Wall Street Journal - December 16, 2005
Mary Anastasia O'Grady

But one thing firm has come out of Hong Kong: As a key leader in the Group of 20 developing countries demanding market access for agricultural products, Brazil is now a critical player at the WTO.

Brazil is pushing for open markets in farm products because it is a very large exporter of such commodities. And if it can force open the door, other farm commodities exporters, in Africa, for example, can gain as well. But Brazil could help its own case if it were more forthcoming on the issues that matter to the rich countries, such as protection of patents and other forms of intellectual property. Such protections would not only give Brazil more bargaining power but serve the interests of Brazilians as well.

It is a paradox of trade negotiations that what benefits any one nation the most in a successful agreement is often delivered by negotiators from the other side. What trade reps around the table are really fighting for when they argue for "market access" is tax cuts for people in the countries being asked to grant access. Similarly, when rich-country negotiators push intellectual property-rights protection in the developing world, they are in reality pushing for improvements in the investment climate in poor countries, something that makes people in those places better off.

Consider Brazil's efforts on behalf of millions of people in the rich countries in the Doha round. At the Cancun ministerial in 2003, it led the G-20 revolt against rich-country taxes on agricultural imports and effectively collapsed the talks. The G-20 went home pledging that it would not allow new foreign competitors into its markets so long as its own access to other agricultural markets remained blocked by high tariffs.

In Hong Kong this week, the G-20's stance has been widely recognized as legitimate and the U.S. is on board. If the G-20 prevails in its demands, it will have delivered a bountiful gift of tax cuts to Americans, Europeans and Japanese.

There is still a chance that tariffs on agricultural and industrial goods will also be lowered in the less-developed world. If so, Brazilians and others will also get tax cuts. But unless tariff reductions are accompanied by better protections for intellectual-property rights, Brazilians and other inhabitants of underdeveloped states will lose an important opportunity.

At issue is whether countries should have the right -- within the WTO's Trade Related Aspects of Intellectual Property Rights (Trips) agreement -- to produce generic versions of on-patent drugs when there is a designated health crisis from infectious diseases like malaria, tuberculosis and AIDS. Going by the Trips book, the answer would be "no." But under pressure to put "people before profits" the WTO granted a special exemption in the 2001 Doha Declaration, giving countries the right to prioritize public health over intellectual property.

In 2003 this notion was further refined with a provisional agreement to specify that poor countries can manufacture generic drugs -- attempting to copy patented drugs -- or buy knock-offs from third countries like Brazil and India. Last week, ahead of the Hong Kong ministerial, the WTO made the 2003 agreement permanent.

The short-term appeal of this weakening of property rights for middle-income countries like Brazil is in the area of HIV/AIDS treatment, where state-of-the-art drugs are a must. For several years now Brazil has demanded Africa-equivalent prices on innovative drugs and has made a practice of threatening pharmaceutical companies with compulsory licensing if it doesn't get those rock-bottom prices.

The WTO agreement last week is a victory for Brazil in its effort to wrest effective therapies out of the hands of drug makers at below cost. Yet as Richard Tren, director of Africa Fighting Malaria, and Roger Bate, a scholar at the American Enterprise Institute, argue in an AEI paper released Monday, Brazil's approach to treating HIV/AIDS isn't a free lunch. Somebody's going to pay.

Messrs. Tren and Bate point out that Brazil's ability to deliver the effective HIV/AIDS drugs is not likely to be replicable in other poor countries. But the costs to innovation will be paid by all those suffering. "Brazil's threats to intellectual-property rights have probably deterred some companies from researching new AIDS therapies," the authors write. "As the rise in drug resistance is inevitable -- creating the need for new drug therapies -- governments around the world should be encouraging as much research and development as possible. Future generations requiring [antiretroviral therapies], particularly those in the poorest countries, are likely to pay for Brazil's current actions."

Stripping innovators of profits may seem like justice in the eyes of big government, but markets are not likely to cooperate. "Since 1997, the number of drug companies worldwide engaged in research on HIV/AIDS is down by around 23% and the number of new molecules in development for antiretroviral drugs is down by around 30%," Messrs. Tren and Bate note.

The authors also point out that while the number of companies engaged in research has recently increased by 10%, that's a lot less than what might be expected given the attention the disease has garnered. Drug companies may be finding it more attractive to put their research into less politically charged diseases and "if Brazil's hostile approach is copied in other middle income countries, then expected returns from future investment will decline further." Far from helping AIDS patients, the confiscation of property will harm them.

Another harm that generics could deliver is increased drug resistance, if generic manufacturing produces variable potencies or other suboptimal results from reverse engineering. Finally, Brazil is not likely to attract research and development investment in the pharmaceutical industry, a sector it has officially deemed important, when it practices confiscation of intellectual property.

The Doha round is dubbed the "development round" but legitimizing government confiscation of innovation is anti-development. It's not good for the sick, the poor or the unemployed. If all that comes out of Doha are tax cuts for consumers in rich countries and the legalization of intellectual-property theft, the round ought to be renamed.

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