Vol. 2 :: No. 08 July, 2000 (Asadh-Shrawan)

Economy

Growing Trade with India

Though the total foreign exchange reserve in Rupee term increased 21.39% over one-year period ending mid-May 2000, decelerating growth in exports to overseas markets is resulting into reduced share of convertible foreign exchange, shows Nepal Rastra Bank (NRB) in its latest report

The share of convertible foreign exchange in total foreign exchange reserve was 87.48% on mid-May, 1999. It increased to 91.3% mid-September, 1999 and gradually decreased to 84.9% on mid-May 2000.

Exports to overseas increased 25.1% during the 10 months ending mid-May 2000 as compared to 25.4% increase during the same period previous year. Exports to India however increased 74.7% this year as compared to 49% last year.

Among the major items exported overseas, woolen carpet exports this year increased only 1.6 % as compared to 16.7% increase last year indicating a stagnation in its exports despite the fact that the industry has very much been successful in creating a child labour free image for its product. In readymade garment, the export growth was an enviable 48.6% this year as compared to 38.9% last year. Consequently, readymade garments have edged out carpets from the berth of the number one export item to overseas. The increase is due to growing non-quota exports, say the exporters. However, significant decrease is reported this year in the export of pulses (93.2%), tanned skin (53.5%) and nigerseed (84.5%). These items had recorded decrease in exports also in the previous year. Therefore, the figures this year indicate only the continuation of the trend. Silver jewelleries and silverware too have increased only marginally (2.3%) this year as compared to 21.1% increase last year.

Though NRB does not disclose the destination where Pashmina is being exported, it has reported that the value of Pashmina export during the first 10 months of the fiscal year 1999/2000 has reached Rs. 4760 million, a figure which is more than half of the value of carpet exports to overseas. And looking at the monthly reports published by NRB, the average monthly value of Pashmina exports has been growing continuously. It was Rs. 287 million till November, 1999, which increased to Rs. 435 million by mid-February, 2000. This fiscal year's cumulative total Pashmina exports of Rs. 4760 million as of mid-May gives a monthly export value of Rs. 476 million.

These data indicate towards massive growth in exports to India, which in turn has resulted into massive increase in imports from India (33.9 this year against 13% last year). According to NRB, increased imports from India were recorded in rice, pharmaceuticals, yarn, chemicals, farm implements and spares and other machinery.

Forex Reserve in Banking System

(Middle of the month)

Rs. in million

Exports

(First Ten Months)

(Rs. in million)

Major Exports Overseas

Rs. in million

Intellectual Property Rights

Better Wait & Watch

By Ratnakar Adhikari

Historical background

Traditionally, protection to intellectual property rights (IPRs) was provided by the State to reward ingenuity and creativity, so that "free riders" cannot imitate or reverse engineer the inventions for their private benefits. There was nothing wrong in this approach. Scientists and inventors do deserve protection against the theft or piracy of their inventions or creations.

With equal logic the state, in early 90’s, used to refuse IPR protection on some kind of inventions that seemed to be against public interests, the national and global security, public health or environment.

However, this concept has undergone a metamorphosis after Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement was forced down the throat of the Third World during the Uruguay Round of Multilateral Trade Negotiations held under the aegis of General Agreement on Tariff and Trade (GATT). TRIPs Agreement is now a part and parcel of WTO, but it contains a number of incongruent and incompatible element vis-à-vis the WTO. Transnational corporations (TNCs) housed in the developed countries were the forerunners in pressurising their governments to include a strong IPR Agreement in the WTO.

These companies have repeatedly accused the Third World of "technology piracy". In a 1986 survey, US companies reportedly stated that they lost US$ 23.8 billion due to inadequate or ineffective protection of intellectual property. The US agrochemical industry estimates that it loses over US$ 200 million in sales per year for this reason. The US pharmaceutical industry claims it has lost US$2.54 billion.

A UNDP study, however, shows the exactly opposite: developing countries would be owed as much as US $ 5.3 billion if they were compensated only two percent in royalties for global seed industry sales of US$ 15 billion and 20 per cent for pharmaceutical products derived from plants and knowledge indigenous to the third world. The 1994 report, Conserving Indigenous Knowledge Integrating Two Systems of Innovation prepared by the Rural Advancement Foundation International (RAFI) for UNDP, contends that about 80 per cent of the world’s population depends on indigenous knowledge to meet the food and medical needs.

During the early days, the developed countries of today used to consider strong patent regime as an impediment to their industrial development. When they were developing their economies, they had weak patent laws, thus enabling their own technological growth. Upon reaching a high-tech status later they imposed strict patent regimes and now want the Third World to do the same. Being already in an extremely dependent position technologically, the Third World is bound to bear the burnt of the TRIPs Agreement. The sole intention of this push is to block the technological development in the Third World and to increase the market access there for the products manufactured by TNCs.

As a result of its broad coverage and the nature of its provisions, TRIPs agreement requires significant body of national legislation. In many developing and least developed countries (LDCs), such an implementation calls for massive changes in existing laws, and demands huge amount of resources. Given the social economic circumstances of a country like Nepal, this is an uphill task. When Nepal becomes a member of WTO, which inevitably it will, there will be enormous burden on this resource strapped country.

Cost vs. Benefits

As stressed by the rich countries, the positive economic returns that would accrue to the South through stronger IPR protection include: increased level of innovation, increased technology transfer; greater inflow of foreign direct investment (FDI) economic growth and higher standard of living. However, the benefits are likely to vary considerably in accordance with the level of economic and technological development of the country concerned.

The TRIPs Agreement requires patent protection to continue for 20 years. Such a long duration does not have any economic rationale. For instance, the longest patent protection provided prior to coming into being of TRIPs Agreement was for 17 years, that too in a country like USA, which is the most vociferous supporter of strong IPR regime. In Nepal, as per Patent, Design and Trademark Act, this duration is only for seven years. Understandably, the TNCs are the sole beneficiary of the extended patent protection. Even in a country like USA, where patent protection period had to be extended by three years after coming into being of the World Trade Organisation, consumers were conservatively estimated to pay US $ 6 billion dollars in higher drug prices. Pharmaceutical companies made windfall gains during those years.

TNCs engaged in bio-technology, pharmaceutical, agro-chemicals, seeds and food businesses are the largest investors in research and development (R&D). They contend that higher patent protection stimulates more investment in R&D, in absence of which scientific development would cease and ultimately humanity will suffer. It is one thing to allow the companies to secure a reasonable return on their investment, which could be easily recovered with patent protection for 10-12 years. But it is an entirely different thing to provide monopoly right to the patent holders for such an unreasonable period and make the consumers, farmers and relatively smaller industries of the world suffer.

The rationale that stronger patent protection stimulates higher investment in R&D does not hold much water. Let us take the example of Nepal, where virtually no investment has been made in R&D by companies as well as individuals. During the course of a study jointly conducted by Pro Public and Action Aid Nepal, it was found that people do not invest on R&D because of cultural reasons. The fact that so far only 44 patents have been registered in Nepal and patent holders have not renewed their patents even after their expiry. It tells us the story of the people’s desire to invent and seek protection for them. Even when others have infringed the rights, the patent holders have not filed a complaint in the relevant court to punish the "violators". Another cultural reason is that we believe in sharing the knowledge and wisdom rather than attempting to gain monopoly rent from their use.

The protagonists of strong IPR regime have gained considerable success in convincing the policy makers of the Third World to buy the idea that this would lead to higher FDI inflow. However, a number of studies carried out by such credible organisations like UNCTAD reveal that IPR protection is not the key determinant of FDI inflow. China has been receiving the highest percentage of the FDI among the developing countries despite having a weak IPR regime.

Given the fact that TRIPs Agreement shall force all the countries to have a minimum level of IPR protection and that the IPR regime in all the WTO member countries are going to be harmonised or even homogenised by December 31, 2005 (i.e., deadline for all the member countries of WTO to comply with TRIPs requirement), this will become even the least significant determinant of FDI inflow.

It is not clear what the impact of increased protection is likely to be on the transfer of technology. On the one hand, it may facilitate access to technologies that the title-holders may be reluctant to transfer in the absence of intellectual property protection. On the other hand, with stronger protection, the risk of imitation will be lower and, to the extent that title-holders can exploit their technology alone, they may be less inclined to part with it. As a result, it could become more difficult to obtain protected technology and, if it is obtained, royalties and other charged are likely to be very high.

There is evidence to suggest that since the 1970s, policies and measures affecting access to technological and scientific knowledge held in industrialised countries have become more restrictive, reducing the flow of technology to developing countries. This trend could be reinforced by the higher levels of protection established by the TRIPs Agreement.

There is nothing hard and fast in technology transfer literature to support the liberal economic case for Third World adoption or enhancement of IPR regimes in order to promote North-to-South flows of technology. What is clear is that the international market for technology - if such thing exits – is imperfect, and current conditions are heavily skewed against developing countries wishing to gain access to new technologies.

It is clear from a number of studies that TRIPs Agreement will have deleterious impact on the biological diversity of the South as it perpetuates a process known as "bio-piracy" due to patenting of "life forms". As per TRIPs all the genetically modified versions of plants, animals and species will become patentable. Properties of some of the indigenous species of South Asia have already been patented by TNCs in the USA, Europe and Japan.

While 65 different patents have been provided in the various properties of neem so far in Japan and European Union, two patents on bitter grout, six on turmeric, and three on Katahar (Jackfruit) have been patented in the US. Sarpagandha, a plant used by the traditional healers and indigenous communities in Nepal and other Asian countries for the treatment of snakebite, is being commercialised as a medicine by a US company.

Nepal is considered one of the richest countries in terms of possession of biological diversity. It occupies only 0.1% of global area, but in terms of biodiversity, it is ranked 20th in the world. Developed countries not adequately endowed with diversity of genetic resources are attempting to legalise the transfer process of such genetic resources from countries like Nepal to the North through TRIPs Agreement.

Loss of bio-diversity will not only result in loss of life support systems of the indigenous people, but also in loss to the farming community and erosion of food security. Agri-biodiversity is a precondition for maintaining food security through traditional farming means. Commercial agriculture promotes a practice known as monoculture. Since TRIPs Agreement coupled with Union for Protection of New Varieties of Plants (UPOV) promotes monoculture, one crop epidemic could entirely wipe out the global food supply.

It has also been proven that strong patent regime mandated by TRIPs Agreement will result in increased prices for the patented drugs in countries like Nepal that have no capacity to invent their own version of drugs. This will push a vast majority of marginalised population without adequate access to health care facilities to further deprivation. The average period for the transfer of technology from developed countries to developing ones is 10 to 15 years. Thus Nepalese consumers can get the so-called "new" medicines only when their patents have expired. Pharmaceutical units without the capacity to invent will have to get contented with production of generic version of drugs, which are not necessarily "new" and "effective".

Government’s Position

His Majesty’ Government applied for the membership to the WTO in July 1998. The Working Party for Nepal’s Accession to WTO was set up in 1999 and its first meeting concluded in Geneva during May 22-23, 2000. It is learnt from the media that the Nepali delegation did not make any commitment during this meeting on whether and when it would comply with the requirements of TRIPs Agreement. However, morning does show the day, as mentioned below.

In its answers to the consolidated list of questions, (Working Party on the Accession of Nepal : Consolidated list of Questions) submitted by the Ministry of Commerce to the WTO, it has been clearly mentioned that the Ministry of Law and Justice was in the process of reviewing the draft of a new Industrial Property Law. The document further says that this Law will incorporate all the substantive provisions of the TRIPs Agreement, guaranteeing, therefore, the conformity of the Nepali IPR regime with its future obligations as a WTO member.

This is one area in which civil society organisations in Nepal have sharp differences with the government. Nepal being an LDC, the transition period allowed for the implementation of TRIPs obligations ends on December 31, 2005. Therefore, there is no hurry to bring our legislation in compliance with TRIPs. However, the government, as usual, having a propensity to assume that wisdom should confine within four corners of the government offices, chose not to listen to the plea.

It appears that Nepali business community too has lent its full support to the government in its desire to become a member of the WTO, without any reservations whatsoever. This implies that even if we do not have the domestic capacity to cope with the challenges posed by our entry into the WTO and to take advantage of the opportunities made available by us becoming a member, we should become a member of this global trade body. Expecting to take full advantage from it without concomitant increase in domestic capacity would be a "height of pessimism".

The Way Ahead

Becoming the last in enacting domestic legislation on IPR bringing it in conformity with TRIPs provisions has a number of advantages for a country like Nepal, some of which are as follows:

1 Testing the water: There are still some provisions in the TRIPs Agreement which, if properly used, will help us protect our interests. However, their application could invite complications for major developed countries or blocs like the USA or the EU. By 2005, the countries that enacted such legislation would have undergone some legal battles and the Dispute Settlement Body of the WTO would have made useful precedence. The decision relating to such cases will have eliminated the blurred divisions, which exist at present in the areas of "compulsory licensing" and "parallel import".

2 Learning from implementation experience: Problems faced by other member countries during the implementation of TRIPs Agreement will provide a learning ground for Nepal.

3 Registration of bio-diversity, indigenous knowledge and practices : If we complete the process of registration of bio-diversity, indigenous knowledge and practices, we can prevent our knowledge and resources from being pirated.

4 Provision of transition period for the local industries: Given the fact that local industries, particularly pharmaceuticals, are going to suffer tremendously, we need to prepare them to face the challenges, by providing them time to create and develop their own R&D facilities. If the process is initiated now, the intervening four and half years would give them a substantive time to prepare themselves.

Based on the rationale presented above, our government should seriously consider delaying the process of bringing our IPR regime in conformity with TRIPs. Let everyone be reminded of the fact that implementation of TRIPs is not a pre-condition for accession to the WTO. The transitional period provided in the WTO is something the Third World countries "negotiated" with developed countries during the Uruguay Round. Seventy out of the 136 members, countries of the WTO have failed to implement TRIPs Agreement within the deadline (i.e., December 31, 1999). It explains how difficult it is to implement it. Let us not over-estimate our ability. Better follow a "wait and watch" policy.

ATA Carnet
Time Now for Nepal

Some of the problems of Nepali exporters who want to promote their products in foreign countries can be solved if Nepal adopted ATA Carnet, say some businessmen and international trade experts. But many of the people in business as well as in the government are not familiar with the term ATA Carnet itself. A recent seminar tried to enlighten them about the benefits and challenges of this system and also on how it functions.

Yogendra Shakya

Giving introduction to the ATA Carnet system, Mrs. Lee Ju Song, Carnet advisor of Paris based International Chamber of Commerce (ICC) and International Bureau of Chambers of Commerce (IBCC) said that this system offers mutual benefits to all the three major participants to the system – the participating custom authorities, the appointed National Issuing and Guaranteeing Associations (NIGA) and the ATA Carnet holders/users, i.e. the business community.

Organized jointly by FNCCI and GTZ in cooperation with Nepal Incentive and Convention Association (NICA), the seminar came soon after the FNCCI recommended the government to introduce ATA Carnet. Though the government while presenting the national budget for FY 2000/2001 remained silent about this suggestion, Minister of State for Industry Commerce and Supply Narendra B. Nembwang said at the FNCCI/GTZ seminar that people in both of the government and the private sector are yet to understand the ATA Carnet system.

According to Mrs. Song, ATA is an abbreviation, which is a combination of the initial letters of the French words "Admission Temporaries" and the English words "Temporary Admission". And ATA Carnet is an international temporary customs document accepted by participating customs authorities in lieu of their national customs document. The system allows temporary importation and exportation of exhibits, commercial samples and professional equipment. Such imports or exports are needed to be made, for example, in connection with participation in trade fairs.

With a number of trade fairs in Nepal becoming routines these days, adopting ATA Carnet is expected to facilitate greater international participation in such fairs in Nepal. Similarly, it also helps Nepali firms and professionals to participate in international fairs overseas. Another benefit of the system is to the tourism industry, e.g. hotels and travel agencies, which will experience growth in their business in MICE (Meeting, Incentives, Conventions and Exhibitions) segment as with the country becoming associated with ATA Carnet system may increase the volume of tourist arrival. According to Yogendra Sakya, who is a tourism entrepreneur and the president of Nepal Incentive and Convention Association (NICA), Finance Ministry has already agreed to accept ATA Carnet in Nepal.

The major benefit to the business community from ATA Carnet is that while sending commercial samples to a fair abroad they need not carry a huge amount in cash to deposit at the customs of the destination country or even in countries of transit (if they are participant in ATA Carnet system). This is because the carnet will let them a customs duty free entry into the destination country. The customs authorities at the destination countries are happy because the system of ATA Carnet ensures that the goods will be re-exported, and in case they are not re-exported, the system ensures payment of the duties applicable on them. The strength of the system lies in that it connects the chambers of commerce between the exporting and importing countries through ICC/IBCC. A national chamber is appointed the NIGA in each country and bears the responsibility of making good the loss of duties and taxes in case of the breach of the Carnet. There also is a provision in the ATA Carnet system to have more than one secondary guarantor.

According to Sakya, NICA has already started guaranteeing such imports if accompanied by a Carnet, though Nepal has not yet become a member of ATA Carnet. In fact, it was since way back in 1960s itself that Nepal has been accepting Carnet in case of certain items such as vehicles brought by tourists.

ATA Carnet is based on the ATA Convention adopted by the World Customs Organization (WCO) (the former Customs Cooperation Council-CCC) in 1961. The system came into force in 1963 and now 55 countries including India and Sri Lanka from South Asia are its members. According to Song, the Carnet system is a marketing instrument to help its holders to solicit overseas orders and is not applicable to goods which are meant for sales. Others excluded are consumables or disposables, those intended to be given away free or those meant for any form of commercial transaction, e.g. rental, commercial maintenance, processing, repair etc. Also excluded from ATA Carnet scheme are unmounted gemstones, theatrical make-up, alcoholic beverages, tobacco and fuel, among others.

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