EU, India Resolve Spat over Generic Drug Shipments, But FTA to Wait Until 2011

22 December 2010

The European Union and India will miss their target of concluding a free trade agreement by the end of 2010, but have managed to resolve a spat over EU policies that saw Indian generic drugs confiscated in European ports while in transit on their way to other developing countries.

The drug seizures, which had become an irritant in the broader FTA negotiations, took place in 2008 and 2009, when several shipments of generic drugs from India were held for weeks by officials at European ports while en route to Brazil. The medicines in question were not patented in either the source or the destination country, but were patented in Europe. Brazil and India launched a WTO dispute against the EU, claiming that the seizures violated multilateral rules governing goods in transit. Brazil, India, and other developing countries have argued that the EU is confusing legitimate generics with counterfeits, and that the drug seizures could undermine poor countries' ability to acquire cheaper medicines.

Following an EU-India summit in Brussels on 10 December, officials said that the two sides had resolved the dispute in a manner that would allow Indian generics to transit through European ports without fear of confiscation.

"It is fair to say that in substance, we have an agreement," EU Trade Commissioner Karel De Gucht told journalists in Ottawa a few days after meeting with his Indian counterparts. He provided no specifics about the agreement, but suggested that its implementation would not be immediate. "We have to modify European regulations or European legislation," he explained, according to Agence France Presse. "And we have to do that through the co-decision procedure, which obviously takes some time."

EU officials say that India has not yet formally withdrawn its complaint at the WTO.

As for the FTA, Brussels and New Delhi are now aiming to conclude the deal by the spring of 2011. Rahul Khullar, India's commerce secretary, said that both sides have planned an intensified work schedule in the months to come, with lead negotiators meeting at least monthly, and ministers to meet in March.

"Engagement has been intensified in all areas requiring additional work, and both sides intend to make all necessary efforts to conclude the negotiations in the spring of 2011," he said, according to a report by the ANI news agency.

Khullar said that some chapters of the agreement were complete, such as competition, trade facilitation, and dispute settlement. Others needed more work: on goods trade, both sides are preparing revised offers of market access. Services, trade defence instruments, and rules of origin need to be finalised.

Also incomplete are controversial chapters on investment and intellectual property rights. Separate from the dispute over the treatment of generic drugs in transit, public health advocates fear that the prospective EU-India FTA may include intellectual property provisions that will threaten access to medicine for the millions of people in developing countries who rely on low-cost Indian generics to treat conditions such as HIV/AIDS. They say that leaked copies of the draft suggest that the EU is seeking rules on "test data exclusivity" that would require would-be generics manufacturers to run their own expensive, and potentially risky clinical trials, instead of using the data produced by the company that first made the drug. Critics also worry that the EU is seeking to extend the patent protection period for drugs beyond the 20 years provided for under WTO rules. Reduced competition from Indian generics could increase drug costs across the developing world. AIDS patients and advocates organised protests to coincide with the EU-India meet in Brussels, calling for the trade negotiations to safeguard access to medicine.

The European Commission has generally declined to comment on specific clauses in the prospective accord, although officials have both confirmed the EU's interest in clinical test data exclusivity and denied that the intellectual chapter would extend medicine patent duration beyond the 20 years required by the WTO.

Indian critics of the accord also worry that opening up India's retail sector to investment from European giants such as Carrefour and Tesco would hurt the millions of small shops and hawkers that currently dominate the country's retail trade. Supporters of retail sector liberalisation counter that large-scale foreign investment in logistics and infrastructure such as cold storage would reduce massive wastage and lower prices.

The Economic Times, a leading Indian financial daily, warned that there was "considerable scope" for the EU-India FTA to lead to trade diversion rather than trade creation, given the two economies' different production profiles and India's comparatively high goods tariffs. In an editorial, it suggested that this risk could be offset by pursuing "deep integration" encompassing trade facilitation, investment, and services, which could boost productivity gains and spur business growth.

ICTSD reporting; "Welcome EU trade deal," ECONOMIC TIMES, 14 December 2010; "EU-India FTA, a case of so near yet so far," ANI, 10 December 2010; "EU, India resolve generics row: EU trade chief," 16 December 2010.

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