Economic Impact of GI Registration of Unique Textiles of India:
An empirical analysis

                                                                                 T K Rout*

 

  • Introduction:

 

 

Geographical Indications (GIs) is the newest additions to the family of Intellectual Property Rights (IPRs) under the TRIPs Agreement signed by WTO members in 1994. The agreement defined GI as the indications, which identify goods originating in the territory of a member or a region or locality in that territory, where a given quality, reputation or other characteristics of the good is essentially attributable to its geographical origin”. Hence, GI as defined in the agreement emphasises certain key attributes like qualities, characteristics or reputation of the product, which should be essentially associated with the  origin of the product. Simply defined, GI identifies products or goods to be belonging to a particular geographic region on the basis of unique characteristics, evocative of that region, which may be due to  region’s climatic conditions, soil, water, cultural heritage, human skill or any other characteristics.

The economic rationale of IPR protection through GI is closely associated with the perception to link origin as a quality signal for marketing the goods. It ensures the origin and unique quality of the produce for development of the producers’ community.  It also protects the consumers from deception by eliminating quality-price disparity and infringed goods. The registration of the product under the GI Act provides an important legal tool to the proprietors to initiate infringement action against the unethical business practices through judiciary system. It also helps in realising tangible benefits for the producers through systematic and sustained brand promotion and market linkage of the designated products in post GI period. Most importantly, GI could be an instrument to curtail the market distortion arising out of information asymmetry between buyers and sellers. It can be viewed as a process, where reputation is institutionalised to solve the problem of information asymmetry and unethical free riding on good associated with the products.

*The author is working as Deputy Director (MR) in Textiles Committee, Govt. of India, Mumbai and can be reached at [email protected]

  • TRIPs Agreement & India’s GI Act:

The TRIPs agreement while defining GI has given emphasis to the quality, reputation or other characteristics of the goods and tried to link it to geographical origin for protection (Art. 22.1)”.  It means, when  some geographical regions acquire reputation for origin of product with unique quality, it is the quality or reputation that distinguishes the product from similar other products.  Further, when a product acquires such reputation, there may be an attempt by others to indulge in unfair business practices to capitalise the premium price associated with it.

Such action by others harms both original producers and consumers of the products. The original producer looses a part of the market share of his product and the consumer gets counterfeit goods in place of  original one.  While stipulating the level of protection to the designated products, the agreement has offered absolute protection (Art-23) to wine and spirit and general level protection (Art-22) to products other than wines & sprit. The additional protection provided to wines and spirits imposes an obligation on member countries to legislate specific rule for protecting wines and spirits in the respective countries even if there is no risk of misleading or unfair competition. Such a  dual protection mechanism has been questioned by many member countries. Even if, the member countries have accepted the TRIPs mandate on absolute protection, majority of the countries have been insisting for same level of protection to other products. It was initiated in 2000, when the countries like Bangladesh, Bulgaria, Cuba, Cyprus, Pakistan, India and others opposed discriminatory nature of additional protection and demanded similar protection for other products. However, their argument was negated citing the clause of  Article 24.1, which stipulates negotiations for enhanced protection for wines and spirits only. Whereas the promoters of this thought are of the view that this article refers to the products other than wines and spirits. The discriminatory approach  accepted in the TRIPs council may be the resultant of continuous effort by EU countries  to protect   unique blended wines and spirits originating from their countries. However, the members have agreed for the establishment of a multilateral system of notification and legislation of GIs (article 23.4).

Further, the agreement stipulates that unless a GI is protected in the country of its origin, there is no obligation by the member countries to extend reciprocal protection (Art- 22). The clause has given rise to  implementation of national laws by the member countries for protection of their products.  Hence, in compilation to the TRIPs agreement, India enacted the Geographical Indications (GI)[1] Act’1999. It is interesting to note that though Article 23 of TRIPs provides a higher level of protection to GIs relating to wines and spirits only, the corresponding provisions in the Indian Act does not restrict themselves to wines and spirits alone rather it has left it to the discretion of the central government to decide, which goods or classes of goods should be granted such a higher level of protection. This discretion has deliberately been maintained by Indian lawmakers with an aim to ensure  ‘absolute’ protection of Article 23 to all designated GIs having export interest for India.

[1] Geographical Indications (GI) Act (Registration and Protection) Act 1999, and implemented in the year 2003. Under this act, the Central Government has established a “Geographical Indications Registry” with all India jurisdictions at Chennai, where the right-holders can register their respective GIs.

  • Empirical Evidence on GI benefits:

 

Researchers have been trying to quantify the impact of IPR protection of unique products & traditional knowledge (TK) through empirical research on the benefits of GI. A consumer study organised by the EU Commission estimated that 40 percent of the consumers are willing to pay a premium of 10 per cent for origin guaranteed products (EU Commission 2003). The consumers’ willingness to pay higher premium price to the original products may be attributed to the elimination of uncertainty on the quality and originality of product.

 

A study conducted by OECD highlights a number of factors that influence the small & rural enterprises dealing with unique products and penetrating the niche markets.  Two important factors that have emerged from the study are  (a) market access and (b) market differentiation.  One approach to address these factors could be to work collectively in order to develop a competitive advantage.  The approach is well accommodated with an origin labelled validation strategy confirming the economic rationale for protecting geographical indication. (Bramlay, Bienabe & Kirsten).  It may also influence the rural economy as most of the origin-labelled products are originated from rural area.

 

On product specific studies, the Jamaica Bru Mount coffee received a premium of $14.50 per kg in comparison to bench-mark prices of Columbia miles (Rangnekar 2003). The French GI designated cheese has sold at a premium of 2 euro per kg over other un-protected cheese. Likewise Italian Toscano Oil is sold at a premium of 20 percent since it registered in 1998. It has been estimated that 85% of French wine exports and 80% of EU exported spirits use GI’s as a marketing tool for promoting the product both in domestic and export market. The GI has become a lifeline for 1,38,000 farms in France and 3,00,000 Italian employees during post-TRIPS period.

The studies on regional origins and prices of wine have also given rise to positive impact on the GI registration of the products (World Trade Report 2004). The primary econometric tool used in the analysis is the hedonic[2] pricing

model on wine and it allows estimation of the value of such important features as a geographical origin, variety, vintage, etc. whose inclusion bring about an additional premium for the original products.  Schamel and Anderson (2003) extended this analysis to the case of Australian wines and found that regional origin has become a more important determinant of prices over the period 1992-2000 as compared to other factors. Their study indicated that the average premium price of the product has increased by 31 percent in 2000 as compared to 1992 for select Australian wines. The Pinot Noir is cheaper by 22 percent compared to a Shiraz from the Barossa Valley, while a wine produced in Canberra is 25 percent more expensive than its counterparts.

As such, the trends have pointed out that the products once registered can act as a riding force for free trade. Broadly speaking the IPR protection of unique products may give rise to the benefits by offering community ownership, to the producers as it is the only IPR, which prescribes community ownership. Besides, it acts as a stimulating factor for deriving premium price and facilitator of free trade. A study on Australian Wine (Schamel & Andersons, 2003) has estimated that the regional origin is more important determinant of prices over a period of time, as the product fetched a premium price of 31 percent in post registration period. Further, it is evident that most of the GIs designated products have originated from rural area. In textiles, is it the Kanchipuram Silk of Tamil Nadu or Jamadani of West Bengal, Patola of Gujarat, almost all products has originated from rural area. Thus, the production may facilitate a spill over effect to the development of rural India and hence bridging the income disparities.

2.0   Comparative market analyses of Pochampally Ikat in pre & post GI Period:

 

It is imperative that the IPR Protection through GI provides much needed protection against infringement and protects the consumers from deception besides promoting economic prosperity of the producers’ community. The most important benefit from GI is that it eliminates unfair competition, which ultimately benefits both genuine producers & consumers. In order to protect the traditional knowledge from infringement and ensure the development of producers, the weavers of Pochampally Ikat registered their hand woven textiles under the GI Act, 1999 of India in the year 2004. They registered the product in such a scenario, when the product was experiencing decline in production, income and employment due to mass infringement of the products by the dishonest business practices. The availability of cheap counterfeit goods threatened the very existence of the product by undermining the marketability of original one.

 

 

2.1.1 Protection of Market through GI:

 

The Pochampally Ikat registered under the Geographical Indication Act in the  month of November 2004. It is presumed that  the registration will bring much needed changes in the key parameters, the supply chain and the organisation of the manufacturing. Given this scenario, an attempt has been made  to map the growth trajectory of successful handloom enterprises and locate them in the context of the growth of the handloom industry of Pochampally. The study also examined the comparative market of Pochamaplly Ikat during pre and post registration periods on key parameters like income, employment, production and price, etc.

 

2.2.2 Market Analysis of Pre & Post GI Registration Periods:

 

The Ikat products of Pochampally are known for the craftsmanship of the weaves all over the country. The product has also created its niche market because of its unique quality and beautiful designs & motifs crafted by weavers through handlooms across the product lines. During 90’s, the popularity of the product suffered a set-back as the market was flooded with handful of replicated/ infringed Pochampally Ikat giving rise to loss of  market for the original weavers. As a result, the income, employment, product and other key variables of the product experienced a decline. It ultimately leads to migration of weavers to other occupations and to nearby cities.

 

However, the popularity and market penetration of the product increased several times as soon as the Pochampally Ikat got registered under GI Act’1999.  The IPR protection brought about visibility to the producers as well as products. The product got noticed both in the domestic and international market due to publicity by the mass media. Its popularity is further boosted due to containment of infringement. The businessman producing and marketing counterfeits   in the name of Ikat compelled to discontinue it as the original producers initiated legal action as per the GI Act and tried to promote the product through brand building and market linkage of the product. The popularity of the unique designs paved the way for product diversification and design innovations. The demand for saree or LDMs or home furnishing increased significantly in the post registration period. The increase in prices of the product encouraged the craftsmen to invest more on the raw materials and auxiliaries besides expanding their units. The demand-pull provided quicker realisation of the return. The agents and the wholesalers were also started demanding better-finished products in short durations and insisted on strict delivery schedules. The weavers became more responsive to the organisation of their industrial activity and became more serious in fulfilling the aspiration of the consumers. The members of the family, who are working leisurely in the production activity have also engaged themselves for more duration and also with more seriousness. As a result, not only the productivity of the head artisan increased but also the supporting members of the family or hired labour. The size of employment increased and so also the price of the product particularly silk based products have shown upward movement.

The constitution of an inspection mechanism for monitoring the quality and other key variables as stipulated in the Geographical Indication (GI) Act has also helped the weavers in standardizing their products across the production range.  Earlier, the weavers are not ready to share the information with fellow craftsman about new designs, motifs and product diversification, etc due to unhealthy competition among the weavers. Since the GI registration provided community ownership, it revived the bonding among them and motivated in sharing the knowhow and better interaction. This ultimately led to better informed decision by the weavers and more intense product diversification to cater the growing demand for their produce. The standardisation of the quality along with product diversification also leads to better consumer satisfaction and more demand both from domestic and international market.

The other variable aspects, which has also influenced the production and sales turnover, is awareness. The field investigation reveals a larger chunk of the artisans have acquired the knowledge on the GI and the changing market demands. However, the increased demand leading to better realization of price has brought about satisfaction to the stakeholders in terms of increased income and employment to the producers.

Similarly, the study on consumers to assess the willingness to pay for GI registered products like Pochampally Ikat has indicated that more than 65 percent of the consumers have expressed their willingness to pay more, if the original quality of the product is ensured. Out of 65.91% consumers, 24.45 percent consumers expressed their willingness to pay  10 to 20 percent more for the  guarantee of original Pochampally Ikat, where as 43.18 percent consumers are willing  to pay 5 to10 percent more. The expression on consumers willingness to pay more for the originality and unique quality is a reflection that the product may fetch higher premium price in future leading to better income and employment to the craftsman.

2.2.3 Trend of Key Variables in  Pre & Post GI Registration Periods:

 

The Table-1 explains the trends of some of the key variables during the Pre and Post GI period on per unit annual production, productivity per day, employment per unit and annual sales turnover.

Table-1: Performance of key variables

Parameters Pre-GI Period Post-GI Period CAGR

(2004-09)

2004 Growth

(2004-05)

2006 2009 CAGR

(2006-09)

Production (Rs.) 473439 8% 524799 906852 20% 14.09
Employment (No) 1.79 1% 1.83 2.48 11% 8.46
Productivity (mtr) 0.75 11% 0.86 1.14 10% 8.47
Sales Turnover

( Rs. )

379870 19% 461857 859448 23% 17.33

 

The key variables taken into consideration for the purpose are production, productivity, employment and sales turnover. The production ultimately leads to an indication on the performance of the other variables like disposable income, standard of living and performance of the enterprise in this period. The comparative picture of the pre and post GI period on production indicates that the IPR protection and the subsequent activities by the weavers have brought about significant increase in the production of the units. The growth rate during the pre-registration period is about 8 percent, where as the Compound Annual Growth Rate (CAGR) increased to about 20 percent in the post GI registration period. It may be noted that even if the product registered in December’2004, the process of handing over the certificate and other related actions have been completed during 2005. Hence, both the years have been considered as pre-registration period. On the other hand, the CAGR for 2004 to 2009 is about 14.06 percent, which indicates that the production has experienced a robust growth during the post registration period. The major attributes to such robust growth   may be due to increase in demand and enhanced motivation among the weavers to enhance the market of the product by strengthening the existing market and creating new markets by lunching  product diversification.

Similarly, prior to GI registration, the centre was experiencing stagnated or negative growth of employment as scope of production and marketing was declining due to the presence of cheap counterfeits. The cluster was experiencing exodus of manpower from production activities as the weavers were migrating to other occupations and to nearby cities like Hyderabad and Channai for better earnings. Therefore, the employment growth was about 1 percent only. On the other hand, the employment grew by  11 percent during post registration period. The CAGR of employment during 2004 to 2009 is about 8.46 percent, which indicates that employment was quite promising in this period. It is worth mentioning here that when the handloom industry across  the country is experiencing negative growth in all parameters, this cluster has successfully able to embark upon a growth path in terms of employment in lieu of IPR protection through GI.

 

The interesting feature of the comparative analysis of the pre and post registration period is increase in productivity. The productivity has shown a consistent increase between  2004 to 2005. The increase in  productivity during 2004 and 2005 is 11 percent, while it is 10 percent during 2006 to 2009, and an overall growth of 8.47 percent during pre and post registration period. This clearly brings out the serious participation of the weavers and  supporting family artisans in the weaving activity. However, 1 percent less growth in productivity during the post GI period may be attributable to the increased experimentation by the weavers on diversified products and highly labour intensive nature of production in the handloom industry. Similarly, the sales turnover has also experienced a robust growth during the period. The growing demand of the product has also increased the sales turnover from 19 percent in 2005 to 23 percent in 2009. The over all CAGR is 17.33 percent during the entire period and hence an important achievement for the cluster in terms of realizing a better sales turnover.

 

The product wise average price realization has been explained in Table-2. The price realization for almost all products was quite low during  pre-GI period as shown in the table. The growth rate of price during the period varies from 1 to 5 percent. The highest growth was experienced by silk saree with 5% and  lowest realisation was with cotton LDM with 1 percent growth. But the CAGR of the average price growth during post GI period varies from 20 percent to 25 percent . The best price realization is attributed to the silk saree with growth rate of 25 percent followed by cotton related products like saree and dress materials. It is interested to note that the price realisation is quite promising for the cotton based products, in which the centre was loosing its production base due to low return. However, the GI registration and proactive approach by the weaver’s community has revived this age old tradition of weaving cotton sarees and fabrics.

                         Table-2:  Price Realisation during Pre & Post GI
Average Price Pre-Registration Post Registration Growth

(2004-09)

2004 Growth (%)

(2004-05)

2006 2009 CAGR (%)

(2006-09)

Silk Saree (Rs/pc) 1443.15 4 1600.23 3125.45 25 17.38
Cotton Saree (Rs/pc) 360.5 5 380 656.64 20 12.99
Cotton LDM (Rs/pc) 233.75 1 242.5 419.04 20 12.99
Cotton Fabrics (Rs/mtr) 66 3 68 117.5 20 12.62
All 1405.68 4 1558.01 3037.89 25 17.33

 

Increase in productivity, price and sales turnover is the resultant of the Pochampally Ikat receiving wide publicity and discovering newer markets. The publicity not only started in the web as soon as it received GI but also in newspapers, magazines and also participation of  exhibitions. The Pochampally Ikat being the first textile product to be registered under GI in India, it has received enormous attention from the research and practicing community as well. In fact, the Pochampally has been converted into an experimental lab for many institutions and organisations. The information suggests that  National Institute of Rural Development (NIRD), National Institute of Small Industries Extension and Training (NISIET), some of the institutions under Indian Institute of Handloom Technology (IIHT), foreign designers and many foreign institutions are visiting Pochampally to understand the resultant changes in the production, marketing and lifestyles of the weaving community in post-GI period.  The big brand customers like Air India, Reliance Trend, Pantaloon, etc have also started procuring the Pochampally Ikat. The product design and quality has been defined by the Air India itself and the test parameters are ascertained by the Textiles Committee. The increase in productivity indirectly provided higher earnings to the weavers and hence a better leaving standards to the weaving households. The consortium of the weavers formed in the post GI period have also participating in different national and international exhibitions to showcase their products and enhance the marketability & brand value of this Ikat based product in the international market.

 

For a comprehensive quantitative analysis and establishing the inter-linkages between the dependent variable (sales turnover) to the influencing independent variables (such as employment, productivity and price), a linear model was constructed. The model is specified as follows:

y = a1x1 + a2x2 + a3x3 + ε

Where y is the sales turnover, x1the employment, x2 is the productivity for worker and x3 the unit price of the product and ε is the error component. It may be noted here that a constant term of a general linear model has been kept at zero since at no point of time the value of the sales turnover falls less than zero.

Table 6.4

S. No Silk Saree Cotton LDM Cotton HF Cotton Fabric
2004 2006 2009 2004 2006 2009 2004 2006 2009 2004 2006 2009
1

Observations

170 170 170 7 7 7 15 15 15 26 26 26
2 R2 0.86 0.86 0.80 0.94 0.94 0.95 0.31 0.73 0.76 0.35 0.43 0.46
3 Coefficient X1 1.06

(0.04)

1.02

(0.04)

1.00

(0.05)

0.50*

(0.77)

0.51*

(0.74)

0.38*

(0.66)

0.89*

(1.13)

0.19*

(0.61)

0.07*

(0.58)

0.67

(0.23)

0.62

(0.24)

0.58

(0.22)

4 Coefficient X2 0.76

(0.08)

0.74

(0.07)

0.75

(0.07)

1.10

(0.15)

1.10

(0.15)

1.10

(0.13)

0.71*

(0.36)

0.91

(0.21)

0.92

(0.19)

0.81

(0.32)

1.24

(0.28)

1.14

(0.33)

5 Coefficient X3 1.94

(0.01)

1.94

(0.01)

1.94

(0.01)

2.76

(0.21)

2.75

(0.20)

2.78

(0.18)

2.35

(0.25)

2.43

(0.13)

2.46

(0.13)

2.51

(0.15)

2.39

(0.13)

2.43

(0.13)

Note: Figures in parenthesis are the standard errors.

* The statistics are significant @ 5 percent level.

 

Though all these variables have shown their influence on the sales turnover for silk sarees, cotton LDM, cotton home furnishings and cotton fabrics, not many of these factors shows significant influence on the sales turnover.

 

3.0

 Conclusion: The paper has tried to analyse economic rationale for protecting geographical indication in the context of a theoretical framework. The theoretical explanation has further validated by a case study of a registered product called Pochampally Ikat. It is evident that providing protection for the designated products through GI is more than just monopolization rather the economic rational is based on the consideration of the value addition and market differentiator that arises from this IPR. It is pertinent that the protection of unique products can give rise to sustainable development of the products if and when the protection is effectively converted to tangible benefits for the stakeholder’s thorough brand promotion and market linkage. In case of Pochampally Ikat of India, the producers have already experienced the developmental angle of the GI as they are able to harvest the tangible benefits in terms of enhanced premium price and rise in employment. The finding of the study may motivate the producers of other unique products to protect their products under GI and seek benefits arising out of it. It may help the producers to capitalize the potential of this IPR and help in bridging the persisting gap between rural and urban area as most of the craftsmanship is based in rural India.

However, from the policy perspective, much empirical studies need to be taken up to quantify the direct and indirect implication of geographical indication particularly with reference to the developing countries as

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