Ripples: Demonetisation, Trump and OPEC Part-2

 This blog post is part of the series on "Ripples: Demonetisation, Trump and OPEC". To read the previous part click here. This post was written in collaboration with  Akansh Gangil and Shikhar Bansal.

 Trump election and failure of Analytics

The election of Trump as the next President of the United States came as a shocker for many. The various pre poll surveys and analytics failed to predict his victory. Trump has campaigned on a slogan of "Make America Great Again" by announcing to do away with past economic policies of the US. His policies of first 100 days will have huge implications on global economy and polity.

The good news can start with US growth, which might accelerate above the 2.2% average annual rate. Trump may implement the Keynesian fiscal stimulus that Obama often proposed but was unable to deliver.

Trickle Down Economics

Mr Trump proposed to cut taxes dramatically. His tax cuts would mostly benefit the rich, which would limit the boost to demand somewhat, but a large increase in the government deficit could not help but give a jolt to the economy. At the same time, Mr Trump seems likely to increase spending on defense and on infrastructure (and, possibly, on a wall, which would seemingly count as both).

Decrease in corporate taxes will help mainly the service sector and not the manufacturing sector. As the taxes are lowered, more disposable income will be available with individuals which will raise the inflation levels, which even though desired, leading to raising the already high wages. Thus labor cost will remain as the major hurdle for manufacturing growth.

 Shift in Trade Policies

 During the presidential campaign Trump has repeatedly called for repealing or renegotiating the trade deals.

 This adamant attitude towards US participation in blocs like NAFTA, TPP  and TTIP will adversely impact automotive industry all over the world as import duty on automobiles and auto-parts, coming from Japan, China and other countries, will increase by a large margin. Consequently the big OEMs (Nissan, VK, BMWs, Ford) and their suppliers manufacturing outside the US might shift their manufacturing plants to US. But, as already discussed, labor cost will make manufacturing costly, thereby leading to price rise for SUVs, Trucks and as well as cars.

 Geopolitical Issues

Mr. Trump being the next commander in chief has to tread very carefully as geopolitical tensions can rise by any impulsive move from his side. And tensions among nations is always bad for business( other than defense suppliers). US position on critical international issues like climate change can change. The US stand in various international forums on climate change will need to be carefully analyzed. 

 It is hard to know or anticipate how he will use the army, or the diplomatic machinery of the American government. Any move toward greater conflict in the Middle East or Asia could have serious economic consequences: from soaring oil prices to market panic to interruptions in global trade. The economic and human costs of war are impossible to anticipate but frightening to consider.

Indian Perspective

Perhaps the most negatively impacted industry will be IT as more stringent laws and higher cost for H1B visas seems to be  in the offing. This will considerably increase the cost for IT companies. Apart from trade, the diplomatic position of US towards Pakistan and China will also have huge implications on Indian trade and international policy making.

Whether we like it or not, Donald Trump is set to be the US President and his policies are bound to create Ripples.  

 

Compulsory Licenseing And Intellectual Property Rights (IPR) - Indian Perspective

After the United States, European Union (EU) has recently taken the baton of pressurizing India on its adoption of Compulsory Licensing (CL). This was reported by The Hindu quoting a senior EU official as saying,"the extension and wise use of CL in industrial sectors can act as a deterrent for investments, from abroad and within India." These comments were made when India is trying to frame and adopt a new National Intellectual Property Rights (IPR) policy. Similarly, in the past US has also called Indian IPR as a “contagion” of weakening intellectual property.

Before dwelling into the Indian perspective, we need to understand, what is actually meant by IPR?

Intellectual property rights are given to individual or organization that have created something novel and of commercial value and these rights exclude others to manufacture, sell or use products based on their novel idea. World Trade Organisation is the governing body in case of international violations of IPR.

Compulsory Licensing by government allows entities to use the patented technology without obtaining the permission of the patent's owner. According to WTO TRIPS (IPR) agreement CL is allowed under the following conditions- 

1. National Emergencies
2. Other circumstances of extreme urgency
3. Anti competitive practices are fulfilled.

Any Government can use these safeguard measures in special circumstances for the benefit of its people, for example in issues related to health care.India issued compulsory license to an Indian company Natco pharma in 2012 to manufacture cancer drug nexavar and sell it at a very low price. The use of compulsory license by India was done to make a drug accessible to its population which could save many lives. The step taken by government considering the importance of public health was fully compatible with TRIPs and well within the boundaries of its patent laws.The big pharmaceutical companies in USA were not happy with India's decision. The government of US in retaliation ranked India lowest in US chamber of commerce's IP survey 2014.The USA even listed India as "priority country" which is the worst classification given to countries. 

The inaccessibility of important medicines is an immediate health problem. The one compulsory licence issued on Bayer’s product — Nexavar, a medicine used to treat late stage cancers of the kidney and liver — illustrates this.Representatives from Bayer and PhRMA have noted that Bayer was making the drug available at a lower “access price” in India.However, if one converts the full price and access price to US dollars (based on a January 2013 exchange rate) and compares them to the average annual income-by-quintile as reported by the World Bank, the data shows that both prices exceed annual income of even the top 20 per cent of Indian earners.It drives home the point that the current trade dispute between the US and India is about more than bland-sounding global norms regarding patents.

The recent comment by an EU official that CL in manufacturing may slow investment and damage their exports may appear at first glance to be legitimate and fairly convincing argument. However, upon further examination of the argument and juxtaposing it with  the data from previous years, a flaws become evident.

Overall pharmaceutical exports from US increased from $39 million to $225 million during the period 2000-2012 — an increase of 470 per cent.Furthermore, US pharmaceutical exports to India are growing at a faster rate than US pharmaceutical exports to the world as a whole. Moreover, many pharma companies are thriving in India: Abbott, GSK, Gilead, to name just a few. A similar case could be made for EU also.

India is a representative of many developing countries who in the past have used these flexibilities in patent laws for welfare of its people. All eyes are set on WTO, it will decide whether WTO is a guarantor of public welfare or it is a threat for millions of underprivileged people on this planet. And whether or not people in India (and elsewhere) will be able to access important new medicines and other technologies, especially green technologies, as they enter the market.