Trade and intellectual property rights are inextricably linked

South Africa’s minister of health recently revealed that he was “worried and concerned” that India might be following the example of the rest of the world by adopting policies that respect property rights. He is right to be “worried and concerned” because, if South Africa continues along the path it seems determined to follow, it will align itself with the small handful of pariah states that are seeking to deter trade and investment by instituting hostile policies that show a lack of respect for property rights and the rule of law.

According to an exclusive interview with Krishnan and Gahlot for (Aug. 10, 2015), Motsoaledi states, “I have heard a rumour that they [India] want to reverse their [IP] policies. We are very scared and worried [about the developments in India]. Why are they reversing these policies? We have been following in their footsteps, to be more like India, but they are changing now.”

Recognition and protection of property rights lie at the foundation of a free society and allow for the development of a market economy.Without property rights, including intellectual property rights, there would be no economic incentive to bring products and services to market since there would be no laws that prevent anyone else from stealing your property.

Intellectual property laws, such as patent laws, give innovators and inventors a 20 year period during which they are protected against unauthorised copying of their products. Only during this period are they provided with the exclusionary right to capitalise on their invention or innovation. Once it comes to an end, the product falls into the public domain and individuals and companies are allowed to copy it and derive financial benefit from it.

It is important to note, however, that many products are often not protected for the full 20-year period. For example in the case of pharmaceutical drugs it typically takes between 10 and 12 years to take a molecule through testing and regulatory approval – all of which occur after a patent has been granted, since no company or research institution would invest in an unpatented molecule. Meanwhile, it can take between one and three years to obtain a patent after filing. Most pharmaceutical drugs, therefore, have an effective patent term of six to ten years, often less. Given the huge amount of investment required to bring a drug to market, governments seeking to foster innovation and improve access to innovate drugs, are right to provide patent protections.

Patent laws were developed in order to encourage people to share their inventions with others for the benefit of all. The logic was obvious: if people could own the right to their creative endeavours they would earn more by sharing them with others rather than by concealing them. Innovations would spread more rapidly to the benefit of society. Perceptive entrepreneurs would recognise their potential and develop them further. As competition builds up, it would encourage more and more people to invest in innovation.

Indeed the International Chamber of Commerce states, “The protection of intellectual property stimulates international trade, creates a favourable environment for foreign direct investment, and encourages innovation, transfer of technology, and the development of local industry, all of which are essential for sustainable economic growth, and its concomitant benefits for public health”.

To answer Minister Motsoaledi’s question: “Why are they [India] reversing these policies”? Apart from the moral justification – of not simply stealing someone’s property without their consent – India is following the example set by all newly industrialised countries. Countries such as Hong Kong, Taiwan, South Korea and Singapore all embarked upon their respective high growth phases by virtue of a paradigm shift towards more market-orientated policies that have, as a cornerstone, respect for both physical and intellectual property. In the early stages, like the industrialised countries that preceded them, they adopted intellectual property laws but failed to enforce them consistently. They soon realised that they needed to intensify intellectual property rights enforcement if they were to gain respectability amongst foreign governments and investors, to stimulate domestic innovation, and to avoid retaliatory measures by aggrieved countries and companies.

Intellectual property rights standards are improving in most countries across the globe; but South Africa seems to be bucking the trend according to virtually all of its proposed new laws and regulations. When it comes to international investment, we have to recognise that the decision whether to invest in a foreign country is a complex one based on a variety of factors such as energy availability, labour laws, impartial courts, size of the domestic market etc. While a robust and effective IPR regime would not be sufficient in and of itself to attract foreign direct investment to our shores, a weak or poorly enforced IPR regime will deter innovative companies from investing here.

Author: Jasson Urbach is an Economist and director of the Free Market Foundation.This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the FMF.

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