3.0 Introduction:

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 for sustainable development of the producers’ community.  It protects the consumers from deception by eliminating quality-price disparity. 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 stakeholders 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 in order to solve the problem of information asymmetry and unethical free riding on good will associated with the products. The registration acts as a consumer protection measure and also at the same time protects the producers by safeguarding the reputation and quality of the product.

3.1   Empirical Evidence on GI benefits:

Researchers have made attempts to quantify the impact of the IPR protection of unique products & traditional knowledge (TK) through empirical research in order to quantify potential benefits of GI as an instrument for socio-economic development of the producers of the designated products. A consumer study organised by the EU Commission in 1999 has 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.  The two important factors that have emerged as (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 can also influence the rural economy as most of the origin-labelled 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 study of EU Commission has further highlighted that GI provides value addition to the producers by facilitating product diversification and maintaining specific quality standards. The French GI designated cheese has sold at a premium of 2 euro per kg over other non-protected cheese. Likewise Italian Toscano Oil is sold at a premium of 20 percent since it has registered as a GI in 1998. Further, many of these products whose names are protected have experienced enhanced exports during post-GI period. 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[1] 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. The difference may be attributed to the guarantee of the quality of the products through GI registration.  The trends have pointed out that the products once registered can act as a riding force for free trade. Today Italian producers are calling their “parama ham” as number one ham in Canada because of the protection of the product through GI act and its widespread appreciation and acceptance by the consumers of Canada. Broadly speaking the IPR protection of unique products may give rise to the benefits as outlined in the following sections.

[1] In hedonic models the observed market price of a product is the sum of the implicit (unobserved) prices paid for each attribute of the product. The assumption of these models is that the preferences (utility function) of consumers depend on the attributes of a product. Producers in term have cost functions, which depend on the attributes of the product. In equilibrium markets determine the implicit (unobserved) prices of these characteristics.

3.1.1 GI as a means to protect traditional knowledge

Designated GIs are being increasingly considered as an instrument for protecting the traditional knowledge (TK) of the indigenous people in a legitimate way.  This component of the TRIPs Agreement includes both the socio-cultural aspects as well as the production process involved in the process of manufacturing the traditional knowledge.

In the process of production of “handicrafts”, the technical content can be protected as technical idea, while the cultural value as a form of expression and its distinct characteristics can be protected through the symbol of a mark or indications. Therefore, perhaps in the negotiating committee of the World Intellectual Property Organisation, while few countries look at different IPRs for protecting traditional knowledge, most of the countries  look favourably at GI as the best means for protecting traditional knowledge. It is because of the fact that GI as an instrument possesses some specific characteristics than any other form of IPRs and hence considered relatively more suitable for the customary traditional knowledge of indigenous people. The suitability of GI for protecting the Technical Knowledge can be attributed to the involvement of community ownership for maintaining quality and goodwill of the products.

3.1.2 Community ownership & codification of quality

This is the only form of IPR, which stipulates community ownership as most of these products are produced by a particular community.   The exclusive monopoly of the ownership lies with the producers’ community and hence, the fear of commodification of traditional knowledge on account of GIs does not apply. Protection   gives rise to legal codification of the well established practices, which results in difficulties in infringement and mass poaching by unwanted and unethical business practices. In the present structure of globalisation, it may be difficult to safeguard these products unless and until a sustained way of protection is available and in this regards, GI could play a pivotal role.

The IPR protection through GI is closely related to the quality parameters of the products. A particular product is protected as long as the quality parameters prescribed in the registration are maintained. As such, the quality aspects of the product have to be identified and codified in the process of registering the products and can act as a catalyst for the development of the product in terms of enhancing marketability and creating confidence on the mind of consumers. The codification of the production process also helps the consumers from deception and producers for expanding the horizon of brand value of the product. The example of Darjeeling tea should find a mention in this context. The aroma of Darjeeling tea can never be matched with its replica variants as the quality of this tea is ensured by the place where it is grown which is characterized by high altitude with corresponding geo-climatic conditions of Darjeeling which is unique.  We can also consider Khadi products in this context to elaborate the importance of codification of quality.  Though Khadi cannot be confined to a particular geographical location in India, in the context of GI, quality codification in terms of design, pattern, quality of raw-materials, dyeing, and weaving finishing touches should lend ample credence to the cause of this important product.   The GI tag should not only ensure that Khadi is commanding a premium price, also it is effectively combating the low cost-lesser quality dubious variants which are unethically flooded to the market to exploit market sentiments.

3.1.3 Protection for Socio-cultural & traditional rights                                                    This is with respect to collective rights provided by GI opens to all producers in a particular region. Unlike other IPRs, the rights cannot be licensed by the manufacturers or its associates based outside the purview of registered geographical area, which is not a case for trade marks or patents. Hence the cultural ethos and traditional knowledge involved in the process of production of these unique products are preserved. At the same time, it is the only IPR, which is free from any adverse socio-economic results of corporate control and accumulation that occurs in other forms of rights. Even if this right provides a collective monopoly to the community as a whole for using it as an instrument for commodification and the brand building of the product, it does not create a monopolistic structure in the market segments. Therefore, GI remains meaningful in enabling people to translate their long-standing, collective and patrimonial knowledge into livelihood and income (Barnad and Merchenay, 1996).   The example of Khandua pata is worth mentioning here to illustrate the importance of empowering traditional rights.  Historically, this product can be traced to the days of great poet Jayadev, when entire Gita Govinda, the famous work dedicated to the Lord was weaved on a Khandua pata and was presented to Lord Jagannatha.  Since then, Khandua patas are worn by the Lord Jagannath and has its popularity in the state of Orissa till today.  The GI protection will ensure that the socio-cultural and traditional rights of the weaver community are not neglected and they get a premium for the pro ducts.  This will ensure sustainable livelihood for many entrepreneur families with expertise to produce high quality traditional clothes and staves off competition from unethical sources.

3.1.4 GI & Information Asymmetry:

In economies, this form of IPR plays a crucial role by helping the consumers to distinguish the products coming from specific regions to that of other regions. It safeguards the expectations of the consumers by distinguishing the unique product category. In other wards, GI brings about product differentiation by minimizing the role of market failure called information asymmetry, where it can be described as a situation in which consumers are unable to observe all the characteristics relevant to a good i.e. taste, quality, etc.

A relevant classification of goods into three categories on the basis of the degree of information available to consumers while purchasing can be articulated here in the context of GI. In the case of Search goods e.g. garment quality can be ascertained by consumers before purchase. In many cases, the qualities of the products become known after purchasing and using the same. The example is the quality (taste) of a food brought from a restaurant. These are called Experience goods. For other goods certain quality aspects are rarely learned even after consumption e.g. toothpaste. These goods are called Credence goods.  In the case of credence goods, the information asymmetry is acute and brings about confusion in the minds of the consumers for which government intervention is often required to reach acceptable supply of product quality. If consumers cannot distinguish the quality of different product varieties before purchasing, they may be reluctant to pay different prices for the products that look alike. For example, in case of red wine all products looks similar and the consumers do not have the reasons to expect that one variety of wine is more qualitative than others. In these circumstances, instead of thinking about the quality aspects and the originality, the consumers may prefer to the cheaper one. This may be a case for all original products. In these circumstances, GI can serve as an instrument for product differentiation and facilitate a desirable level of premium price for original and unique products.

3.1.4 Protection against free ride by third parties:

When a product is registered under the GI Act, it prevents unauthorized producers from using the designated GI and thus protects from free riding on reputation of the authentic produce, that have been produced over the period of time. The guarantee that products carry confirms originality and origin from a specific area also conveys information on certain product characteristics to the consumers. Production in the respective region may lead to specific qualities that are essentially attributable to geographical origin, for instance, in relation to climatic factors. But it may be the case that the intervention of individual producers from the area has an additional impact on the characteristics of the final product.  For example, through the specific method used to transform silk into special weave as in case of Banaras Brocades sarees of India. Further, Regional producers sharing a distinctive signature product need to agree on certain characteristics of the final product or the production techniques to be used if the signature product is to remain relevant to consumers. Given that, typically, more than one producer has the right to use the same GI, the potential of free-riding also exists within the relevant producer group.  It can be addressed through registration, where producers’ association, for instance, are able to find a way to ensure that the significance of GI is not ruined by the opportunistic behaviour of individual members. The producers through co-ordinated approach can also maintain quality of the product.  As a result, the economy as a whole benefits from higher product quality and a larger product variety.

3.1.5 GI as a stimulating factor for Price:                                                         

It is believed that the products protected under GI Act or contemporary Acts are fetching higher premium price as compared to similar products which are not registered. Some studies have even indicated that the consumers are willing to pay higher premium for the GI designated products than others because of the elimination of uncertainty on the quality and origin of the product. The consumers are assured that these products come from the right region with desired qualities.

Schamel and Anderson (2003), in their study, analyse the case of Australian wines and found that regional origin is more important determinant of prices over a period of time (1992-2000), with average premia of up to 31 percent which the Australian wine commanded in the year 2000.

3.1.6 GI as a facilitator of free trade:

The trends of some GI designated products points out that the products once registered can act as a riding force for free trade. Today Italian producers are calling their “parama ham” as number one ham in Canada because of the protection of the product through GI act and its widespread appreciation by the consumers of Canada.

  • GIs as an instrument for Rural Development: 

Most of the designated products and traditional knowledge of different countries are closely associated with rural areas. The products have also a close affinity to socio-cultural ethos of the producers’ community. These unique products having originated from a particular territory are one of the most important manifestations of regional identity which can be considered as an useful instrument for economic development of the producers community and preserving the local tradition and culture.  The effectiveness of GI as a tool for rural development in developing countries could be more prominent as the designated products could enter the niche and lucrative markets of both developed and developing countries to fetch higher premium price for the producers community. The success of GI as a developmental tool, however, depends on exogenous factors like the nature and quality of the product, characteristics of production process, uniqueness and the marketing channels.  If these parameters relating to the products are well integrated with the IPR protection through GI, the designated products could effectively serve the purpose and facilitate sustainable rural development.

However, the assessment of the developmental impact should not be limited to the standard criteria (high prices, increased sales, rise in employment & income).  Instead the distribution of the benefits within the rural areas, the level of participation of local actors, reproduction of social system and environmental impact are the factors which should be taken into account to ensure sustainability.

3.2   Economic development through GI: A Case of Pochampally Ikat:

It is imperative that the IPR Protection through GI provides much needed protection against infringement and help the consumers from deception besides promoting economic prosperity of the producers’ community. The most important benefit from GI is that it reduces, if not completely, 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 of India in the year 2004.

3.2.1 Protection of Market through GI:

The Pochampally Ikat has been registered under the Geographical Indication Act during the month of November 2004. It is presumed that the parameters of market, the supply chain and the organisation of the manufacturing have undergone changes over years. Given this scenario, our attempt is 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 will also examine the comparative market position of pre and post registration periods, which will document and provide a platform for comparisons. A protected product under GI will have a quality of its own to maintain its reputation, and hence, the consumers of the product will benefit from purchasing quality products. Since, the opening of the market has been effective from 1st January 2005 and registration of unique products of textiles and clothing under GI has taken up more recently, this study make an attempt to examine the implications of GI registrations for the manufacturers of Pochampally IKat.

3.2.2 Market Analysis of Pre & Post GI Registration Periods:

Pochampally hand-woven textile weaving centre in the state of Andhra Pradesh in India is known for famous hand-woven silk and cotton saris, Ladies Dress Materials (LDMs), furnishings, etc over last 200 years. The Ikat textile is woven by using tie and dye techniques of yarn, which is the specialty of the centre. In this process, wherever colour is not required in the yarn, the yarn bundles are tied with rubber strips before undergoing the process of dyeing. Two different processes like vat and napthol dyeing are used in the dying process as per the requirement. The products are produced in the traditional pit looms and the products bear legacy for generations. Around 5000 artisan households work in the centre, the Ikat weaving is a way of life and source of their livelihood. This unique product experienced many difficulties during last 50 years due to wide spread infringement by the large mills. The marketability of the product reduced due to availability of cheap infringed products in the market, which gave rise to reduced demand for the original product. The decline in demand of the products resulted in low income for these artisan families and subsequently most of them diverted to other occupations bringing the product to the stage of near-extinction. In such a situation, the enactment of GI Act of India provided a platform to this unique craft for protection. Subsequently the artisans successfully registered the product in 2004 under the Geographical Indication (GI) Act, 1999 of India.

It was believed that with the IPR protection of the product the demand for Ikat has increased and so also the other key variables like price, productivity, employment and the overall income of the artisan households. In order to quantify the benefits of the protection to the product and the producers, a study on comparative market analysis of pre & post GI registration period was conducted. The result of the study gives a promising picture to the product as a whole. The analyses of the data collected from a sample of 256 Small and Medium Enterprises (SMEs) out of 3000 enterprises, the co-operative societies and the producers & trading associations during the pre and post registration period  has indicated that   the key variables of the product like price, quality, productivity, employment, income of the producer has increased in the post registration period.  The producers have also undertaken product diversification in the post IPR protection period so as to cater the growing demand of the consumers. However, it is also noted that the structure of the industry though has changed drastically in the post GI period; the size structure doesn’t seem to have changed radically. It is may be noted that change in the size structure will need large investments, the entry of new artisans joining  the industry and the extent of perceived demand for the Ikat will play its role on the mindsets of these cottage-industry manufacturers.

Moreover, the trend of the key variables has given rise to a new hope for this unique textiles, which has experienced a decline in production during last decade of 20th century and early years of 21st century because of large scale infringement  by the mills and other manufacturers.

The key trends explained in Table – 1 indicates that the production  of the selected samples have  increased from Rs.11.94 crores in 2004 to Rs.22.94 crores in 2009, indicating a growth of more than 14 percent from the year of  protection. It is important to mention that prior to protection; the turnover had a negative growth due to declined demand leading to low income of the artisans. It has also induced the skilled and unskilled artisans to divert to other economic activities like agriculture, rickshaw pullers, etc. As such, the registration has brought about a turnaround in the production activities to this famous craft, which is definitely  an  important experience to the producers.

Similarly, the employment for the sample enterprises has also grown by about 8.46% over a period of 6 years in the Post-IPR Protection period, which appears to have a demonstrative effect on the economic activities of the region. It may be because of the various factors like the exodus of the working population from this part of the rural India has been minimized due to the economic prosperity of the artisans associated with the product. Similarly, the economic activities of the area other than agriculture has increased, which could have a important  spill over effect on the area as a whole in terms of increased activities on retailing, support services to the product like dyeing, finishing and packaging activities, etc. One of the import findings

Table. 1: Trends in Key indicators of the products (Production, Productivity & Employment)

of the study, is the enhanced productivity during the past registration period. The productivity has also experienced more than  9 percent growth in the Post IPR protection period. In hand woven textiles, the productivity is generally low due to intricacy involved in the process of production. The designs and intensevity of the work further makes the process more complicated and hence low productivity. However, the increased demand for Ikat products due to protection, branding and other related activities might have provided rich dividend to the artisans in terms of higher motivation and enhanced income, which ultimately may have brought about a rise in productivity. No doubt, the trend could be an eye opener to the thousands of unique textile producers across the country.

The most famous product of the Pochampally Ikat is Pochampally Saree and Telia Rumal. Even if the centre is famous as silk production centre, off late, the artisans also tried to weave cotton sarees, homefurnishings, ladies dress materials,  etc. to cater the ever increasing demand for these products.  It is evident that  the process of product diversification and so also the trend from silk to other fibre products accelerated during the Post-IPR period, the artisans have resorted to product diversifications and weaved ladies dress materials, home furnishing like bed cover, curtains, pillow covers, bedspreads, wall hanging, etc. These products have also attracted both the domestic and overseas buyers. As such, the price of the products in the Post Registration period has also experienced a robust  growth as shown in

Table-2: Trend in the prices of the product

The price of the silk saree, one of the traditional products of the centre has increased by more than 17 percent during the period, where as the price of diversified products like ladies dress material (LDM), fabrics has increased by about 13 percent. The post registration period has also given  rise to a big boost to the production activities of the centre. As such, the positive effect of GI Registration is clearly visible in the trends of the key economic parameters of the production centre.

4.0 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.

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.

Authored by-

T K Rout

Textile Committee , Mumbai