By Yilmaz Akyüz
GENEVA, Feb 16 2015 (IPS)

After a series of crises with severe economic and social consequences in the 1990s and early 2000s, emerging and developing economies have become even more closely integrated into what is widely recognised as an inherently unstable international financial system. 

Both policies in these countries and a highly accommodating global financial environment have played a role. Not only have their traditional cross-border linkages been deepened and external balance sheets expanded rapidly, but also foreign presence in their domestic credit, bond, equity and property markets has reached unprecedented levels.

Yilmaz Akyuz

New channels have thus emerged for the transmission of financial shocks from global boom-bust cycles.

Almost all developing countries are now vulnerable, irrespective of their balance-of-payments, external debt, net foreign assets and international reserve positions, although these play an important role in the way such shocks could affect them.

Stability of domestic banking and asset markets is susceptible even in countries with strong external positions.

Those heavily dependent on foreign capital are prone to liquidity and solvency crises as well as domestic financial turmoil.

The new practices adopted in recent years – including more flexible exchange rate regimes, accumulation of large stocks of international reserves or borrowing in local currency – would not provide much of a buffer against severe external shocks such as those that may result from the normalisation of monetary policy in the United States. “The surge in capital inflows that started in the early years of the new millennium, and continued with full force after a temporary blip due to the collapse in 2008 of the Lehman Brothers financial services firm, holds the key to the growing internationalisation of finance in developing countries”

And the multilateral system is still lacking adequate mechanisms for an orderly and equitable resolution of external financial instability and crises in developing economies.

This process of closer integration was greatly helped by highly favourable global financial conditions before 2008, thanks to the very same credit and spending bubbles that culminated in a severe crisis in the United States and Europe. The crisis did not slow this process despite initial fears that it could lead to a retreat from globalisation.  Integration has even accelerated since then because of ultra-easy monetary policies pursued in advanced economies, notably in the United States, in response to the crisis.

The surge in capital inflows that started in the early years of the new millennium, and continued with full force after a temporary blip due to the collapse in 2008 of the Lehman Brothers financial services firm, holds the key to the growing internationalisation of finance in developing countries.

It has resulted in a rapid expansion of gross external assets and liabilities of developing economies. More importantly, the structure of their external balance sheets has undergone important changes, particularly on the liabilities side, bringing new vulnerabilities.

The share of direct and portfolio equity in external liabilities has been increasing. An important part of the increase in equity liabilities is due to capital gains by foreign holders. In many developing countries presence in equity markets is greater than that in the United States and Japan.

While still remaining below the levels seen a decade ago as a percentage of gross domestic product (GDP), external debt build-up has accelerated since the crisis in 2008. This is mainly due to borrowing by the private sector, which now accounts for a higher proportion of external debt than the public sector in both international bank loans and security issues. A very large proportion of private external debt is in foreign currency. There is also a renewed tendency for dollarisation in domestic loan markets.

As a result of a shift of governments from international to domestic bond markets and opening them to foreigners, the participation of non-residents in these markets has been growing. The proportion of local-currency sovereign debt held abroad is greater in many developing countries than in reserve-issuers such as the United States, the United Kingdom and Japan. It is held by fickle investors rather than by foreign central banks as international reserves.

International banks have been shifting from cross-border lending to local lending by establishing commercial presence in developing countries. Their market share in these countries has reached 50 percent compared with 20 percent in developed countries.

These banks tend to act as conduits of expansionary and contractionary impulses from global financial cycles and increase the exposure of developing economies to financial shocks from advanced economies.

One of the key lessons of history of economic development is that successful policies are associated not with autarky or full integration into the global economy, but strategic integration seeking to use the opportunities that a broader economic space may offer while minimising the potential risks it may entail. This is more so in finance than in trade, investment and technology.

For one thing, the international financial system is inherently unstable in large part because multilateral arrangements fail to impose adequate discipline over financial markets and policies in systemically important countries which exert a disproportionately large impact on global conditions.

For another, the multilateral system also lacks effective mechanisms for orderly resolution of financial crises with international dimensions.

Thus, closer integration of several into the international financial system in the past ten years, after a series of crises with severe economic and social consequences, is a cause for concern.

In all likelihood, these countries will be facing strong destabilising pressures in the years ahead as monetary policy in the United States returns to normalcy after six years of flooding the world with dollars at exceptionally low interest rates.

In weathering a possible renewed instability, they cannot count on the more flexible currency regimes they came to adopt after the last bouts of crises or the reserves they have built from capital inflows or the reduced currency exposure of the sovereign.

It is important that they, as well as the international community, avoid going back to business-as-usual in responding to a new round of financial shocks, bailing out investors and creditors and maintaining an open capital account at the expense of incomes and jobs.

They need to include many unconventional policy instruments in their arsenals to help lower the price that may have to be paid for the financial excesses of the past several years

They should also take the occasion to rebalance the pendulum and to bring about genuine changes in the international financial architecture. (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This column is based on Internationalization of Finance and Changing Vulnerabilities in Emerging and Developing Economies, South Centre Research Paper 60, January 2015, which is available here.

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By Carlos M. Correa
GENEVA, Feb 3 2015 (IPS)

Industry’s demands and political pressures exerted by developed countries to expand and strengthen patent protection worldwide have been based on the argument that patents promote innovation and thereby contribute to achieve social, political and economic well-being, independently of the level of development of the country where they are granted and enforced.

This view ignores the fact that patents do not have the same impact in countries with different industrial bases, research and development (R&D) capabilities and availability of capital to finance innovation, among others.

Carlos M. Correa

Significantly, there is a growing body of academic studies challenging the belief that patents are essential to incentivise innovation, even in advanced countries, or to enhance economic growth.

While many scholars call for a substantial reform of the patent system, others go as far as suggesting its abolition.

In a working paper entitled The case against patents, Michele Boldrin and David K. Levine have argued that “in spite of the enormous increase in the number of patents and in the strength of their legal protection we have neither seen a dramatic acceleration in the rate of technological progress nor a major increase in the levels of research and development (R&D) expenditure. There is strong evidence, instead, that patents have many negative consequences.”

“Both of these observations are consistent with theories of innovation that emphasise competition and first-mover advantage as the main drivers of innovation and directly contradict theories postulating that government-granted monopolies are crucial in order to provide incentives for innovation.”

The role of the patent system is thus controversial, particularly in developing countries.“Patents do not have the same impact in countries with different industrial bases, research and development (R&D) capabilities and availability of capital to finance innovation, among others”

In the last 25 years, much emphasis has been put on the concept of intellectual property as ‘truly property’. Different variants of natural rights-based approaches have been articulated to justify developed countries’ relentless efforts to increase the scope and levels of intellectual property protection, notably for patents.

The idea that patents are a piece of property has provided ideological support for an expansion of the protectable subject matter, the extension of the term of protection, the reinforcement of the exclusive rights, and the strengthening of enforcement measures.

Patents confer exclusive rights. They limit the use of knowledge – a public good by its very nature – and competition, which promotes consumer well-being and innovation.

Nobody can produce or commercialise the protected invention during the lifetime of the patent, unless authorised by the patent holder or under compulsory licences, which are rarely granted. Given the exclusionary effects of patents, they have often been characterised as ‘monopolies’.

Yet, the rights conferred by patents are based on partial and often imperfect factual determinations. The examination process does not allow patent offices to reach definitive
judgments on patentability.

There is also uncertainty regarding the validity of patents in the boundaries of what is protected under individual patents. The patent claims are in many cases ambiguous and it is unclear what the actually protected subject matter is. Australian academic Peter Drahos asserts that “patents, unlike blocks of land, do not come with settled boundaries.”

Thus, it is fuzziness rather than definitiveness that characterises patent grants. This is not accidental, but deliberately sought by patent applicants to discourage competitors.

In addition to imprecise disclosures of what is deemed to be the invention, courts interpret patent claims with different theories and methodologies that lead to diverse outcomes with regard to what is deemed protected and eventually infringed.

Another fundamental problem with the patent regime is that it operates on the basis of a limited capacity to examine the patentability of claimed inventions and on a number of legal fictions created by legislators, patent offices or courts.

Such legal fictions are often dogmatically applied, without a critical assessment of their justification and implications.

A patent is granted in most countries after a substantive examination is conducted to determine whether it meets the patentability standard established by national laws which generally require novelty, inventive step (or non-obviousness) and industrial applicability (or utility).

However, some countries (such as Luxembourg and South Africa) confer patents without such a substantive examination or without assessing inventive step (for example, Switzerland and France).

While patent offices in developing countries (except China) receive a number of patent applications much lower than developed countries, some (such as Argentina, India and Thailand) have introduced legislative or other regulatory changes to tighten the application of the patentability requirements and reduce, through a rigorous examination, the proliferation of patents, particularly in the pharmaceutical field.

The intervention of patent offices through substantive examination in the process of creating patent rights gives them an appearance of validity. However, such intervention offers no guarantee in this respect and the public and uninformed business actors may be grossly misled.

The case of South Africa, where no substantive examination is currently made, is illustrative.

Thousands of patents have been registered in South Africa to cover minor or trivial developments that can block local production or importation of lower-priced generic medicines. However, the government of South Africa recently announced its intention to introduce a system of substantive examination, at least for pharmaceutical patents.

This proposal raised stiff opposition from pharmaceutical multinational companies, which were eventually found to finance a covered lobbying operation aimed at derailing the government’s initiative.

On the one hand, it is to be expected that the introduction of such a system would discourage patent applications that may not survive a serious substantive analysis; hence, the number of applications will presumably diminish over time, especially if fees are established at a level that discourages speculative patenting.

On the other, the available information on patent offices in other developing countries suggests that the number of examiners required to review pharmaceutical patent applications is manageable for South Africa even if it opted to rely on internal examiners only.

Unfortunately, many patent offices have tended to work under the assumption that their role is to grant as many patents as possible, and to decide in favour of the applicant in case of doubt. Applicants are often treated as ‘clients’.

As noted by Dominique Foray, patent offices have become extremely pro-patent since the early 1980s. The applicant, formerly considered with suspicion, has become a ‘client’ whose needs must be satisfied by quick, cheap procedures. The result is a total deterioration of examination procedures.

The patent office should function as a steward of the public interest, not as a servant of patent applicants and must protect the public against the issuance of invalid patents that add unnecessary costs and may confer market power. (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This column is based on South Centre Research Paper No 58 of December 2014. A full version of the paper is available here.

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Members of the Pan African Climate Justice Alliance staging a demonstration at the Climate Change Conference in Lima. Credit: Wambi Michael/IPS

By Wambi Michael
LIMA, Dec 10 2014 (IPS)

The post-2015 global climate change agreement should be flexible and fully resourced or else condemn Africa to another cycle of poverty resulting from the adverse effects of climate change.

Echoing this view, African delegates and civil society groups at the ongoing (Dec. 1-12) U.N. Climate Change Conference in Lima, Peru, said that some of the continent’s demands were being relegated, yet they are crucial for the post-2015 period.

Azeb Girma, an environmental activist from Ethiopia, told IPS that he was disappointed with the way the negotiations were proceeding.  “We thought to have a pathway to Paris [venue for the next climate change conference in 2015] but Africa is cheated. Africa is demanding adaptation but this has been pushed away. The discussions are leading nowhere,” said Girma.

Some of the negotiators claimed that developed countries were backtracking on some of the positions earlier agreed to at the Durban Climate Change Conference in 2011.

Dr Tom Okurut, Executive Director of Uganda’s National Environment Management Authority (NEMA), told IPS that in Durban parties had agreed that adaptation was supposed to be part of the post-2015 climate deal but some developed countries were not willing to commit themselves in the draft texts."We have a mandate from science, from our people, from the continent of Africa, and from the United Nations itself to push for enhanced global climate action to cut [greenhouse gas] GHG emissions as well as strengthen adaptation; this remains a priority for us" – Nagmeldin El Hassan, Chair of the African Group at the Climate Change Conference in Lima

“We need a legally binding agreement that binds all parties to whatever has been agreed to, unlike the current protocol where parties can opt out of the process. Right now, everything is voluntary and that is why we are not getting very big output here,” said Okurut.

Since the beginning of the Lima conference, the African Group has been pushing for a multilateral rules-based system with a comprehensive outcome aimed at halting the growing threat of climate change to the African continent.

“We have a mandate from science, from our people, from the continent of Africa, and from the United Nations itself to push for enhanced global climate action to cut [greenhouse gas] GHG emissions as well as strengthen adaptation; this remains a priority for us,” said Nagmeldin El Hassan, Chair of the African Group while addressing a group of African journalist covering the conference.

Among the more thorny debates in this round of talks is the scope and format of country pledges or ‘Intended Nationally Determined Contributions’ (INDCS). Some parties, especially the African Group and most of the least developed countries (LDCs), want the focus to be on both mitigation and adaptation, while those in developed countries want the focus only on mitigation.

Earlier in the week, several African environmental groups under their umbrella group, the Pan African Climate Justice Alliance (PACJA), held a demonstration at the convention centre urging ministers and other negotiators to back the African position on INDCS.

“We call on all parties to take seriously their responsibility to agree on deep emission cuts and avoid further climate crisis. Time is running out while the negotiations are moving at a very slow pace,” said Nicholas Ndhola, an activist from Zimbabwe.

“We urge and demand all parties, especially the developed countries, to agree on the scope of INDCs to include all elements and not only mitigation which tends to ignore differentiated commitments towards finance, adaptation, technology transfer, means of implementation and capacity-building,”he added.

John Bideri from Rwanda told IPS that the developed countries were seemingly determined to ensure that issues about adaptation and technology transfer are not adequately agreed and defined as the parties agree on framework for the next agreement to be hammered out in Paris in 2015.

Seyini Nafo, spokesperson of the African Group at the Climate Change Conference in Lima and member of the UNFCCC Standing Committee on Finance. Credit: Wambi Michael/IPS

“It is time to come up with an equitable deal. Lima may be the last chance for us to make a breakthrough and end a standoff that has prevented adequate climate action for decades. Please stand with the poor, stand with the vulnerable,” urged Bideri.

The INDCs bring together elements of a bottom-up system – to be put forward by all countries in their contributions in the context of their national priorities, circumstances and capabilities – with the aim of reducing global emissions enough to limit average global temperature rise to 2 degrees Celsius.

According to the London-based CARE International, there is a need to set clear guidelines on the scope and format of INDCs.

“At the moment we run the risk of having to compare apples with oranges – if we don’t clearly define what countries must include in their national climate commitments towards the new agreement due in Paris next year, then it will be extremely difficult to understand how much progress is being made to curb climate change,” said Sven Harmeling, CARE International’s climate change advocacy coordinator.

However,in a statement in Lima,Miguel Arias Canete, the European Union’s Commissioner for Energy and Climate Action, said that “the European Union and other developed countries must take into account the concerns of developing countries that want more adaptation, finance and technology sharing elements, but it should be in a mechanism or process outside of the INDCs.”

He added that “countries’ intended nationally determined contributions (INDCs) should be exclusively devoted to mitigation.”

While Africa has been pushing for adaptation as part of the post-2015 agreement, it is not about to give up the demand for mitigation in areas of sustainable land and forest management, especially carbon finance, under the Reducing Emissions from Deforestation and Forest Degradation (REDD+) programme.

Dr Ephraim Kamuntu, Uganda’s Water and Environment Minister, speaking at a REDD+ post 2015 discussion organised by the Peruvian government, said that parties to the U.N. Framework Convention on Climate Change (UNFCCC) have been slow in implementing the Warsaw REDD+ Framework.

“We would want our colleagues in developed countries to agree on REDD+ result-based financing. This is a very key issue for us in Africa. We affirm the need to integrate the REDD+ into the overall structure of the 2015 agreement for durable and effective climate change governance,” said Kamuntu.

Critical among Africa’s demands is fulfilment of the financial pledges for climate financing.  At the Copenhagen Climate Summit in 2009, developed countries pledged to scale up climate funding to 100 billion dollars a year from private and public sources by 2020. For the African Group, fulfilling this could make money available for a post-2015 poverty eradication agenda.

Some developed countries, such as Norway and Australia among others, have announced contributions to the Green Climate Fund, bringing the fund to close the 10 billion dollar mark.

Seyni Nafo, African Group spokesperson and a member of the UNFCCC Standing Committee on Finance, told IPS that much more funding was needed.

“Recent pledges to the Green Climate Fund are a small first step, but funding around 2.4 billion dollars per year is not close to the actual need, and is a far cry from the 100 billion dollars pledged for 2020. Lima should provide a clear roadmap for how finance contributions will increase step-by-step up to 2020,” he said.

The European Union has agreed to reduce greenhouse gas emissions by 40 percent by 2030. The United States and China have announced commitments to reduce greenhouse gas emissions in a bilateral agreement, sending a strong signal for implementation of an international climate treaty in 2015.

Seyni Nafo said the recent announcements by the European Union, United States and China of their 2030 emission targets were to be commended for proactivity but fall well short of what science requires.

He challenged the European Union and the United States to match stronger mitigation targets with intended contributions on finance, adaptation, technology transfer and capacity-building in accordance with their obligations under international law.

(Edited by Phil Harris)

By Carlos M. Correa
GENEVA, Sep 29 2014 (IPS)

The steady increase in patent applications and grants that is taking place in developed and some developing countries (notably in China) is sometimes hailed as evidence of the strength of global innovation and of the role of the patent system in encouraging it. 

Carlos M. Correa

However, such an increase does not correspond to a genuine rise in innovation. It points instead to a major deviation of the patent system away from its intended objective: to reward those who contribute to technological progress by creating new and inventive products and processes.

The increase in the number of patents reflects, to a large extent, the low requirements of patentability applied by patent offices and courts. Patents granted despite the absence of a genuine invention detract knowledge from the public domain and can unduly restrain legitimate competition.

Low standards of patentability encourage a large number of applications that would not otherwise be made, leading to a world backlog estimated at over 10 million unexaminedpatents.

This problem affects various sectors. For instance, Nokia is reported to hold around 30,000 patents relating to mobile phones, a large part of which are likely to be invalid, while Samsung holds more than 31,000 patent families. A study covering various fields of clean energy technologies, including solar photovoltaic, geothermal, wind and carbon capture, found nearly 400,000 patent documents.“The steady increase in patent applications and grants … does not correspond to a genuine rise in innovation. It points instead to a major deviation of the patent system away from its intended objective: to reward those who contribute to technological progress by creating new and inventive products and processes”

The proliferation of patents is particularly high and problematic in the pharmaceutical sector, where large companies actively seek to acquire broad portfolios of patents in order to extend patent protection beyond the expiry of the original patents on new compounds. These ever-greening strategies allow them to keep generic producers out of the market and charge prices higher than those that would otherwise exist in a competitive scenario.

For example, the basic patent for paroxetine, an antidepressant, expired in the late 1990s, whereas ‘secondary’ patents will extend up to 2018.

Ever-greening strategies by one company often force others to follow the same pattern as a defensive approach.  The proliferation of ‘secondary’ or ‘spurious’ patents can impose significant costs on patients and public health systems.

Several measures can be applied at the national level to avoid the proliferation of patents on trivial developments in full consistency with the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), because they fall within the policy space that World Trade Organisation (WTO) members have retained to design and apply their patent laws.

The most important policy that governments may implement is the rigorous application of the requirements of patentability, based on a thorough examination of patent applications. The TRIPS agreement neither defines the concept of ‘invention’ nor how such requirements need to be interpreted.

Thus, national laws may differentiate inventions and discoveries, and require that the former result from an inventive activity, thereby excluding pre-existing subject matter that is merely found, such as natural substances.

While some patent offices grant patents on the basis of legal fictions on novelty, there is no reason to follow such practices in other jurisdictions.

An example of this practice by some patent offices is to admit what are known as ‘selection patents’, whereby one of more items that were previously disclosed are independently claimed. This type of patents provide an effective means of ever-greening, because protection can be extended for the full length of a new patent, i.e. normally twenty additional years, despite the fact that novelty was actually lost when such items were first disclosed.

While some large patent offices, such as the U.S. Patent and Trademark Office, the European Patent Office and the Chinese Patent Office, seem to apply a lax inventive step standard thereby allowing for the granting of a large number of ‘low quality’ patents, there are strong public interest arguments to follow a different approach, particularly in developing countries.

A strict application of the industrial applicability/usefulness requirement, when provided for by the national law, may also contribute to prevent the grant of unwarranted patent rights.

This is the case, in particular, for claims on new medical uses, which are equivalent to claims over methods of treatment that have no industrial application or technical effect. The lack of industrial applicability may be a sufficient ground to reject such claims.

Given the policy space left by the TRIPS agreement to adopt their own definitions of the patentability standards, and to do so consistently with their legal systems and practices, governments can follow different methods to ensure that patents are granted only when there are sufficient merits under the applicable law.

Governments may introduce specific standards in the patent laws themselves. A notable case is the Indian Patent Act, as amended in 2005, which incorporated in section 3(d) specific standards to assess patent applications in the field of chemicals and pharmaceuticals.

In a case brought by Novartis (a Swiss pharmaceutical company) against the rejection of its patent application relating to a beta crystalline form of imatinib mesylate, the Indian Supreme Court held that the claimed invention failed in both the tests of invention and patentability.

The definition of the standards of patentability can also be made through regulations, including patent offices’ guidelines. A good example is provided by the guidelines on the patentability of pharmaceutical products and processes adopted by the Argentine government in 2012 to limit the ever-greening of pharmaceutical patents.

Finally, it is worth noting that in applying patentability standards, patent offices can differentiate, in line with the TRIPS agreement, among fields of technology in order to take into account particular features of specific sectors and public policies objectives, for instance in relation to the promotion of generic drugs.

Measures to accommodate these differences constitute a necessary response to the diversity of technologies and, consequently, a condition sine qua non for an intrinsically balanced system of protection that remains neutral in its effects on competition. (END/IPS COLUMNIST SERVICE)

(Edited by Phil Harris)

This column is taken from the author’s research paper on ‘Tackling the Proliferation of Patents: How to Avoid Undue Limitations to Competition and the Public Domain’, published by the South Centre (http://www.southcentre.int/research-paper-52-august-2014/).

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