UNIT I9 GLOBALISATION AND WTO

Structure

19.0 Objectives
1 9.1 Introduction
19.2 Concept of Globalisation
19.3 Implications of Globalisation
19.4 GATT and Multilateral Trade Negotiations
19.4.1 Principles Adopted by GATT
19.4.2 Uruguay Round of Negotiations
19.5 WTO : Functions and Coverage
19.6 Agreement on Trade Related Investment Measures (TRIMS)
19.7 Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)
19.7.1 IPR Under the Agreement on TRIPS
19.7.2 Impact of TRIPS on Indian Economy / Industry
19.8 The Indian Patents Act, 1970: An Overview
19.8.1 What is an Invention?
19.8.2 Patenting of Inventions
19.8.3 Amendment to the Patents Act Consequent upon Agreements on TRIPS
19.9 Problems and Issues
19.10 LetUsSumUp
19.1 1 Key Words
19.12 Answers to Check Your Progress
19.13 Terminal Questions

19.0 OBJECTIVES
After studying this unit, you should be able to: ,'

explain the concept of globalisation;

state the implications of globalisation;
describe the need for Uruguay Round Negotiations;
outline the functions and coverage of WTO;
state the nature and implications of Agreement on TRIMS;
explain the meaning of Intellectual Property Rights;
deqcribe the impact of agreement on TRIPS on the Indian economy 1 industries;
discuss the relevance of Patents Act, 1970;
explain the amendment to the Patents Act consequent upon India's membership of
WTO; and
analyse the problems and issues arising out of globalisation.

1 INTRODUCTION
You have come across the term globalisation while reading the study material on
'Econon~icReforms and New Economic Policies' in Unit 17. You may recall that
lntcrnationd r o d Technical the economic reforms initiated by the Government of India in 1991 included, among
Environment '
other things, the policy of import trade liberalization and opening up of the economy
for integration with markets abroad. Around the same time, many countries were
engaged in negotiating multi-lateral trade relations in a small town in Uruguay in South
America. The negotiations were continuing since 1986 and ultimately concluded in
April 1994 when Ministers from 125 nations signed an International ~ r a d eAccord.
This agreement replaced the existing General Agreement on Trade and Tariffs (GATT)
which formed the basis of International trade relations since 1948. Simultaneously, the
World Trade Organisation (WTO) was set up which constituted a formal institutional
framework for global trade. India has been a party to Uruguay Round negotiations and
signed the trade accord to become a member of the WTO which became operational
with effect from 1" January 1995. In this unit, You will learn the implications of
globalisation, the functions and coverage of W.T.O. the nature and purpose of the
Agreement on TRIMS, the impact of the Agreement of TRIPS, provisions of the Indian
Patents Act, 1970 in that context, and amendments thereof, as well as analyse the
problems and issues that need to be resolved.

19.2 CONCEPT OF GLOBALISATION

The term globalisation has multiple connotations. It may be interpreted to mean world-
wide movement of resources without any restriction including goods, services, capital,
technology, as well as human beings. This literal meaning is obviously hypothetical
because totally unrestricted movement of everything world-wide presupposes absence
of any political boundary between countries and nothing like sovereignty of people
living in different political systems. The term may mean global outlook if it is
interpreted from the point of view of a large corporation, that is, world being viewid as
an open field with no differentiation of domestic and foreign business. Thus, if
production, distribution, marketing, financing, staffing, etc. are planned and
undertaken by a company with a global outlook, that may be regarded as globalisation.
This is something more than business dealings taking place between enterprises located
in two or more foreign countries, which is often referred to as internationalisation. The
Honda Motor Company of Japan may be taken as an example reflecting the concept of
globalisation as global outlook. Its management consciously strive to build the
organisation as if all key customers are equidistant from the corporate headquarters. It
-does not take the position of being national operators venturing abroad, but thinks of
being essentially global operators.

As a national policy, globalisation may be interpreted as a policy of opening up the

national economy for unrestricted flow of goods and services, capital and technology,
as also of natural and human resources across the border. So far no country has
adopted such a policy, strictly speaking, though efforts are on to minimise restrictions
on international trade not only with respect to goods but also of services and
intangibles. In this connection we may refer to the wide range of policy initiatives
announced by the Government of India since 1991 including policies bearing on
liberalisation, privatisation and globalisation. Globalisation as a component of
economic reforms may be interpreted to mean external sector liberalisation, that is,
relaxation of restrictions on international flow of goods, services, capital and
technology. This may be regarded as outward orientation of the economy. Among
other things, the following major steps have been taken towards globalisation:

The exchange rate management system has been overhauled, and the rupee has
been made convertible at the market rate of exchange in respect of all current
account transactions.
 Globalisation and WTO
The number of importable items without licence has been increased by bringing
those under Open General Licence (OGL).
The maximum rate of import duty on goods has been gradually reduced from 1 10%
to 20%.
4 Exporters are allowed to import capital goods and other inputs at concessional
rates of duty.
@ Foreign direct investments (FDI) upto 51% equity is approved in high priority
industries without any bottleneck in the process.
0 Foreign technological collaboration between Indian and foreign companies is
granted automatic permission within specified parameters.
0 Foreign institutional investors are permitted to invest in all securities traded on the
primary and secondary capital markets.
Overseas corporate bodies (OBCs) and NRIs are allowed to invest upto 100%
equity in high priority scheduled industries with full benefits of repatriation of
capital and income thereon subject to certain conditions.
The Indian corporate sector is encouraged to access global capital market through
GDR and ADR mechanism.

19.3 IMPLICATIONS OF GLOBALISATION

Globalisation as a policy cannot have similar implications for all countries. Industrially
"eveloped countries, developing countries and least developed countries are likely to
encounter different kinds of impact. But evidence in this respect are not conclusive.
For instance, globalisation has led to the reduction in inequalities in gIobal income and
[b poverty. According to a World Bank Report, opening up of the Chinese economy to
world trade has brought about its growth of per capita income from 1460 in 1980 to

I
I
4120 in 1999. In 1980, the American earned 12.5 times as much as the Chinese, per
capita. By 1999, they were earning only 7.4 times as much. Reportedly the gap
between rich and poor is also shrinking with most nations in Asia and Latin America.
Countries that are not open to world trade, like many African nations, are
correspqndingly reported to be getting poorer.
(
I
Lower tariff barriers in developing and less developed countries is expected to lead to
several favourable outcomes e.g. increase in employment and national income because
labour and capital shift from import competing industries to expanding newly
competitive export industries. Apart from generating employment and creation of jobs,
corporate moving to developing countries often provide higher wages and conducive
working conditions compare with those in domestic compariies operating in the
country.

On the contrary, according to the UNDP Development Report (1999), over the past ten
years, the number of people earning $1 a day or less has remained static at 1.2 billion,
while the number earning less than $2 a day has increased from 2.55 billion to 2.8
billion. The gap in income between the 20% of the richest and the poorest countries
has grown from 30 to 1 in 1960 to 82 to 1 in 1995. Again, by 1998-99,20% of the
world's population living in the highest-income countries had
(a) 86% of the world's GDP, the bottom 20% just 1%;
(b) 82% of world export market's the bottom 20% just 1%
(c) 68% of foreign direct investment, the bottom just 1%; and
(d) 74% of world's telephone lines, the bottom only 1.5%
I
International and Technical The difference between the favourable and unfavourable indicators of the impact of
Environment
globalisation reflected in the World Bank and UNDP reports is not wiihoclt reason. It
is due to the way that poverty gap is assessed. The UNDP measure of wealth is
denominated by US dollar. The gap has widened with the steady increase in the value
of US dollar against other currencies until recently. The World Bank uses purchasing
power parity to assess what can be bought in local currency. A currency may devalue
against the US dollar, but most articles purchased in the domestic market are paid for in
local currency. There is no decline in prices because of appreciation of the US dollar.

So the comparative impact of globalisation assessed in terms of income inequalities is

not conclusive. In general, however, with the lowering of trade barriers and flow of
capital, corporations in developed countries may be expected to take advantage of
opportunities for growth and increased profitability in the untapped markets of the
developing countries. It may also be a way out from the competitive environment and
demand saturation in the home market. The advantage of availing cheaper labour is
also another factor which Corporate in developed countries look forward.

What are the potential benefits likely to be derived by developing countries?

Obviously, more efficient use of resources should follow globalisation as industries
face the challenge of intensive competition. It will be necessary also for export houses
to gear up productive efficiency with state of the art technology and ensure managerial
skills to come up to international standards. And, thus, if the foreign exchange
constraint eases, economic growth can be that much assured. Besides, transfer of
modern technology from abroad may be of considerable advantage also to domestic
industry.

However, the implications of globalisation for developing countries may not be

favourable in all respects. Small and medium scale units in many industries may find it
impossible to cope with the competitive strength and resources of multinational
corporations. As a result not only the growth of such units may be stunted, their
survival may also be at stake. Use of capital intensive technology may also lead to
growing pressure of unemployment. Worse than that, the workers who remain
employed suffer from an increasing sense of insecurity. The focus is often on labour
market flexibility as the solution of unemployment. Dominance of consumer product
markets by MNCs is another fall out of globalisation. This is generally reflected in the
market environment characterized by monopolistic competition or oligopoly. The
competitive strategy of the giant players is directed more and more towards increased
outlay on ad campaigns and the resultant cost increase is passed on to the consumers.
The scant concern of the MNCs about public interest or social policy in the developing
host countries is another negative impact of globalisation. Critics have underlined the
local traditions, culture and social values in host countries; they often change the
consumption habits of people for their own benefit against the long run interest of the
local community, promoting conspicuous consumption and dumping harmful products.
There is also the risk of powerful global corporations interfering with the political
processes in host countries, destabilizing established governments, which they do not
approve of, and even threatening the sovereignty of nations.
Check Your Progress A
1 What do you mean by globalisation ?
2 State any two potential benefits likely to be derived by developing countries as a Globrlisrtion md WTO
result of globalisation.

............................................................................................................
3 'Enumerate any two impact of globalisation on developed and developing countries.
............................................................................................................

19.4 GATT AND MULITILATERAL TRADE

NEGOTIATIONS
The General Agreement on Trade and Tariffs (GATT) was drawn up in 1948 as a
framework for international trading system, and international trade relations among
member nations continued to be guided by GATT since then. Its primary objective was
liberalisation of trade restrictions so as to bring about all round prosperity.
Accordingly, GATT incorporated certain conventions and rules and general principles
to govern international trade among member nations. The conventions o; rules
required that (i) any change in tariff, or other type of commercial policy of a member
country should not be undertaken without consultation with other parties to the
agreement; and (ii) member countries should work towards reduction of tariffs and
barriers to international trade, which should be negotiated within the framework of
GATT.

19.4.1 Principles Adopted by GATT

Three basic principles were incorporated in GATT for realisation of its objectives, viz.,
principles of non-discrimination, prohibition of quantitative restrictions, and
consultation. Let us learn them:

Non-discrimination : The principle of non-discrimination required that only non

member countries discriminate between members of GATT, the member countries will
not discriminate in the conduct of international trade. Applying the principle of Most
Favoured Nation (MFN), each nation was to' be treated as the most favoured nation in
the matter of the import and export duties. Even quantitative restrictions too were to be
administered without favour. GATT permitted formation of Customs Union and free
trade areas provided the purpose was to facilitate trade and not to raise trade barriers
against other parties. GATT also permitted counter-dumping measures and export
subsidies but only with respect to offending countries.

Prohibition of quantitative restrictions: According to this principle, quantitative

restrictions were to be prohibited as far as possible and trade restrictions were to be
limited to less right tariffs. However, exceptions to this principle were granted to
countries facing balance of payments problem and also to developing countries.
Besides import restrictions could be applied to agricultural and fishery products.

Consultation : Under this principle, GATT provided a forum for continuing

consultation among member nations to resolve disagreements.
33
International and Technical 19.4.2 Uruguay Round of Negotiations
Environment

Several rounds of trade negotiations were held under the auspices of GATT, each
round continuing for more than the scheduled four year period. The eighth and last
round of negotiations (known as Uruguay Round) was held in Punta del Este, a small
town in Uruguay, from September 1986 and continued till December 1993. Until the
Uruguay Round of negotiations (UR), GATT was concerned mainly with international
trade in goods and concentrated primarily on reducing tariffs and non-tariff barriers.
The Uruguay Round (LTR) extended the scope of negotiations so as to include
liberalisation of trade in services, trade related aspects of intellectual property rights,
and trade related investment measures.

Before we examine the outcome of negotiations, let us briefly consider the impact of
GATT on international trade. There was considerable liberalisation of trade which
continued during the period 1950 to 1973. The average level of tariffs on manufactured
goods in industrial countries declined from 40% to nearly 3%, rate of growth of
industries and international trade of developed nations also went up substantially
during the same period. But the impact of GATT was not so favourable in the case of
developing countries. Trade in agriculture particularly was progressively more
distorted on account of restriction on imports and subsidy to exports by the industrially
advanced countries. Also trade in textiles was subject to the Multi-fibre Arrangement
(MFA) whereby quota restrictions were applied in a number of developed countries
with respect to import of textile items. Indeed the consistent liberalisation of trade
suffered a set back after 1974. The developed countries substantiany increased non-
tariff barriers since 1974. The urge for protectionism increased both in developing and
developed countries following the oil crisis early in the 1970s.

It has been earlier mentioned that the Uruguay Round Negotiations dragged on beyond
December 1990, the scheduled duration. This was mainly on amount of the
complexities of the new issues involved and the conflict of interests among the
participating countries. At this stage, Arthur Dunkel, the then Director General of
GATT, presented a draft agreement (since known as the Dunkel Draft) embodying the
results of the negotiations till then. The draft was deliberated upon, enlarged and
modified, which formed the basis of an International Trade Accord, and signed by
Ministers of 125 nations on 15" April 1994. It came to be effective from 1995. As per
provisions of the draft agreement, the World Trade Organisation (WTO) was
established as a formal international organisation. By November 200 1, WTO had 144
member nations including China and Taiwan.

19.5 WTO : FUNCTIONS AND COVERAGE

The functions of WTO as a formal institutional arrangement providing a framework for
international trade relations, include the following five dimensions:

(i) To facilitate implementation, administration and operation, and further the

objectives of the Multilateral Trade Agreements, and also provide the framework
for implementation, administration and operation of plurilateral Trade Agreements;
(ii) To provide a forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with under the agreements;
(iii)To administer the understanding on rules and procedures governing the settlement
of disputes;
(iv) To administer the Trade Review Mechanism; .
 Globalisation and WTO
(v) To Cooperate, as appropriate, with the IMF and IBRD and its affiliated agencies
with a view to achieving greater coherence in global economic.policy making;

The General Council of WTO is to oversee its regular business while its general
direction lies with a Ministerial Conference, which is to meet once every two years.
The first Ministerial meet was held at Singapore in December, 1996, the second at
Geneva in May 1998, the third at Seattle (USA) in Nov-Dec. 1999, the fourth at DOHA
(Qatar) in November, 2001, the fifth at Cancum in September, 2003 and the sixth at
HongKong in December, 2005.

The coverage of W.T. 0. has been the outcome of UR Negotiations which resulted in
agreements on several aspects of world trade as follows :

(i) Liberalisation of trade in manufactures through tariff reduction in both developed

and developing countries;
(ii) Abolition of non-tariff barriers and phasing out of Multifibre Arrangement (MFA)
which involved restrictions on textile imports;
(iii) Liberalisation of agricultural trade through replacement of non-tariff restrictions by
tariff, and then by tariff cuts, reduction of subsidies and specified domestic support;
(iv) General Agreement on Trade in Services (GATS) providing for liberalisation and
extending the multilateral rules and discipline to services.
(v) Agreement on Trade Related Investment Measures (TRIMS) which forbids
restrictions which are inconsistent with WTO Articles and have to be phased out;
and
(vi) Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS),
which provides for intellectual property rights (IPRs) to be legal protected by
patents, copyrights, etc.

19.6 AGREEMENT ON TRADE RELATED

INVESTMENT MEASURES (TRIMS)
1
Trade related investment measures refer to measures relating to investment, which
affect investment in some way. Such measures may be positive or negative. Positive
t TRIMS involve any inducement to a company to invest in a certain location, such as
tax incentives, tax holidays, subsidies relating to employment or location. These
measures are used by both developed and developing countries.

1 Negative TRIMS refer to measures that involve some form of limit on the activity of a
company as a condition for allowing its investment. It may include, for example:
(a) Product mandating: where the production of certain goods for local consumption
is a condition of establishment;
(b) Export balancing: Where the company is required to export goods of the value of
items that it imports so as not to damage the country's balance of payments
position;
E
(c) -Local content requirement: Where the company is required to include a certain
i percentage of locally produced goods in its production.
i
1 Such measures are primarily used by developing countries.
i C
The Agreement on TRIMS covers ,only negative measures. The issue of positive
TRIMS is covered by the Subsidies agreement. In shod, subsidies related to regional
t
International and Technical
policy are excluded from the agreement, i.e., geographically directed subsidies aimed at
Environment
improving employment and investment conditions.

There are two parts in the agreement on TRIMS, viz., a statement of principle and
prohibition of certain activities. The statement of principle states that no country shall
institute any measure that is inconsistent with the following two principles of the
GATT system:

(i) National treatment whereby an exporter must be treated on the same terms as a
domestic producer; and
(ii) The prohibition of quantitative restrictions for example, avoidance of quotas.

Thus, the following measures are prohibited under the Agreement on TRIMS:
(i) Those, which are inconsistent with the principle of national treatment, viz.,
(a) Local content requirement (a company being required to use a certain volume
or value of local products);
(b) Import balancing ( a company being required to export goods to balance the
value of goods imported by it);

(ii) Those, which are inconsistent with the principle of elimination of quantitative
restrictions. Viz.,
(a) Import limitation (limitation of the level of imports to the export levels or local
content requirement);
(b) Export limitation (the company's exports being limited to either a share of total
production or of the type of product exported);
(c) Foreign exchange limits (the company's access to foreign exchange being
limited to the foreign exchange generated by its exports).

Besides prohibition of the above measures, there is also a list of prohibited activities.
Measures in force and covered in the list were to be notified to the Committee on
TRIMS. All measures were to be phased out by developed countries in two years, by
developing countries in five years, and by least developed countries in seven years.
There is provision for extension of the time for developing countries in case of any
particular difficulty. A country can also impose TRIMS on any new investment while
it is being phased out. This is permitted so as not to damage the position of any
company already operating under TRIMS.

The trade effect of any TRIMS is indirect. What is directly aimed at by regulation may
not affect trade, but its indirect result does.

Check Your Progress B

1 State the principle of non-discrimination that governs trade relations among

members of GATT.
 Globalisation and WTO
2 What do you mean by TRIMS ? 8

...................................................................................................

1
3 Give two examples of TRIMS generally used by developing countries.
...................................................................................................

19.7 AGREEMENT ON TRADE RELATED ASPECTS

OF INTELLECTUAL PROPERTY RIGHTS (TRIPS)
In order to protect the rights of the inventors, the agreement on Trade Related aspects
of Intellectual Property Rights was finalised. Let us discuss them in detail.

19.7.1 IPR Under the,Agreement on TRIPS

In the agreement on TRIPS, Intellectual Property Right (IPR) is defined as a composite

of ideas, inventions and creative expression" plus the public willingness to bestow the
status of property on them and give their owners the exclusive right over it. The
specific forms of IPR under the (Agreementon TRIPS include patents, copyrights,
trademarks, industrial designs, layout designs of integrated circuits, trade secrets
(undisclosed information) and geographical indications. Let us discuss the nature of
these forms of IPR.

Patent or Patent Rights : It refers to protection granted by a government to an

inventor for a fixed period during which he holds the right to exclude otkers from
exploiting the invention. Through a patent, a new product or process may be
introduced. Also it may trigger innovation by others. This is beciuse the holder of
patent right has to disclose details of the invention to the public. Thus, others have free
access to information and concepts that could be used as starting points to further
improve or arrive at a totally new invention.

Trade Mark : It refers to any name, symbol, word, device, or a combination of these
to identify and distinguish a product from those manufactured or sold by others. The
trademark once registered by a person or organisation confers exclusive right to the
person or company concerned.

Copyright: It offers protection to original works of writers/ authors in any tangible

medium of expression.

Industrial designs: These refer to product blueprints and architectural plans.

Trade secrets: may be any formula, pattern, device, or compilation of information

used in a business, which gives it an opportunity to derive an advantage over
competitors.
InternfitionaI and Tccbnicrl Geographical indication (also termed as appellation of origin): It refers to products
Environment
identified as typical of a geographical region, which gives the producers only from
those regions the right to name the produce by those names. For example, Champagne
refers to a type of wine produced in the Champagne region of France. Other examples
are 'Basmati Rice' (Produced in India and Pakistan), Scotch Whisky (produced in
Scotland), Chedder cheese (Produced in the Chedder region in U. K. ).

The Agreement on TRIPS requires that patents should be granted for any invention
relating to products or processes in all fields of technology provided they are new,
involve an inventive set up and are capable of industrial application. However, plants,
animals and biological processes are not patentable. Also, processes/methods for
treatment of human beings and animals are not patentable.

The Agreement applies the general GATT principles, particularly in the operation of
national treatment. Thus, nationals of a foreign country must be accorded the same
rights and privileges as nationals of the country concerned. The minimum period of
protection for IPRs laid down in the TRIPS Agreement are: Copy right - 50 years;
Patents - 20 years; Industrial Designs - 10 years; Layout Design - 10 years; Trade
mark - 7 years (renewable indefinitely).

19.7.2 Impact of TRIPS On Indian Economy / Industry

We have already noted that the Agreement on TRIPS provides for protection of IPRs
through patents, copyright, trademark, etc. While these rights have the potential
benefit of assuring consumers of restricting counterfeit goods, their jmplications in
general may not be beneficial for developing countries like India. The vast majority of
IPRs are registered by transnational corporations not only in developed countries but
also in developing countries. Pressed by those corporations developed countries have
been insistent on the inclusion of IPR protection as a part of multilateral trade relations.
Analysts are particularly critical of the TRIPS agreement as being highly weighted in
favour of patent-holders while protecting the interest of MNCs and developed
countries. The protection is characterised as basically anti-competition and anti-
liberalisation. Thus, it should have been dealt with the existing World Intellectual
Property Organisation (WIPO) rather than being included in the GATT system which
was essentially meant for liberalising trade.

It is apprehended by many that the Agreement on TRIPS may adversely affect the
Indian economy and Indian industries in several respects. The following effects are
particularly noteworthy.

Under the Indian Patents Act, 1970, only process patents could be granted for a period
of 5-7 years in the case of inventions relating to food, chemicals and medicines. In
other cases, the Act provided for a general term of 14 years for both product and
process patents. The TRIPS agreement, however, requires that product patents are also
to be granted for food, chemicals and medicines, and the general terms of the patents
will have to be 20 years. This implies that generic drugs and medicines cannot be
marketed for 20 years until the expiry of the patent rights. Thus, the generic Pharma
' products, which are more economical, will not be available to the public and the poorer
sections of the people particularly will suffer. Of greater concern is the possibility that I

the patentees, mostly MNCs, will be in a position to hike the prices of drugs and
medicines.

The negative effects and apprehensions have been played down by some from a
35 different angle. It has been pointed out that less than 16 per cent of the Indian pharma
 Globalisation and WTO
market is accounted for by patented drugs, and even within that segment, more than
half of the drugs have equivalent therapeutic substitutes. Even otherwise it is pointed
out, abuse of monopoly power may be controlled by Government to prevent price
hikes, for which the Drug Price Control Order is normally used. It is also argued that
the life-saving drugs which are imported and sold at exorbitantly high prices, should be
available at affordable prices and prices of many other drugs will fall, once patent
protection is available in India and the drugs are produced within the country. With the
patent system in place under the TRIPS agreement, India could very well be expected
to become the production base of MNCs followed by increased exports of
pharmaceutical products from India.

Let us consider another issue in the same context. With regard to inventions relating to
food, medicine or drugs, the amount of royalty or any other remuneration payable to
the patentee under a licence granted to any person, there was a ceiling prescribed under
Indian law. Also, for all patents, in the event of any alleged infringement, the burden
of proof was on the patentee. Besides, the Patents Act provided for compulsory
licensing of patents as also revocation of patents in the public interest. Under the
TRIPS agreement, there can be ceiling on the royalty demanded on patents. Once
granted, patent rights cannot be revoked. And the burden of proof for alleged
infringement is to be on the person or firm accused of infringement. With these terms
and conditions in the new patent system, the market may be titled against Indian
Pharma companies, which were otherwise acknowledged worldwide, as most price
competitive quality-wise. Many of these operating on a medium scale were likely to
close down not to speak of small firms. So far the prognosis has not proved to be true.
Indeed, Indian Pharma majors like Ranbaxy and Dr. Reddy's Lab have had remarkable
achievements with their business abroad.

Another aspect of TRIPS agreement of potential concern release to the patenting of

plant varieties as an extension of IPR. Plant breeding and seed multiplication in India
are undertaken by public organisations, mainly the Universities and the Indian Council
of Agricultural Research (ICAR) as well as the National and State Seed Corporations.
In view of the MNC's ability to invest massive resources in breeding new plant
varieties, patenting of plants will be highly profitable to them. As such, Indian research
organisations will be no match and will be helpless if denied access to patented genetic
*
material. It is quite likely that control over India's genetic resources, seed production
and breeding of new plant varieties will devolve only on large foreign companies.

India's biodiversity also needs protection against bio-piracy by firms and individuals in
developed countries, which can be prevented if we have a sui generis system, a legal
mechanism to protect India's heritage of common knowledge and what are there in the
ancient scriptures and books. There are innumerable varieties of medicinal plants of
which only a fraction has been utilised so far. If 'turmeric' can be patented abroad for
its healing properties, why not 'neem' and other plants for their medicinal value ?

There is provision also in the TRIPS agreement whereby patenting can be extended to
microorganisms - bacteria, virus, algae, fungi, small plants and animals and even
genes. Future development in several fields agriculture, pharmaceuticals and
biotechnology are closely linked to micro-organisms. In these fields, the MNCs
already occupy a dominant position as regards to patent rights. Also their resource
I position will enable them to acquire patents at a much faster pace.
Intel-national and TerhnicaI Check Your Progress C
Environment

1 What do you mean by Intellectual Property Rights?

...................................................................................................

....................................................................................................
2 Match the terms and expressions given in the two columns below:

Column (I) Column (11)

(i) Patent (a) ~rchitecbralPlan
(ii) Copyridlt (b) Original Pattern of a fabric
(iii) Industrial design (c) A name with a symbol
(iv) Layout design (d) Innovation of a new process
(v) Geographical indication (e) Product blue print
(vi) Trade mark (f) A book to be published
(vii) Trade secret (g) Basmati rice

3 State any two beneficial effects, which may follow when the TRIPS agreement is
operative in India.
...................................................................................................

19.8 THE INDIAN PATENTS ACT, 1970 :AN

OVERVIEW .
Patents are granted to encourage the inventions. Indian Patents Act, 1970 discusses
detailed procedures of patenting. Let us learn them.
s

19.8.1 What is an Invention .?

Under section 2(1) (i)of the Act, the term invention is defined as
any new and useful (i) art, process, method or manner of manufacture; (ii) machine,
apparatus or other article; (iii) substance produced by manufacture; and includes any
new and useful improvement of any of them.
The Act has specifically declared the following as not to be inventions, and hence not
patentable.

(i) a method of agriculture or horticulture,

(ii) any processor of the medicinal, surgical, curative, prophylactic treatment of human
beings, or any process for a similar treatment of animals or plants to render them
.free of disease or to increase their economic value or their prodws. Under section
4, inventions relating to atomic energy are also not patentable. a
 Glebaliutiea 8.d WTO
19.8.2 Patenting of Inventions

General Principles: As per Section 83 of the Act, the general principles applicable to
I the working of patented inventions are :
I

(i) That patents are granted to encourage and to secure that the inventions are worked
in India on a commercial scale and to the fillest extent that is reasonably
practicable without undue delay; and
(ii) That they are not granted to enable patentees to enjoy a monopoly for the
importation of the patented article.

Products and process patents: Under Section 5 of the Act, inventions are specified
where only methods or processes of manufacture are patentable. Thus, in the case of
inventions:
/
I
-
1 (a) Claiming substances intended for use, or capable of being used, as food or as
, medicines or drugs,
(b) Relating to substances prepared or prqduced by chemical processes (including
alloys, optical glass, semi-conductors and inter-metallic compounds) no patent
shall be granted in respect of claims fdr the substances themselves, but claims for
the methods or processes of manufacture shall be patentable. (this provision has
been amended in 1999 in view of the TRIPS agreement, and is discussed in the
next section.)

Application for patent : An application for grant of a patent for an invention can be
made by any persons claiming to be the true and first inventor, or an assignee of the
person, or the legal representative of a deceased person who was entitled to make such
an application. The application can be made by any of the above persons either alone
or jointly with any other person.

It is W h e r stipulated that every application must describe the invention and have a
title indicting the subject matter to which the invention relates. It must include
complete specification of the invention which; (a) filly and particularly describes the
invention and its operation or use and the method by which it is to be performed; (b)
disclose the best method of performing the invention known to the applicant; and (c)
end with a claim or claims defining the scope of the invention.

Convention countries : There is provision in the Act that the Government of India
may notify the names of those countries as Convention countries outside India which in
filfilment of a treaty or convention or arrangement affords to Indian citizen similar
privileges as are granted to its own citizens in respect of grant of patents or protection
of patent rights. Where a person has made an application for patent in a convention
country (basic application) and that person or the legal representative or assignee of
. that person makes an application for a patent in India within 12 months after the date of
the basic application, the priority date of a claim of the complete specification will be
treated as the date of making the basic application.
,
Compulsory Licence : As mentioned earlier, one of the principles governing grant of
patent right is that the patented invention should be worked in India on a commercial
scale. If that is not done within three years, any person can make an application to the
Controller of Patents for grant of a compulsory licence to work the patented invention
d s 84-88, it is provided that after the expiry of three years from the date of sealing of a
patent, any interested person can file an application alleging that reasonable
International and Technical requirements of the public with respect to the patented invention have not been
Environment
satisfied or the patented article is not available to the pubic at a reasonable price, and
ask for grant of a compulsory licence to work the patented invention.

The Central Government can also make an application to the controller for an order
that a patent maybe endorsed with the words 'Licences of right' on the same grounds as
above. In the case of inventions relating to substances used as food, medicine or drug,
and methods or processes for the manufacture of food, medicine, drugs and chemical
substances, the patents granted shall be deemed to have been endorsed with the words
Licences of right.

Where any person has prayed for grant of a compulsory licence to work a patented
invention, or where the patent has been endorsed or deemed to have been endorsed
with the words licences of right, the Controller may require the patentee to grant a
licence to the interested p'arty on mutually agreed terms. If the parties are unable to
agree on the terms of licence, either party may apply to the Controller to settle the
terms. However, in the case of patents for inventions relating to food, medicine or drug
or chemical substances, the royalty or other remuneration payable to the patentee under
a licence is not to exceed 4% of the net ex factory sale price in bulk of the patented
article exclusive of taxes levied and any commission payable.

If the patent right is held by the patentee for a period of two years without action even
after compulsory licence has been granted, or endorsement licences of right has been
made, or deemed to have been made, the patent may be revoked by the Controller on
an application from the Central Government or any interested party that reasonable
requirements of the public have not been satisfied or the patented invention is not
available to the public at a reasonable price.

19.8.3 Amendment to the Patents Act Consequent upon Agreements on

TRIPS

As a party to the Agreement on TRIPS, India was committed to amend the Patent law
in conformity with the agreement. The World Trade Agreement came into effect from
January 1, 1995. The national patent system was required to be brought in tune with the
Agreement within a period of 10 years, and it was obligatory for India to amend the
Patents Act by 2000, for processing applications for patents generally take 5 to 6 years.

The Act was amended in 1999 changing the provision of Section 5 bearing on patents
relating to invention of food, medicine, drug or chemical substances. The amendment
incorporated a new Chapter IV A in the Act which provided that applications for grant
of patents for medicine or drug shall not be considered by the Patents Office till
December 3 1,2004. However, if there is also an application for exclusive right to sell
or distribute the article or substance in India, the Controller of Patents shall refer the
application for patent to an examiner for his report as to whether it relates to an
invention and a patent can be granted. If so, exclusive right to sell or distribute the
article or substance will be granted for a period of five years or till a patent is granted
whichever is earlier. It may be recalled that the Patents Act provided for only process
patents to be granted in the case of food, medicine and drug, and chemical substances.
The first amendment to the Act in 1999 has provided for product patents also to be
granted in medicine and drug.

The second amei~dmentto the Act, made effective in May 2002, provides that the term
of patents in respect of pharmaceutical products (medicine and drugs) shall be ten years
 Globalisation and WTO
from the date of sealing of patents. This was the outcome of the WTO Ministerial
Conference earlier held at Doha (in Qatar) from 9-1 4 November 200 1. For all other
products the term of patents shall be 20 years from the date of filing of applications as
per the TRIPS agreement. uls 53, it was earlier provided that the terms of patsnts shall
be 5-7 years in the case of food, medicine, drug and chemical substances, and 14 years
in other cases. Under Section 88 (5) of the Patents Act it was provided that the royalty
or fees payable to the patentee by the licencee in respect of food, medicine or drug or
chemical substances, would be restricted to 4 percentage of the net ex-factory sale price
in bulk of the article. The amendment of this provision in 2002 now permits royalty
and other fees to be paid within 4-g percent of the annual sale price. It is further
provided that the licensee shall be entitled to commence production of the patented
product immediately on grant of the licence irrespective of any dispute raised in this
regard by the patentee. The amendment has also provided that for medicine or drug,
only a new chemical identity or a new technology shall be accepted as an invention. A
related product shall not be constructed as an inventive step. A new sub-section has
also been added to Section 66 of the Patents Act to provide that where supply of any
patented material./ substance is blocked by the patent-holder for political or any other
reasons, the patent may be revoked without assigning any reason or notice.

19.9 PROBLEMS AND ISSUES

It is generally agreed that the Uruguay round (UR) of multi-lateral trade negotiations
which led to the establishment of WTO have widened the scope of international trade
but have not so far yielded the desired understanding between the developed and
developing countries. The following are some of the problems and issues which are yet
to be resolved.

The General Agreement on Trade in Services (GATS): GATS includes the basic
obligations of all member nations on international trade in services including transport,
telecommunication, financial services, audio-visual media, tourism, professional
services as well as movement of personnel. The obligations are:
(i) Most favoured Nation (MFN) obligation which prevents countries from
discriminating between foreign suppliers of services;
(ii) Transparency requirement which makes it obligatory for each country to promptly
publish all its laws and regulations pertaining to services and international
agreements on trade in services to which a member is signatory;
(iii) Obligation of each member to promptly respond to all requests for specific
information from any other member with regard to any aspect of services covered
by GATS. However, confidential information need not be provided disclosure of
which may impede law enforcement, or is otherwise against public interest, or
which would prejudice legitimate commercial interest of particular enterprises.

Services are particularly protected in many countries mainly on account of their special
characteristics and their political and socio-economic implications. The measures to
protect services may be visa restrictions, investment ceilings, marketing restrictions,
restriction on employment of foreigners, compulsions to sue local faculties, etc. The
apprehension is that liberalisation of trade in services will lead to: (a) domination of
MNCs in developing countries and (b) the deficit in invisible trade balances being
accentuated since developed countries already dominate the trade in services vis a vis
many developing countries including India. On the other hand, devebping countries
have certain advantages, many of the services being labour intensive and the average
monetary compensation of employees being lower than that bftindustrialised countries.
Internationai and Technical Developed countries consider this as aa unfair advantage, and they insist on labour
Environment
welfare considerations to be included in the agreement on trade in services.

Anti-dumping measures and safeguard action: With liberalisation of trade, cheaper

manufactured goods are likely to be imported causing serious damage to the domestic
industries in the importing country. A product of which the export price is less than the
normal price in the exporting country, or its price is based on cost plus reasonable
profit, is said to have been dumped when it is available in another country through the
liberal trade route. This is also a problem which developing as well as developed
countries may have to face. Manufacturing companies in India are known to face the
con~petitionof cheaper Chinese goods which are imported including steel sheets, bars,
electrical and gadgets, dry cells, toys etc.

Detailed rules are laid down in the UR Agreement regarding the procedure to be
followed for investigating and method of determining dumping and injury. A country
can adopt anti-dumping measures when there is serious damage to the domestic
industry. Also such measures are not permitted where the price difference (margin of
dumping) is 2 percent of the export price of the product, or the volume of dumped
imports is less than 3 percent of the imported product.

To protect a domestic industry against the adverse effects of a surge in imports and
when a domestic industry is threatened with serious injury, safeguard actions are
allowed to be taken. But there are time limits for such actions, safeguards required
have to be investigated, and there should not be any discrimination between the sources
of supply. Also certain gray area measures are specified which have been prohibited.

Protection of bio-diversity : The extremely rich heritage of India and some other
developing countries with respect to ancient scripts and texts as well as fauna and flora
constifute matters of serious concern in view of the necessity of their protection in the
national interest. Under the agreement on TR1PS;patenting of products based on our
national heritage is liable to threat from corporates in developed countries having
access to those preserves. Patents granted in the United State for inventions claiming
the healing properties of turmeric or the medicinal value of neem are example of bio--
piracy which are sources of worry. There is no sui generis special patent system to take
care of our rich bio-diversity. The agreement on TRIPS requires such a system to be
introduced.

Implementation issues: The implementation issues consist of a set of proposal for

rectifying instances of inequalities and imbalance submitted by a large number of
developing countries. The proposal relate to the modifications of GATT agreement of
1994 which continue to deny the developing countries of the legitimate benefits of
trade liberalisation even after the UR agreement. The contention is that on several
matters, the developed countries in letter and spirit have not implemented the UR
agreement. According to one view, subsidies to farmers granted by major developed
countries have, instead of coming down, gone up primarily because these countries
were able to switch over to subsidies permissible under the agreement on agriculture
before the commencement of its implementation. On the other hand, subsidies to
farmers and developing countries have been either prohibited or put in the actionable
category. The agreement on Textiles and Clothing (ATC) is another instance where the
developed countries sought to comply with the targets of liberalisation by taking credit
for the items already outside restriction. The developing countries did not have a fair
deal through liberalisation of textile trade has apparently benefited them.
 Globalisation and WTO
The above misusage typical of the nature of imbalances and asymmetries in a wide
range of clause on TRTPS, TRIMS, antidumping, movement of natural persons, etc.
The kind of problem which underlie the imbalan~esare traceable to what may be called
unequal participation. As UNDPE (Human Development Report 2000) observed, "Just
as inclusive democracy is needed to ensure minority participation at the national level,
inclusive global democracy is needed in which all countries - small and weak as well
as large and powerful - have a voice in decisions. Global economic policy making
occur in a world of grossly unequal economic and political power. The playing field is
not level when the teams have vastly different resources, expertise and negotiating
power. Poor and small countries can ill-afford the high costs of participating in the
WTO; for example, fourteen of them have either a one-person delegation in Geneva, or
none at all. They lack access to well-researched legal and economic policy advice.
And they cannot afford top legal representation in dispute settlement. The WTO, for
example, have been heavily criticised for this non-transparent and non-participatory
decision-making, depending more on information consensus than formal procedures."
As a result, some of the agreements are inherently unequal bad unbalanced.

Check Your Progress D

1 State briefly the two general principles governing patented inventions.

...................................................................................................

2 On what ground can one ask for grant of a compulsory .licence to work any
patented invention?
....................................................................................................

3 Can a patent right once granted be revoked? If so, why?

...................................................................................................

....................................................................................................
4 State whether the following questions are True or False.
i) The principle of non-discrimination states that the member countries will
discriminate in the conduct of international trade.
ii) WTO provides forum for negotiations.
iii) Under the Indian patents Act, 1970 only process patents could be granted for a ,
period of 15-17 years in the case of inventions relating to food, chemicals and
medicines.
iv) Under TRIPS agreement patenting can be extended to microsrganisms-
bacteria, algae, fungi, small plants and animals and even genes.
v) A method of agriculture is treated as invention.
International and Technical
Environment 19.10 LET US SUM LTP
The term globalisation has multiple connotations. It may be interpreted to mean
worldwide movement of resources - goods, services capital, technology as well as
human beings -without any restrictions. As a national policy, globalisation may be
interpreted as a policy of opening up the national economy for unrestricted flow of
goods and services, capital, technology, as also natural and human resources across the
border.

Globalisation as a policy cannot have similar implications for developed and

developing countries. There are differences in the favourable and unfavourable impact
of globalisation evident in the World Bank and UNDP Reports. In general, however,
with the lowering of trade barriers and flow of capital, corporates in developed
countries may be expected to take advantage of the opportunities for growth and
increased profitability in the untapped markets of the developing countries. In the
developing countries, on the other hand, more efficient use of resources should follow
globalisation as industries face the challenge of intensive competition. Export houses
are likely to gear up productive efficiency. And, if the foreign exchange constraint
eases, economic growth can be that much assured. Besides, transfer of modem
technology from abroad may be of considerable advantage also to domestic industry.
But the impact of globalisation in developing countries may not be favourable in all
respects. The growth of small and medium scale industrial units may be stunted and
their survival may also be at stake in the face of competitive strength and resources of
MNCs. The market environment may also be characterised by monopolistic
competition or oligopoly. Business strategies and practices of global corporations
could and do undermine local traditions, culture and social values in host countries
while promoting conspicuous consumption and dumping harmful products. There is
also the risk of interference with the political processes in host countries.

The GATT incorporated certain conventions and rules and general principles to govern
trade relations among member nations. The basic principles included were the
principles of non-discrimination, prohibition of quantitative restrictions, and
consultation. The World Trade Organisation (WTO) was established as a formal
institutional arrangement effective from January 1, 1995.

The functions of the W.T.0 are: (i) to facilitate and provide the framework for
implementation, administration and operation of the Multilateral and Plurilateral Trade
Agreements; (ii) To provide a forum for negotiations among members; (iii) To
administer the understanding on rules and procedures governing the settlements of
disputes; (iv) to administer the Trade Review Mechanism; and (v) To co-operate with
the IMF and IBRD and its affiliated agencies in global economic policy making. The
coverage of WTO is the outcome of UR Negotiations, that is, (i) liberalisation of trade
in manufactures through tariff reduction; (ii) abolition of non-tariff liberalisation of
agricultural trade; (iv) general Agreement on Trade in Services (GATS); (v) agreement
on TRIMS; and (vi) agreement on TRIPS.

Trade Related Investment Measures (RIMS) refer to measures relating to investment,

which affect investment in some way. Such measures may be positive or negative.
The Agreement on TRIMS covers only negative measures. The issue of positive
TRIMS is covered by the. Subsidies agreement. Thus the following negative measures
are prohibited under TRIMS; (a) those which are inconsistent with the principle of
national treatment; and (b) those which are inconsistent with the principle of
 Globallsation and WTO
elimination of quantitative restrictions. Besides there is also a list of prohibited
activities.

In the Agreement on TRIPS, Intellectual Property Right is defined as a composite of

ideas, inventions, and creative expression plus the public willingness to bestow the
status of property on these and give their owners the exclusive right over it. The
specific forms of IPR include patents, copyrights, trademarks, and industrial designs,
layout designs of integrated circuits, trade secrets and geographical indications. As per
the TRIPS Agreement, nationals of a foreign country must be accorded the same rights
and privileges as nationals of the country concerned.

While protection bf IPRs under the TRIPS agreement has the potential benefit of
assuring consumers of restricting counterfeit goods, its implications in general may not
be beneficial for developing countries like India. It is apprehended that the Agreement
on TRIPS may adversely affect the Indian economy and Indian industries in several
respects. It is appreherfded that prices of drugs and medicines will be increased once
product patents are allowed since generic drugs and medicines cannot be marketed for
a long period till the expiry of patent rights. With the rights and privileges of the
patentee under the new patent system, the market may be tilted against the Indian
Pharma companies. It is also likely that control over India's genetic resources, seed
production and breeding of new plant varieties will devolve only on large foreign
companies. Further, it will be difficult to protect India's bio-diversity against bio-
piracy by firms and individuals in developed countries unless we have a sui generis
system. If patenting is extended to micro organisms - bacteria, virus, algae, fungi,
genes - future development in agriculture, pharmaceuticals and biotechnology will be
entirely dominated by MNCs as they occupy a superior position already in these fields
as regards patent rights.

The term invention for which patent can be granted has been defined by the Patents Act
1970. It has also specified what are not inventions and hence not patentable. The
Indian Patents Act was amended in 1999 and 2002 in conformity with the Agreement
on TRIPS to which India was a party. Some of the problems and issues arising out of
the trade negotiations which are yet to be resolved relate to GATS, anti-dumping
measures and safeguard action, protection of bio-diversity, and implementation issues.

19.11 KEY WORDS

Copyright : Exclusive right granted to original works of writerslauthors in any
tangible medium of expression. It is related to literary, artistic, musical works
expressed through print media, photographs, audio-visual works (films and TV
programmes), sound recordings and computer programmes.

Counter veiling duty :Customs duty imposed on imports to balance a subsidy paid to
overseas producer.

Dumping : Dumping takes place when a products of which the export price is less than
the normal price in exporting or its price is based on cost plus reasonable profit
available in another country through the liberalised trade route, and domestic firms are
thereby injured.

Geographical indication : Refers to products, which gives the producers the right to
name the produce by those names e.g., Champaign rice), Scotch Whisky
\
(Scotland), etc. only from that region 47
Imternrtionrl and Technicrl Grey-area measures : These refer to agreements by exporters to limit the volume of
Environment
exports they export to country or agreement to set a minimum price for those goods.

Industrial design : As a form of intellectual property right, it refers to product

blueprint and architectural plans.

Intellectual Property Right (IPR) : A composite of ideas, inventions and creative

expression plus public willingness to bestow the status of property on them and give
their owners the right to exclude others from access to or use of protected subject
matter.
~ulti-fibreArrangement (MFA) : Arrangement limiting exports from developing
countries to developed countries in an effort to protect the textile industries of the
developed world.

Non-tariff barriers : Quantitative restrictions or quota restrictions on imports/exports

of goods patents.

Patents : It refers to protection to an inventor for a fixed period during which the
person holds the right to exclude others from exploiting the invention.

Plurilatral Agreement : These agreements cover a small number of countries (as

opposed to multi-lateral agreement which involves many). There are four plurilateral
\ agreements now: Agreement on Trade in civil aircraft; Agreement on Government
Procurement; International Bovine Meat Agreement and International Dairy
Agreement.

Tariff barrier :Restriction on imports /exports by raising rates of customs duty on the
goods.

Trade Mark: It refers to any name, symbol, word, device or a combination of these to
identify and distinguish a product from those manufactured or sold by others. The
trademark once registered by a person or business firm confers exclusive right of this
use by the person or firm.

19.12 ANSWERS TO CHECK YOUR PROGRESS

C 2 i) d ii) f iii) c iv) a
v)g vi) c vii) b

D 4 i) False ii) Twe iii) False I) True v) False

1 Explain the concept of globalisation as a national policy with particular reference

to the policy initiative taken by the Government of India sine 1991.
2 Analyse the implications of globalisation as a policy for developing countries.
What are the potential benefits and adverse effects of such a policy from the point
of view of developing countries?
3 State the basic principles incorporated in GATT for the realisation of its objectives.
To what extent were these objectives realised?
 Globallsationand WTO
4 Discuss the hnctions and coverage of WTO as distinguished from GATT.
5 Distinguish between positive and negative aspects of TRIMS. -Whatare the
measures prohibited under the Agreement on TRIMS?
6 State the various forms of intellectual property rights sought to be protected under
the TRIPS agreement.
7 Explain with reasons the nature of impact likely to follow implementation of the
Agreement on TRIPS vis a vis Indian economy and industries.
8 Enumerate the salient features of the Indian Patents Act, 1970.
9 isc cuss the nature of amendments to the Patents Act 1970 which have been
effected consequent upon Agreement on TRIPS.
10 Since India's membership of WTO, what are the problems which are yet to be
resolved with respect to (a) GATS, and (b) Antidumping and Safeguard action?
Briefly explain.
11 What are the implementation issues which continue to linger and have to be taken
up at subsequent Ministerial meetings under WTO ?

Note: These questions will help you to understand the unit better. Try to write
answers for them, but do not submit your answers to the university for
assessment. These are for your practice only.