ECONOMIC EFFECT OF GEOGRAPHICAL INDICATIONS ON

DEVELOPING COUNTRIES: A REVIEW AND IDENTIFICATION OF

RESEARCH NEEDS

INTRODUCTION

TRIPS mandate the member countries to implement law which facilitate protection
for pharmaceutical products and plants and which is opposed with considerable force
by the developing countries on account of the mandate being inclined in the favor of
developed countries.
However, out of several forms of IPR protection, one which can truly help developing
county to boost its economy is that of Geographical Indication (GI). GI is defined in
Article 22.1 of TRIPs Agreement and is a mechanism to assist primarily the
agricultural sector in developing countries by reducing the supply competition for
traditional products by raising the quality of those products. GIs as specified in the
TRIPs provides two distinct types of protection, higher protection for wines and
spirits and one for eligible products.
Policy makers in both the developing and the developed countries have identified GIs
as a potential mechanism to assist primarily the agricultural sector which ultimately
helps the smallholders in local communities. Geographical Indications means as far as
the agricultural part is concerned a particular plant or tree growing in a restricted are
and it of very good quality.
The EU emphasis on the Geographical Indications revived interest in their functioning
and economic ramification. The interest of this is extended to the developing
countries as well because the EU takes position that enhances Geographical
Indications protection will benefit developing countries which can potentially enhance
the export markets. Geographical Indications are particularly seen applicable to the
developing countries as the Geographical Indications is owned by the group and not
individuals.
ECONOMIC FUNCTIONS OF GI

GIs need to monitored properly and must be ensured that the free loaders who use the
name and the benefit of the Geographical Indications tag of a particular product and
have the trust of the consumer believing they are buying the authentic product must
be prevented from doing the same. For instance in India, only 10 million kg of
genuine Darjeeling Tea is produced but in the market worldwide, 40 million kg is
available.
GIs although a form of trademark differs from it in several aspects including:
Ownership
Location of Production
Certification

GIs provide a sense of exoticness for the domestic product to the international buyers
and act as a signaling function is more important for a foreign consumer because GI
can provide signals to a potential buyer about a goods origin and the quality, thus
reducing the cost of search for the consumers and hence make the market more
efficient.

COMPLEXITIES OF CURRENT AND PROPOSED GI SYSTEMS

GIs as a form of protection has existed for long. Companies by using Geographical
Indications have acquired premium in the market place, the EU has become more
strict and aggressive in granting GI brands and ensuring their protection beyond EU
boundaries.
United States being unsatisfied by the regulations of the EY, the filed a complaint
with the WTO against the EU regulation pointing out two major things. Firstly, it
discriminated against the no EU designated GIs by failing to provide national
treatment and secondly, it did not provide sufficient protection to pre existing U.S.
trademarks that conflicted with the EU designated GIs. Following after the above
mentioned incident, in the WTO Doha Round negotiations, the European Union
representatives sought out have the level of protection for all eligible products
enhanced by first, extending the level of protection currently available for the wines
and spirit to other goods, secondly, rolling back a limited set of GIs in use I countries
where the GIs did not originate, and finally by creating a multilateral registration
system for GIs.
For the above mentioned regulations there is a division in opinion. Proponent and
Opponent vies are being maintained which is contrary to the usual north South divide.
Subsequent to it was the presentation of proposal addressing the demands of
developing countries submitted by the European Commission in the year 20005
bringing about amendment in TRIPs agreement followed by implementation of
European Commission regulation 510/2006 by the European Union.

ECONOMIC EFFECTS OF GIS

Multiple streams of literature is available on this aspect which further helps in

analyzing various constituent aspects of GI functions, such as supply and quality
control, generic promotion, and labeling. There exist some studies that conduct
qualitative analysis of GI without any specific model or any market assessments. Sine
the conclusions based on such studies are very general at best, in this section we focus
on theoretical and empirical studies conducted on GIs or GI like legal systems.

Theoretical Models

Most of the theoretical analysis of the functioning of GIs focused either on the
economic rationale underlying control mechanism or the signaling function of GIs.
This method is basically based on the economic rationale underlying control
mechanism or on the product differentiation aspects and the signaling functions if GI.
Starting from the well-established position that producers have no incentive to invest
in product brand recognition when there is no entry control. Further, it can be that the
incentive to establish a GI type system increases with the strength of property right
system.
It was also observed that economic rationale underlying control mechanisms in
European Union law is very specific and restrictive in nature. While analyzing
economic functions of Geographical Indications in a vertically differentiated
framework it was assumed that certification cost are needed for Geographical
Indications to serve as collective credible quality certification devices, and the
production of high quality product is endogenously determined. As a consequence,
high quality goods are under supplied.
Using this approach, they also document that the social welfare loss can be greater
due to technical inefficiency of production control than from a production monopoly.
It was seen that the cost of developing an effective Geographical Indications system is
likely to be associated with its effectiveness at raising producer prices, the incentive
for technology distorting restrictions rises inversely with control over production area.

EMPIRICAL METHOD

Almost all of the empirical analysis of GI is case study types, focused on the products
from EU. As per a study, the direct certification costs are one of the important but not
the main element in firms decision whether or not to use PDO-PGI. Further the study
was taken from the secondary source and also from the direct surveys of the firms
involved in the supply chain, product certification bodies and representatives of the
producers association.
Findings from the study show that the amount and distribution from the direct
certification costs among the actors of the chain depend on the product certification
bodies and their relationship with the actors.
Therefore, products having GI marks can be sold at a higher price the consumers are
willing to pay for a good quality product. There exists another study which highlights
the implications of branding strategy or labeling standards for GIs. This study was
done by using consumption data for extra virgin olive oil from Italy. The study aimed
to show that whether or not the labeling and the country of origin influences food
preference directly or not.
The study also identified four major issues that affect likely the balance of benefits
from geographical labeling for developing countries.
No certified supply of chain upon which the EU GIs can bank on.
Inexperienced policy makers for the concerned law.
High the maintenance cost .
Existence of mandatory requirements..
As per a study, the benefits and costs of proliferation of three types of geographical
labeling, namely GIs, trademarks and country of origin labeling for developing
countries. Based on this premise the author argues that the use of geographical
identifiers to achieve product differentiation is viable, but however is unlikely to
benefit local producers. The empirical analysis focusing on the Geographical
Indications from developing countries are very limited.

GIs in Developing Countries

Developing countries are of the view that GIs have a very strong potential to help the
smallholders and also that the scope of GIs must not be restricted to wines and must
be extended to other products.
GIs in India, Sri Lanka and Africa can be cited as example for the needs and
acknowledging potential of GIs to help the farmers , thereby helping the economy

CONCLUSION

The review of the article suggest that the opportunities for the Geographical
Indications with a substantial potential for a rural development are limited but they
exist for sure. It is very important for the country to chose their Geographical
Indications and keep the international requirements and needs and their willingness in
mind. It is directly related to how better the particular country is successful in
obtaining the security of the product which will ultimately result in the good will in
international market between the product as they will have confidence over the
quality of the good.