19 April 2018

The OECD should think again on Colombian membership


In the mid 1990s Colombia was a war-stricken, pariah state plagued by narcotics gangs, Marxist rebels and right-wing paramilitary death squads. Today, thanks to years of market-friendly reforms, the country is on the cusp of acceding to the OECD, the elite club of wealthy, liberal democracies.

Joining the OECD will bring great benefits to Colombia. Membership provides a “seal of approval” that marks a country out as a liberal democracy with the highest standards of governance. This prestige is accompanied by high investor confidence, better access to finance and more credibility with partners when negotiating trade deals.

Colombia has spent the last five years overhauling its laws and regulations in order to conform to the high standards demanded by the OECD. Next week, Colombia will go before the final OECD expert committee, the trade committee, to demonstrate it meets the organisation’s high standards for trade and market access policies. Succeed here and the five-year accession journey will be complete, bar the formalities.

Although the decision to open the accession process to new, non-European countries such as Colombia is a sensible recognition by the OECD that it must reflect global economic changes if it is to retain its legitimacy, that does not mean that standards should be diluted in order to meet this political objective.

It is imperative for the future credibility of the OECD that is maintains its current high requirements for new members, otherwise the OECD “brand” would be devalued as a whole. This would be fatal for an organisation that relies on soft norms (such as standard setting) rather than hard laws to further its core objectives.

One area that is troubling for the OECD is Colombia’s attitude to intellectual property rights for medicines, in particular its willingness to override these rights in order to pursue its own domestic political agenda. In 2016, for instance, it used the threatened “compulsory license” to override the patent rights of a well-known cancer medicine in order to secure significant price discounts, and it is currently exploring the use of compulsory licenses to slash the prices of a whole class of Hepatitis C drugs.

In an era of globalisation in which knowledge-based industries form the bedrock of most OECD economies, intellectual property rights must be considered as fundamental market institutions, alongside physical property rights and the rule of law. All OECD countries (with the exception of Chile) rely on IPRs to drive economic growth, and accordingly have high standards of protection for intellectual property rights, according to international indices.

Although World Trade Organization rules allow for the use of compulsory licenses, they are a significant market intervention that alarm investors. Their disruptive potential to normal market and investment processes means they have only been used sporadically in the past, mainly by countries with weak governance in the midst of significant public health crises (a number of African countries issued compulsory licenses for HIV medicines in the early 2000s, for instance).

Nevertheless, the Colombian Ministry of Health seems prepared to normalise the use of compulsory licenses in an attempt to meet the challenges of providing quality healthcare to an increasingly demanding middle class.

The Colombian Ministry of Health finds itself in domestic political difficulties, with the healthcare system in permanent deficit and many hospitals and providers in significant debt. This is partly due to poorly planned reforms from the 1990s, which made highly inaccurate assumptions about how many workers would actually be financially contributing to the healthcare system. Then, in 2015, the government gave every Colombian citizen the legal right to almost any drug or treatment registered in the country and prescribed by their doctor. The Colombian healthcare system is now the most judicialised in Latin America, with 118,000 court claims for health care provision made in 2014 alone.

Combine these pressures with the fact that the government spends well under the OECD average on healthcare and it becomes clear that the country’s healthcare is unsustainable on its current trajectory. Given that patented medicines constitute only a small proportion of overall healthcare spend, compulsory licensing may make for good politics, but will achieve little other than damaging Colombia’s newfound reputation for economic competence.

Colombia’s hostile attitude to intellectual property rights suggest that it is prone to the economic populism that still stalks Latin America. One of the reasons OECD chief Angel Gurria wishes to open membership to “non-traditional” Latin American countries is to cement pro-market reforms in the region and end populism for good.

If the OECD allows Colombia to accede whilst it continues to disrespect intellectual property rights, it sends the message that OECD membership can be had on the cheap – fatal for an organisation that relies on persuasion and emulation to achieve its objectives.

Philip Stevens is director of Geneva Network, a UK-based research organisation that focuses on innovation and trade policy.