Swiss work permits.

Former negotiators say that given the relative small size of the Swiss economy, any deal on work permits for Indians will only be a drop in the ocean, given the large supply of available Indian service professionals. The Indians, they say, are bound to be disappointed.

There are also fears that any new agreement that enables greater access to the Swiss labour market for foreigners will mean that Switzerland will have to extend similar standards in others FTAs. So far Switzerland has negotiated about three dozen FTAs.

Negotiations

Talks on an EFTA-India FTA began in 2007. EFTA countries offer 13 million customers to India, in return for access to a growing market nearly 100 times larger. Bilateral trade between India and EFTA stood at $34.48 billion in 2012-13 as against $37.5 billion in 2011-12.

EFTA member Norway has taken a different approach to IP rights than Switzerland. Oslo is no longer party to the IP rights talks.

In 2009, Norway’s then Secretary of State for Trade and Industry, Rikke Lind said that Norway did not have a policy to force developing countries to accept an agreement that would reduce their political manoeuvrability in the field of intellectual property, going beyond their multilateral obligations.

Norway’s chief negotiator for EFTA, Erik Andreas Underland said in an email reply to swissinfo.ch: “Normally EFTA will have provisions on intellectual property rights in its free trade agreements, but the level of ambition varies. We would be ready to close the negotiations with India regardless of the outcome from India’s negotiations with Iceland, Liechtenstein and Switzerland on Intellectual Property Rights.”

Concessions

Karmakar dismisses these fears. “Once concessions have been given bilaterally, it does not mean that it automatically extends to all other FTA partners. Any concession will have to be negotiated separately with each partner. Many agreements are often renegotiated in the light of new concessions as bilateral trade evolves, and that too mostly in the case of tariffs.”

There is a growing perception among experts spoken to for this article that India should be in no hurry to conclude the deal, giving into pressure of any kind.

India can afford to make its voice heard in multilateral forums such as the WTO, as it did while securing concessions on food security late last year.

India has been cautious with its trade policy. Some argue rightfully so. “India has a forceful and influential role in global trade policy making,” said Jean-Pierre Lehmann, Emeritus Professor of International Political Economy at Lausanne’s IMD business school.

“Although India has to defend its national interests, it must also recognise that there has to be a point where national interests converge with global interests. India will soon have the world’s largest population. With already the world’s largest youth population, health policy obviously is a vitally important priority for the Indian government.” Lehmann told swissinfo.ch.

He argues that it is up to advanced countries like Switzerland to “promote trade policies that are favourable to development and convergence”.

EFTA before EU?

India and the EU also launched FTA negotiations in 2007. But the one with EFTA is likely to be signed first.

“I think India is following the right approach in negotiating the EFTA agreement ahead of the FTA with EU,” said Suparna Karmakar at Bruegel. “It is much easier to deal with a four-nation group than one with 28 countries. It makes sense to find out how a deal with a small partner works before extending concessions to a much bigger partner.”