Free Trade At The WTO
10 September, 2003
gave me my money," declared John D. Rockefeller in the audacious
style of the robber barons who ruled America in the late 19th century.
But nowadays when the rich amass huge fortunes at the expense of everyone
else, and use their political clout to rig the rules of the game, they
have more sophisticated justifications. Increasingly, these take the
form of economic arguments -- generally flawed ones.
The World Trade
Organization is bringing ministers from 146 countries -- as well as
many non-governmental organizations -- to the resort city of Cancun,
Mexico this week. One issue that almost collapsed these negotiations
before they started is international trade in pharmaceuticals. On one
side are most developing countries and humanitarian groups such as Doctors
Without Borders, who want poor people to have access to cheap, generic,
essential medicines. Against this proposition stand the big pharmaceutical
companies, backed by their governments in the United States and Europe.
They want U.S.-style patent laws enforced throughout the world, as much
wisdom is that the advocates for poor people have moral and political
arguments on their side, but the drug companies have powerful economic
arguments. Because of this widespread perception, the negotiations between
the two sides are seen -- or at least reported in the media -- as a
legitimate process designed to reach a balance that is in the public
But as any economist
knows, the strongest economic arguments are on the side of Doctors Without
Borders. A patent monopoly is very much like a tariff except that it
is collected by a private company, rather than a government. Like tariffs,
patents cause economic distortions and inefficiency, in addition to
And since patents
can raise the price of medicines by several multiples of 100 percent,
they are often tens or even hundreds of times more inefficient than
tariffs, which raise the price of traded goods such as orange juice
or steel by a small fraction of these amounts. Just look at the anti-retroviral
drugs that are used to treat HIV/AIDS: the patent-protected price is
over $8,000 a year, while the generic equivalent costs less than $300.
Economists who are
consistent with their belief in free trade -- for example Columbia University's
Jagdish Bhagwati, one of this country's leading international economists
-- oppose the use of the WTO to enforce patent monopolies. This makes
sense: if you really believe in free trade, you would want free international
trade in medicines, where the cost of protectionism is higher than in
almost any other industry.
This issue, more
than any other, shows how inaccurate and misleading it is to describe
the WTO (or the proposed Free Trade Area of the Americas, or NAFTA)
as a "free trade" agreement. In fact, the World Bank's own
research shows that developing countries stand to lose more from the
implementation of the WTO's rules on intellectual property (e.g. patents
and copyrights) than they would gain from complete market access to
the rich countries for all of their exports. In other words, the protectionism
that these agreements lock in for pharmaceutical and other special interests
is more significant, from a purely economic point of view, than their
removal of remaining trade barriers by the developed countries.
companies contend that their profits must be protected from international
generic competition, or there will be no incentive to develop new drugs.
But clearly this is not true in the developing world, where this research
does not take place. And even in the United States, where about half
of all biomedical research is already funded by government and non-profit
sources, it is a dubious argument. Here in the world's richest country,
the waste and inefficiency of the patent system has spun so far out
of control that we cannot even afford to pay for prescription drugs
for our elderly.
An agreement was
reached at the end of last month, which would allow some more leeway
for some developing countries to import generic drugs, thus saving the
Cancun ministerial meeting from collapse over this issue. But there
is no reason for developing countries to trade away their rights to
free trade in medicines. Stripped of its flawed economic arguments,
the use of the WTO to force U.S.-style patent laws on the rest of the
world can be seen for what it really is: protectionist greed, on a scale
that would make our 19th century robber barons blush.
is co-Director of the Center for Economic
and Policy Research, in Washington, DC.