Shortly after Thailand’s new government seized power in the fall
of 2006, the country’s military leaders awarded themselves pay
increases of over $9 million per year. At the same time, the
government increased its military budget by more than one third,
or $1.1 billion, while cutting its public health budget by $12
million. Translation: More money for the military government,
less money to be spent on the health of its citizens.
In addition, the country’s military government recently enacted
compulsory licensing of three patented HIV and cardiovascular
drugs. A compulsory license is when a government forces a company
to provide its patented products to its citizens without selling
the license; in other words, patent theft.
The first drug to be forced into licensing was the HIV/AIDS drug
Kaletra, produced by Abbott Laboratories. The second, Plavix, is
a very popular drug used to treat heart disease and manufactured
by Bristol Myers Squibb and Sanofi Aventis. The Thai government
granted itself the right to produce Kaletra for five years and
Plavix indefinitely. In November 2006, the Thai government issued
a compulsory license for an antiretroviral treatment for HIV
without even warning the manufacturer.
The Thai government defends this compulsory license through the
TRIPs (Trade-Related Aspects of Intellectual Property Rights)
provision within the World Trade Organization. The TRIPs
agreement allows for member states to impose compulsory licenses
only “in the case of a national emergency or other circumstances
of extreme urgency or in cases of public non-commercial use.” The
article also requires payment of “adequate remuneration…taking
into account the value of the authorization.”
In the Thai case, not only was the government’s compulsory
license issued outside the terms of TRIPs and the WTO framework,
but it also did not have an adequate dialogue or negotiation with
the companies prior to issuing such licenses. In addition, its
statisticians and analysts have also argued that AIDS and heart
disease in Thailand do not fit the criteria of “national
emergency.”
United States Trade Representative (USTR) Special Report 301, the
textbook resource for rating country’s anti-piracy efforts, put
Thailand on its Watch List on 2006. The report, which has quickly
become a global standard for rating an individual country’s
effort to protect intellectual property, is also becoming a
barometer for gauging bilateral trade relations. An excerpt from
the report reads:
The U.S. Government remains concerned about the proliferation of
optical disc pirate production at plants in Thailand, especially
in light of comparatively weak optical disc legislation that
Thailand passed in 2005. Piracy is also widespread in the areas
of photocopying of books, cable signals, entertainment and
business software, and music on the Internet. The production,
distribution, sale, and export or transshipment of pirated and
counterfeit products continues to be a serious concern. The
United States also is concerned about the weak protection against
unfair commercial use of undisclosed test and other data
submitted by pharmaceutical and agricultural chemical companies
seeking marketing approval for their products, as well as delays
in pharmaceutical patent approvals by the Thai Department of
Intellectual Property.
Just a week ago, the United States indicated that it could put
Thailand on a priority “Watch List,” naming Thailand as one of
the top IP pirates in the world. It is generally understood that
this action would hurt Thailand’s exports to the United States.
Does the Thai government believe that the international community
will not recognize its lapse in judgment?
Trends in Foreign Direct Investment (FDI), one of the most
important measures of the level of investment in a country, have
been dismal in Thailand for the past three years, especially when
compared to neighboring countries. In 2005 and 2006, FDI in
Thailand declined 64.6% and 24.5%, respectively. Considering the
significant decline in FDI in 2005, the drop in 2006 is rather
discouraging, and likely reflects a lack of investor confidence
in Thailand following the military coup.
China and Vietnam, on the other hand, have fared much better than
Thailand, with FDI growing 102% and 96% in those countries,
respectively in 2006. Although FDI declined in China in 2004 and
2005, the substantial growth in 2006 in those countries reflects
a general shift in global FDI towards Asia — and a meaningful
shift away from Thailand regionally.
The most recent move by the Thai government to hijack the
Intellectual Property of companies that spend millions of dollars
in their country is a slap in the face. This is because investing
in a foreign country is not a simple process. In addition to the
regular aspects of business investment, including red tape and
bureaucracy, most countries “appreciate” philanthropic and
community work, as well.
Here are a few examples of pharmaceutical companies joining with
local communities and government in Thailand:
* Merck, through a program, provided 40 million baht
(approximately $1 million) to implement the Enhancing Care
Initiative in conjunction with Chiang Mai University. The
initiative worked to improve HIV/AIDS health care services, among
other things.
* Glaxo SmithKline’s Nursing Excellence Program has provided over
400 nursing scholarships with a value of 37 million baht
(approximately $1 million) to 30 nursing colleges nationwide.
* Pfizer Inc. and Population and Community Development
Association (PDA) formed a partnership, jointly called the
HIV/AIDS Prevention and Assistance Program. The program provides
micro credit loans to people living with HIV/AIDS in Thailand,
allowing them more financial independence. The project has been
recognized as “best practice” by the UNAIDS.
These are just a small fraction of the major efforts companies
have undertaken to reach out beyond traditional business
practices in order to improve the quality of life for Thai
citizens. In fact, these practices are traditional for
corporate investments abroad. And this is where Thailand is
making a big mistake.
We believe the Thai government could suffer tremendous
repercussions as a result of its latest actions. Foreign Direct
Investment is already waning, and could possibly decline again in
2007. China has quickly become one of the darlings of the
investment and business community, most recently permitting its
citizens the same private property rights as the government.
Vietnam’s stock market has boomed, up 145% in 2006, and some
experts predict FDI to reach nearly $20 billion in 2007, which
would be another 100% increase. Although both countries
admittedly have drawbacks, they are opening their gates to
private investment at a rapid pace.
As Asia continues to be a growth market, investors will shift
their capital to those countries that they believe have the
potential to generate the highest returns with the least amount
of risk. Thailand has now become more risky in
comparison to its neighbors. Once again, the market will dictate
the best solution to the problem. Unfortunately for Thai
citizens, that could mean less private investment, less growth,
and less opportunity.
