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Pharma companies to take on Europe's imposition of duties on Indian drugs

Nikhil Faleiro

It is not easy coming to terms with the World Trade Organisation regime. The Rs 89 billion Indian pharmaceutical industry can vouch for that. Drug manufacturers in India are suddenly the villains in the West. Certain countries, especially from the European Union, have pleaded WTO violations and decided to impose duties on Indian medical products.

The European Commission on October 12, 1997 initiated anti-subsidy proceedings on a broad spectrum of antibiotics like amoxycillin trihydrate and cephalexin imported from India by imposing countervailing duties on the drugs. The European Commission action follows complaints lodged by several European companies like Antibiotics SA, Biochemie GmbH, Dopfar SpA, Antibiotics SpA and Biochemie SA against Indian firms, in particular Kopran Industries, Ranbaxy Laboratories, Sol Pharmaceuticals, Max GB and Torrent Pharmaceuticals.

The European Commission's contention is that Indian companies can export drugs at lower prices since they have the benefit of government subsides, which can cover up to 30 per cent of manufacturing costs. According to European Union companies, Indian manufacturers had some time ago lowered their prices by 10 per cent for amoxycillin, 11 per cent for ampicillin and nine per cent for cephalexin. German and Swiss companies claim this hurt them badly: to the tune of $ 28.6 million (Rs 1.03 billion) in sales and $ 85.1 million (Rs 3.06 billion) of their EU production. This led to the European Commission action.

The foreign companies point out that Indian manufacturers receive credit for import duty, tax exemption on export profits, preferential interest rates on export credit, and preferential rates of import duty on capital goods for use in export manufacture.

The move has caused an uproar in India and with the Indian Drug Manufacturers Association disputing the claims. The association maintains that the government allowed certain benefits only to mitigate the cost-inflation burden of custom duties. "This is a clear case of victimisation because the WTO rules, to which India is a signatory, clearly states that such kinds of subsidies are allowed," says D B Gupta, managing director of Lupin Laboratories.

The rules are fairly unambiguous. Under Para 2(a) of Article 27 of the WTO agreement on subsidies and countervailing measures, countries with a per capita income of less than $ 100 (Rs 3,600), like India, are exempt from the provisions under Article 3. This latter article prohibits the grant of various types of subsidies for export products.

"The European action is in direct violation of the WTO guidelines," states T U Reddy, managing director, Sol Pharma.

However, while the fall in the prices of Indian drugs may have triggered the current hostility, there is the distinct feeling that it is India's growing presence in the global market which is at the heart of the dispute. Take the example of three antibiotics on which duties have been slapped: amoxycillin, ampicillin, and cephalexin. In 1996-97, India's share of the first two in the European market stood at a respectable 13.4 per cent and 15.1 per cent while for the third, it is a whopping 36 per cent. Exports have grown from a paltry Rs 3 billion per annum in 1983, to Rs 37.98 billion for the year 1997, till July.

Says Kopran Industries managing director Surendra Somani: "India has become a world leader in the manufacture of these products. This has upset many foreign companies, which is why we are being targetted."

The United States too has started getting tough against Indian products. A recent US court ruling requires Indian herbal and ayurvedic drug manufacturers to list all the ingredients of the label of the drug container. Further, Indian companies are now required to justify all claims relating to the drug on the label itself.

While the European Union is in no mood to let the Indian companies escape, the Indians too are determined to fight the measures. As a first step, they have urged the Centre to impose similar conditions on EU products. However, the prognosis does not look too good and the battle will probably be a long, drawn out affair.