Fair Trade No Subsitute for Intellectual Property
Wilson, Tim, Review - Institute of Public Affairs
Having fairly successfully colonised the specialist coffee market, Fair Trade activists have turned their attention to health care. In the lead-up to the 2006 Toronto World Aids Conference, Oxfam International broadened its 'Make Trade Fair' campaign to include pharmaceuticals.
This is an unfortunate development. The broadening of the campaign into the pharmaceutical industry exposes it as the politically-motivated, not development-motivated, campaign that it is.
Despite its high rhetoric, fair trade is not merely about consumers exercising their trade justice preferences. In its 2002 report, Mugged: Poverty in your coffee cup, Oxfam International made 48 recommendations to reform the international coffee trade. Five of the 48 recommendations related to changing consumer behaviour. The remaining 43 included destroying already produced coffee beans, demanding companies buy from Fair Trade suppliers and regulating who could produce and trade coffee beans through a re-established, binding and corruptible International Coffee Agreement.
Fair trade is marketed as a consumer-driven campaign; its foray into pharmaceutical demonstrates that its real aim is to regulate trade outcomes. The fair trade campaign wants to weaken and hold back the development of intellectual property (IP) regimes to achieve their anti-market ideological agenda. The application of fair trade principles to the pharmaceutical industry would hurt, not help, public health around the globe.
Pharmaceutical companies make a profit by innovating and producing life-saving, life-extending and life-enhancing medicines. The costs of invention can teach up to US$800 million per product. As few as one in 10,000 makes it through all the clinical trials and tests to market commercialisation. Yet, because those that do succeed can earn hefty profits, the industry is an easy target for antimarket fair trade activists.
The pharmaceutical industry's asset base is intangible. To ensure that pharmaceutical companies are able to invest in developing new medicines, they rely on their IP protections. IP rights ensure that companies are able to reap the rewards of their investment as well as spurring on the next round of innovation.
A strong IP rights system is vital to preserve the industry's interests and to drive it to produce the medicines that ensure we live longer, happier lives.
However, IP regulation differs across the world. Individual countries have a system of registration and enforcement for trademarks, copyright and patents-there is no such thing as an international patent. A company needs to register a patent with each national registrar to ensure that it can have its intellectual property protected.
The pharmaceutical industry relies on patents, and the international standard is that those patents last for at least 20 years. However, once the lengthy process of obtaining marketing approvals has been completed, this period is often whittled down to a mere 12 years for companies to recoup the cost of their investment.
The 'Make Trade Fair' campaign wants domestic IP rights regimes to be weakened under the banner of 'public health'. But to do so would undermine the incentive to develop new medicines.
Market-based economies rely heavily on property rights. In his 2002 book, The Mystery of Capital, Peruvian economist Hernando de Soto articulated his now legendary thesis on the consequences of undermining property rights. Where property rights are not enforced, goods and services fail to attract investment. Stifled investment stymies innovation and the optimisation of limited resources. It ensures that individuals cannot prove their ownership and their access to credit is therefore limited. The opportunies foregone are borne by individuals and society as a whole.
IP is no different. In fact, IP is more heavily dependent on strong property rights regimes. At least with traditional property there is a tangible good. …