2 Transaction Costs of Tracking and Monitoring the Flows of Genetic Resources

Derek Eaton and Bert Visser1

Executive summary

Over the last few years, attention to the issue of tracking and monitoring the flows of genetic resources has increased. The CBD now recognizes that genetic resources are under the sovereign right of States and, as a result, many countries have embarked on a policy and regulatory process to regulate access to and benefit sharing from these resources. Two new policy scenarios – the CBD and the FAO International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) – have considerable implications regarding transaction costs associated with implementation, enforcement and closely related to these, tracking and monitoring.

In brief, transaction costs are defined as the different costs (monetary and non-monetary) which need to be assumed in the process achieving a certain goal. In the specific context of genetic resources, transaction costs are divided into costs of negotiating access to genetic resources agreements, pre-distribution and post-distribution of materials costs. In the case of the latter, tracking and monitoring are important components of the process of verifying whether or not genetic resources are being utilized in the form which was originally agreed upon. Tracking and monitoring in themselves pose important challenges and imply a series of costs which will have to be borne by the user of genetic resources, the supplier or a potential consumer of a product, given the case.

This chapter focuses on tracking and monitoring of plant genetic resources for food and agriculture (PGRFA) and related transaction costs and their implication, especially in the context of the ITPGRFA. It makes a series of cost calculations and proposes that transaction costs can be measured based on a series of categories: Material Transfer Agreement (MTA) handling; central documentation management; DNA fingerprinting for different samples; database searches in intellectual property offices and, ultimately, legal costs.

The chapter argues that transaction costs of monitoring the overall effectiveness of access and benefit-sharing systems in general are harder to estimate than the actual costs of tracking specific materials. However, monitoring costs in the context of the ITPGRFA are probably modest in comparison to exchange under the CBD. In any case, a tracking and monitoring mechanism should be low cost and almost certainly will have to exclude standard genetic or biochemical analysis of each sample, since the cost of such analysis will most certainly exceed the expected benefit-sharing levels. Only in very specific cases may individual tracking and monitoring be advisable, depending on the nature and potential (or proven) value of a particular resource.

Evolving property rights regimes over agricultural genetic resources.2 With the adoption of the Convention on Biological Diversity (CBD), the ownership status of genetic resources has changed. The CBD affirms that such resources come under national sovereignty. In executing their rights, countries have subsequently agreed, under the International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA), to establish a Multilateral System of Access and Benefit-Sharing (Multilateral System). This Multilateral System constitutes a single regime defining modalities for access and benefit sharing for a substantial sub-set of staple crops and forages. This Multilateral System will be operationalized primarily through the adopted standard Material Transfer Agreement (MTA) regulating and defining terms and conditions for both access and benefit sharing.

Douglas North (North 1990) argues that institutions provide the structure for exchange that determines the cost of transacting as well as the costs of production. In the case of genetic resources, national and international exchange has evolved from one of relatively unencumbered and unregulated transactions, to one in which contractual agreements are negotiated between providers and recipients, either bilaterally or multilaterally as in the case of the ITPGRFA and its standard MTA. The changes in ownership, the increasing role of property rights, and the establishment of new access and benefit-sharing requirements mean that transactions in genetic resources also take on other characteristics. In particular, the cost of reaching and enforcing exchange agreements is affected.

Concept of transaction costs. Changes in the size and nature of the transaction costs associated with exchanging genetic resources are one of the most important aspects of the newly evolving institutional framework that governs the transfer of genetic resources. The attractiveness and feasibility of such arrangements depends as much on the distribution of direct benefits as on efficiency in terms of transaction costs, and their allocation among stakeholders.

In contrast to fees or royalties paid for access to material, in this case, transaction costs are comprised of the costs in the form of both parties use of their own resources (not necessarily financial) in negotiating, concluding and implementing an agreement (contract) concerning the transfer of genetic material from one party to another. Transaction costs are affected by (1) the degree to which investments or resources involved in a transaction can thus not be immediately applied for other purposes (asset specificity), (2) the amount of uncertainty on the conclusion and implementation of the contract, and (3) the frequency with which such transactions take place (Williamson 1987). In the case of the exchange of genetic resources, each of these characteristics increases the total cost of transacting. These rising costs are compounded by the predominance of company secrecy strategies (hidden information) among recipients of genetic material, in particular in the private plant breeding sector, possibly implying greater incentives for opportunistic behavior by recipients, and a consequent need for providers to invest resources in enforcing agreements.

In a previous analysis, we divided the transaction costs associated with the international exchange of PGRFA into three types: negotiation costs, pre-distribution costs and post-distribution costs (Visser et al. 2000). Negotiation costs consist of the costs for providers and users of the entire process of arriving at an agreement or contract on (1) the material to be exchanged, (2) the scope of use, (3) any terms for financial compensation, and (4) other rights and obligations. To this could be added the costs for the user of locating the material of interest in the first place.

Pre-distribution and post-distribution costs refer to costs that contribute to implementing and enforcing the agreement. Pre-distribution costs are the costs for the provider of documenting the properties of the genetic material, possibly including the DNA fingerprinting of the material, in order to serve eventually for verification purposes if it were suspected that the terms of the agreement were not being respected. Post-distribution costs are then the costs of tracking both the use of genetic resources and the registration of plant varieties and of patents covering genes obtained from the provided genetic material. This tracking is undertaken in order to identify possible applications in which parts of the exchanged material may be present and that were not disclosed by the user.

Our earlier analysis focused on the likely scale of these transaction costs under various scenarios in which PGRFA were exchanged under bilateral agreements, as compared to a multilateral system of facilitated exchange. Under simplifying and conservative assumptions, we found then that the costs of post-distribution tracking were the largest component of transactions costs, accounting for roughly one-half to two-thirds of these costs.

What are tracking and monitoring? The Oxford Dictionary describes tracking as following the course or movements of an object or as finding an object after a thorough or difficult search. By the same source, monitoring has been described as “keeping under observation, especially so as to regulate, record, or control.” We have used these definitions to distinguish between the following two arrangements regarding the regulated movement of genetic resources.

Tracking systems involve procedures that follow the international movements of genetic resources, from original provision all the way up to inclusion in a commercial product (plant variety) or other inventions, including those applying for patent protection. Thus, tracking systems can also include procedures to review or sample specific identified germplasm (for example in applications for plant variety protection or patents) in order to verify the presence of genetic materials.3 A tracking system may include provisions that require the tracking of each and every transfer, or it may guarantee that adequate data, sources and mandates are available in case these are needed in those individual cases in which tracking is regarded warranted.

Monitoring systems may function to inform all stakeholders involved about international exchange of germplasm, in particular as it relates to the objectives of international agreements. Monitoring should answer questions on the effectiveness of access and benefit-sharing agreements, and may result in improvements of existing regulations or alternatively in serious changes of such systems to remove the flaws of systems in use. Monitoring might rely on detailed data for each individual transfer of genetic resources or it may analyze in a synthetic approach individual tracking experiences and additional information on other aspects of an access and benefit-sharing system.

In this context, tracking refers therefore to following the flows and use of germplasm. On the other hand, monitoring refers here to a regular assessment of the functioning of the access and benefit-sharing system as a whole.

What follows. The institutional landscape has evolved since our earlier study. The ITPGRFA has been ratified and entered into force, creating various categories of PGRFA in terms of access and benefit-sharing conditions. The most important distinction is between material falling within the Multilateral System of the ITPGRFA, and that which is excluded from the Multilateral System. Exchange of the latter category of germplasm may come under the CBD and its Bonn Guidelines. It is clear that substantial exchange of germplasm will take place both within and outside the Multilateral System. In this paper, we revisit the issue of pre-distribution and post-distribution tracking and monitoring costs, and more specifically the costs of tracking and monitoring the flow and use of genetic resources. More in-depth analysis is relevant given the current discussions surrounding the possible disclosure of origin requirement in patent and plant breeders' rights (PBR) applications, as well as surrounding the possible nature and extent of tracking and/or monitoring in the context of the Multilateral System of the ITPGRFA, and the newly to be developed international regime for access and benefit sharing under the CBD.

The next section briefly considers those elements of the two most relevant international agreements that impact on transaction costs. It then follows with a brief analysis of the impact of current policies on the exchange of PGRFA and on tracking and monitoring. Tracking and monitoring as well as other factors result in transaction costs, but an increase in total transaction costs may have in turn a stimulating effect on the establishment of tracking and monitoring provisions to ensure proper return on investments. Subsequently, the costs and benefits of a number of possible arrangements governing the exchange of PGRFA are analyzed and the options for a low transaction cost international regime are roughly sketched.

2.1 Transaction costs under current international instruments

Transaction costs associated with the exchange of PGRFA are determined jointly by the two international instruments referred to above that provide the framework relevant for these exchanges, and by national legislation and policies which provide for implementation at the national level. Needless to say that other factors (easy availability of desired genetic resources, reliability of the exchange framework, etc.) also influence transaction costs.

The CBD and transaction costs. Transaction costs resulting from the implementation of the CBD include costs encountered when potential providers (sources) and recipients (users) meet to negotiate an exchange of germplasm based on the principles outlined above. Both actors incur costs in the process of arriving at an agreement on a range of aspects to be negotiated such as scope of use of the genetic material, financial and non-monetary compensations, the exchange of information on the use, and other rights and obligations of the parties to the exchange agreement. Further transaction costs are associated with implementing the contractual agreements. These costs include the costs for agreed tracking and monitoring arrangements. Additional costs would be incurred if enforcement actions are undertaken in the case of a suspected failure to abide by the terms of a contract, culminating in private legal action.

The Bonn Guidelines on Access to Genetic Resources and Fair and Equitable Sharing of the Benefits arising out of their Utilization (Bonn Guidelines) are a voluntary instrument containing measures to facilitate access and benefit sharing and serve as inputs for developing and drafting legislative, administrative and policy measures. Suggested measures include among others the designation of a national focal point for access and benefit sharing and the designation of (a) competent national authority(ies). Establishment of such bodies also contributes to transaction costs, although it may lower other transaction costs, e.g., associated with acquiring access to information and with negotiating and decision-making processes.

The ITPGRFA and transaction costs. Under the Multilateral System of the ITPGRFA transaction costs are likely to be more limited but certainly not absent. Where the resource involved is covered by the Multilateral System of Access and Benefit-Sharing, negotiations on individual transactions are not necessary. Documenting each transfer and reporting this to FAO on a regular basis is sufficient. The need for tracking individual samples has been excluded. Access to PGRFA from the Multilateral System is to be compensated with obligatory benefit sharing in the case that a product incorporating PGRFA from the Multilateral System is not available without restriction to others for further research and breeding, or through voluntary (either monetary or non-monetary) benefit sharing if access to such products is not restricted. To organize and oversee such benefit sharing, institutional capacity is needed. Monitoring will result from the need to determine whether obligatory benefit sharing is generally complied with, to which level voluntary benefit sharing is realized, and to what extent voluntary monetary or non-monetary benefit sharing substantially contribute to the objectives of the ITPGRFA. Tracking by the provider may be required in those individual cases for which doubts exist on the correct implementation of the obligatory benefit-sharing requirements. Both financial and political motives may lead to the establishment of tracking and monitoring arrangements. In this context, the Governing Body of the ITPGRFA recognized the need for a legal persona representing the Multilateral System as a third party beneficiary regarding the agreed and implemented access and benefit-sharing provisions, and has adopted a Standard MTA that foresees the future creation of such an entity, that may act on behalf of the provider.

The costs of the mechanisms outlined above are not covered by currently available funds. Hence some means must be found to collect these costs from governments, recipients and/or users.

2.2 The impact of transaction costs on current flows of PGRFA

The size of transaction costs can affect the flows of PGRFA through the extent to which potential recipients will seek access to useful resources under the jurisdiction of third parties and to which providers and recipients can efficiently reach an agreement. These two parties do not equally share the costs, and the relative burden borne by each of them needs to be examined, as the resulting balance or lack thereof affects the incentives each faces to conclude a deal.

Our earlier study concentrated on the likely transaction costs of material in the context of bilateral exchange regardless of the extent to which each party would bear such costs. In particular, the transaction costs incurred by recipients might explain recent downward trends in the flow of PGRFA. Recipients of material incur costs in locating the material they wish to access and negotiating an agreement for access to this material. Whereas costs of locating germplasm have not fundamentally changed, in particular the costs for recipients of negotiating an agreement have arguably increased considerably with the CBD, and derive not as much from bargaining over fees and other forms of benefit sharing, as from the uncertainty surrounding current implementation of the international agreements and further developments therein with respect to the terms for benefit sharing. More specifically, the legal framework in which an access agreement operates could further change after its conclusion pending the negotiations in the context of the CBD on an International Regime for Access and Benefit Sharing, possibly imposing additional requirements on recipients or reducing the value of the material to them (e.g., through disclosure).

But most importantly, any international agreement needs implementation at the national and institutional level, in both the source and recipient country and by both the provider and the recipient. Both parties may face uncertainties regarding proper implementation for some time. Under the Multilateral System of the ITPGRFA, after the conclusion of the Standard Material Transfer Agreement, no substantial further negotiating costs will occur, but arrangements on tracking and monitoring will result in costs, and the level of such costs, if translated into higher benefit-sharing requirements, may function as a disincentive for utilization. Vice versa, if benefit-sharing arrangements are perceived by providers as dissatisfactory, it will negatively affect incentives to place germplasm in the Multilateral System. Although the terms and conditions of the Standard Material Transfer Agreement have been concluded, other specific arrangements on benefit sharing under the Multilateral System still have to be established by the Governing Body (e.g., the Funding Strategy, the strategy adopted by the Third Party Beneficiary, identification of beneficiaries) and its effects on both access and types and level of benefit sharing still have to be shown.

The considerable uncertainty that has come to surround the legal environment in which genetic resources transactions take place is probably the most important source of transaction costs at the moment. While international discussions continue on the implementation of both Article 15 of the CBD and the further operationalization of the ITPGRFA, users of genetic resources, particularly plant breeding companies and even farmer communities in developing countries, have been faced with a situation in which the potential obligations and responsibilities placed on them are largely unknown. These uncertainties relate to potential costs, such as royalty payments or payments to a special fund, but also and probably more importantly to liability. Uncertainty creates higher transaction costs because users are obliged to devote resources to trying to gather more information in order to reduce the uncertainty and to devise strategies for dealing with alternative scenarios. Such alternative scenarios may include the strict avoidance of international exchanges and the tendency to use only collections that can be readily made available, such as a company's own genetic stocks, in-country genebank collections and other collections in the public domain not placed in the Multilateral System. In the case of farmer communities in developing countries it may result in exclusive reliance on locally available varieties.

Uncertainty may well also exist on the side of the provider, who may be uncertain (1) if and whether genetic material may be provided to foreign users under existing national legislation, or – in its absence – existing policies; (2) which benefit sharing should be expected and by whom; and (3) how implementation of the benefit-sharing provisions may be monitored. Serious doubts regarding compensation for access, and the extent, nature and form of benefit sharing may act as a disincentive to handle and process any request for access by foreign parties.

Fowler and Hodgkin (2004) have argued that the types of uncertainty elaborated above have led to a considerable reduction in the numbers of accessions acquired or collected annually by the CGIAR centers over the period 1985–1999. This drying-up of a major germplasm flow also concerns material to be exchanged under the Multilateral System. Most of the uncertainty regarding terms of access and obligations on users under the ITPGRFA has now been resolved with the conclusion of the Standard MTA. Uncertainty at large will remain for material falling under the CBD. It highlights the need to account for transaction costs not only for exchange under the Multilateral System of the PGRFA, but certainly also for the implementation of Article 15 of the CBD, that may be facilitated by the Bonn Guidelines and whatever additional requirements or instruments may be adopted pursuant to the ongoing negotiations of the “international regime for access and benefit sharing.”

2.3 The effect of transaction costs on the establishment of tracking and monitoring arrangements

Purposes of tracking and monitoring. The purposes of tracking and monitoring are to verify independently whether conditions for benefit sharing based on the access and benefit-sharing agreement have been met and whether users comply with the agreement, and to monitor whether current access and benefit-sharing agreements are effective, including whether efforts to collect germplasm in the framework of providing access are sustainable and leave no negative effects on the environment, and whether fair and equitable benefit sharing, including on access to indigenous knowledge, is obtained.

Motives for tracking and monitoring. The major motive for devising tracking and monitoring strategies and methodologies on the use of genetic resources, is the expectation of benefit sharing by the providers of germplasm as a result of commercialization. As stated in a previous paper (Visser et al. 2000), transaction costs will increase as a result of bilaterally, case-by-case negotiated access to genetic materials. Transaction costs from bilateral arrangements under the CBD would be incurred by both providers and users of germplasm (distinguished as either individual actors or at the national level). Part of the transaction costs under the Multilateral System of the ITPGRFA will be collectively shared. Any financial benefits captured by providers would be essentially a shift from the users' account to that of the providers: any benefit to the provider will form a cost to the user. In addition to such a shift in accordance with the objectives of the CBD and the ITPGRFA, the establishment of new procedures and entities in order to achieve and monitor such a shift will increase the total transaction costs. In other words, whereas on a global level there are no additional benefits, redistribution of the benefits results in increased costs necessary to organize and oversee the redistribution. These total increased costs will form an added motive for tracking and monitoring the use of PGRFA, in particular if such costs will also substantially bear on the providers or governments representing the providers.

Tracking and monitoring the use of germplasm by recipients, in order to verify compliance with the agreements and ensuring that agreements are not violated, is an essential activity that will have to be undertaken under a bilateral approach according to the CBD, but that may also be undertaken for germplasm use under the ITPGRFA for a minority of cases in which access to breeding products is restricted as a result of intellectual property rights, or in which such rights are suspected to be sought or acquired on the provided germplasm itself. There is little sense in negotiating agreements with benefit-sharing provisions, in order to ensure that providers of PGRFA receive a “greater share” of the benefits, if these providers do not invest resources in ensuring that the recipients respect these agreements. This is particularly the case given the ease with which the lineage of newly registered varieties might be disguised, or not fully admitted. Here, it should again be noted that under the ITPGRFA, the Multilateral System, and not an individual country or institution, should be regarded as the provider, and that comprehensive tracking of individual transactions under the Multilateral System has been excluded.

From a completely different perspective, if tracking and monitoring will show that essentially all use of genetic resources is in line with the provisions of the international agreements, and users undertake necessary efforts to comply with the provisions of the international agreements, this may contribute to building trust between providers and users, and may strengthen a tendency amongst potential providers to provide access and to engage in international exchange of genetic resources. In this optimistic scenario, limited investments in tracking and monitoring may generate considerable returns on investment in the form of improved trust, less uncertainty, increased access, and – as a result – increased benefit sharing. A well-functioning system of access and benefit sharing may in time even lead to reduced expenditures on tracking and monitoring.

Evidently, a default tracking system by which all germplasm movements are actively followed will require substantial investments, whereas occasional tracking for isolated cases may only need limited resources.

2.4 Factors impacting on tracking and monitoring

Sovereignty issues. In the case of the ITPGRFA, countries have exercised their sovereignty by creating and populating the Multilateral System. From a benefit-sharing perspective, the origin of the designated germplasm now in the Multilateral System is no longer relevant. Under the CBD, genetic resource transactions involve a named provider (country, providing institution or community), even where the resources exist in more than one country or community, or occur in more than one ex-situ collection. This suggests that tracking the use of genetic resources will be based on the premise of a single source for that particular germplasm under the jurisdiction of a single state. However, it has been widely known and accepted that genetic resources are often not country specific. If the same species, subspecies, or variety is present in two countries, then under the CBD, both countries have the same sovereign rights to those genetic resources occurring in their country, with access and benefit-sharing agreements (which are contract specific) providing the conditions that one of these countries have set. Although it may be argued that genetic differences between individual populations of a specific variety or provenance may still exist, it will be at best very hard and expensive to verify such minor differences. Any access and benefit-sharing agreement under the CBD between two parties may leave out all other parties, and thus, if one country negotiates an access deal to its germplasm, a second country with the same or near-identical germplasm has no way to interfere, no rights to share in possible benefits, or rights to obtain information on such transaction and its implementation. At the same time, it is not bound to the first country's agreement, and may grant its own, separate access to the same resources. A parallel situation exists where material is held in more than one ex-situ collection, and where such collections come under the sovereignty of different countries or international institutions. In this context, not yet taken into account is the expectation that the sovereignty on materials in ex-situ collections may be disputed depending on the date of inclusion of that material into the collection (before or after entry into force of the CBD). In other words, tracking the presence of specific resources in a product of genetic resources may remain inconclusive, if it cannot be excluded that such resources have been legally acquired in other countries of origin or from other sources. This fundamental inconsistency in the country of origin concept of the CBD can only be resolved through further elaboration of current access and benefit-sharing concepts.

Possible user exemptions. It has been requested that some exchange and use under the CBD might be exempted from requirements of tracking. A number of institutions (e.g., botanical gardens) have strongly asserted that exceptions should be created under which they can gain access to genetic resources more easily, in particular to allow exchange between botanical gardens. Some have also requested not to be bound by stringent controls on subsequent sharing of the genetic resources and information concerning it. These claims have been based on the public and scientific nature of these institutions – their own research is undertaken to increase knowledge and is thus different from commercial research and development.

Already, botanical gardens have indicated that they do not track lateral transfers of genetic resources to other gardens and collectors and do not intend to do so. A system has been proposed that will seek to ensure that this lack of tracking does not invalidate the access and benefit-sharing system, but it is still not adopted by internationally active associations of botanical gardens, and such a strategy is not likely to solve any problem of further use. It is clear that as soon as botanical gardens are confronted with a request from any third parties, the conditions of the CBD on access and benefit sharing would have to be met. The case described above highlights the fact that no access to genetic resources can exclude future use by third parties, including commercial use leading to benefits that are not automatically and fully shared. A relatively innocuous and simple research exception in an access agreement may thus serve as a major loophole in the international regime.

Problems in tracking and monitoring. The fact that internationally exchanged genetic resources only contribute to a limited extent to the development of final commercialized products makes compliance and monitoring systems regarding the access and benefit-sharing agreements difficult to implement. Product development processes may involve multiple activities that include: a) collecting samples; b) processing and shipping samples to research laboratories in the public or private sector, usually located in foreign countries; c) analyzing samples, including using them in breeding programs; d) transferring samples or half-products between research organizations in the public and private sector; and e) developing and commercializing products. This is an oversimplified description of a complex chain of events where multiple actors interact with the samples and products derived from them. Therefore, final products or processes may not (usually will not) clearly exhibit sufficient genetic or other characteristics to allow one to know unequivocally by simple means which genetic resources contributed to their properties (products) or to their functioning (processes). Furthermore, products may be manufactured (bio)chemically based on the analysis of the molecular structure of genetic resources collected. This includes the construction of genes encoding an identified product from a genetic resource in a new genetic background. The samples may be stored in ex-situ conservation centers for years before the appropriate technology is designed to take advantage of them. The world's crop genebanks alone contain over five million such samples. A tourist can take samples back to his or her home country with almost no difficulty and often without any wrong intent. Samples may have crossed borders before the coming into force of the CBD. All these possibilities make controlling or prohibiting illegal access activities very difficult. In addition, enforcement of national law is very complicated, once the collector has left the area of a country's jurisdiction.

The disclosure of origin requirement. To make the granting and validity of patents or plant breeders' rights on products of the utilization of PGRFA dependent on the meeting of access and benefit-sharing requirements of the CBD or the ITPGRFA, would conflict with the obligations imposed on members of the World Trade Organization by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). In an analysis of options to introduce the concept of disclosure of origin in legislation, Pires de Carvalho (2000) suggests that introduction of such provisions can only be in line with the TRIPS Agreement if this requirement is integrated as a condition of enforcement of the rights rather than as a condition of patentability per se. Alternatively, a legal requirement for disclosure of origin including proof of Prior Informed Consent (PIC) might be introduced as a stand-alone obligation required for commercialization, as currently discussed in the European Union (Blakeney 2005). This means that an applicant might obtain a patent, but in the act he is obliged to comply with the disclosure of origin requirement regulated under a separate law. Finally, another option would be to amend patent law to include a requirement on disclosure of origin.

A disclosure of origin requirement, or a certificate of origin requirement in which the disclosure is effected by a document obtained from the provider of the genetic material, appears, thus, possible. Since it will ease the search for prior knowledge, does not involve substantial administration and can be relatively easily verified, such a measure could in principle reduce total transaction costs. Infringers would not be able to get away with illegal practices if a (separate) requirement for disclosure of origin existed, unless they expressly provided an incorrect or invalid disclosure document not recognized as being false. Most importantly, if such a certificate can be created and easily validated, it would facilitate the work of patent officers and those assessing the applications for plant breeders' rights and contribute to lower transaction costs. The sort of care required from applicants of intellectual property rights would be reasonable. They would be required to indicate the origin of the resources that they knew or that they had a reason to know; this is a reasonable care standard. In theory, mere evidence of compliance with the national laws of the countries providing the genetic resources (as far as in existence) would suffice, without imposing on the applicants complicated and costly investigative efforts. These transaction costs would fall on the patent office and/or user. However, from the complex debate towards policy development on disclosure of origin, major uncertainties for users have surfaced, and such uncertainties would contribute to higher transaction costs, if left unresolved.4

A requirement for disclosure of origin may have to be implemented at the national level, but should be based on multilateral consensus between governments, since the providing party to a transaction may often be based in another country than the user applying for intellectual property protection of derived products.

The specific situation under the ITPGRFA. Regarding the complexity of tracking and monitoring, the relative advantage (and simultaneously the limitation) of the Multilateral System is clearly its more narrow scope. The ITPGRFA only regards crop germplasm and its Multilateral System a limited number of crops. Having said that, it should first be realized that no other components of biodiversity have traveled the world to the same extent as PGRFA, approximately over the last ten thousand years. Also, in contrast to many non-domesticated species, many crops can be easily exchanged in the form of seeds, rendering physical access both easy and at the same time difficult to control. Given the importance of these species for our global food security and the mutual interdependence of countries with regard to these resources, the Parties to the ITPGRFA agreed on a Multilateral System of Access and Benefit-sharing. Whereas this Multilateral System offers facilitated access to the crops under the system (35 major food crops and a similar number of forage crops), it requires no standard tracking of the accessed genetic material, although the recently adopted Standard MTA does provide for a dispute settlement procedure. Monitoring and tracking of individual cases is provided for in the ITPGRFA itself (e.g., Articles 19 and 21), and in its Standard MTA (articles 4, 5, 6 and 8). The general need to consider the functionality of the Multilateral System as a whole, and of the implementation of the benefit-sharing agreements of the ITPGRFA in particular, add to transaction costs under the Multilateral System. The following elements in the ITPGRFA may further add to such transaction costs:

Whereas the ITPGRFA has managed to trim down the transaction costs by establishing its Multilateral System under which no individual tracking of samples is required, it is obvious that there remain major transaction costs to allow for monitoring of the system and for tracking in individual cases in which doubts over its use have arisen. The decision of the Governing Body to establish an overview of all transactions in the Multilateral System and to document other aspects of the use of materials made available through the System (see Standard MTA, articles 5e), 6.5, 6.7, 6.9, and 6.11), will further add to the transaction costs.

2.5 Concepts and elements of tracking and monitoring

Possible components of tracking. Tracking may be composed of a chain of actions. These actions may concern acts of tracking in a narrow sense, i.e., post-distribution, as well as precautionary action that should enable tracking in a later stage of germplasm use.

At the point of obtaining access, tracking may result in the need for documentation, proving Prior Informed Consent, both from government authorities and from local communities, where appropriate, and specifying the mutually agreed terms on which access and utilization of the genetic resources is to be effected. Genebanks, databases and farmers' registries or, alternatively, specialized central and other databases may serve to document which germplasm and associated indigenous knowledge is in the public domain, and consequently does not qualify for granting intellectual property rights. As a second layer, such databases may also include information on which germplasm and associated knowledge has been made available to which parties, as in the case with the Multilateral System of the ITPGRFA. A third level might include documentation and evidence proving that the use of the resources is in compliance with the terms agreed by the provider. Before or at the point of obtaining access, securing the option for tracking at a later stage might also entail the production of molecular fingerprints. In addition, it will involve Material Transfer Agreements specifying the conditions of the exchange.

In parallel, when the accessed genetic material is used and products incorporating the material are developed, for internal management reasons, users may document which germplasm was received and if and how these genetic resources were used to derive products. In such later stages, users may also fingerprint products to verify the origin of its components and to track the germplasm originally made available for well-defined use.

Whereas the use of documents and the inclusion of exchange data in newly established, or existing but adapted, database systems are likely to become generic, and a necessary prerequisite for the tracking of any exchange, the use of molecular profiles may serve as a back-up option, only to be employed if the available documentation appears unsatisfactory to one of the parties to the contract, or when misuse is seriously suspected or would entail large losses in benefits shared. Across-the-board profiling of germplasm available for international exchange, and of breeding products that may contain DNA of the accessed germplasm, is technically feasible but very expensive and would substantially increase total transaction costs, as will be seen below. Whereas the costs of fingerprinting individual samples will further decrease, the various technologies to use the germplasm will diversify, complicating the tracking to the extent that the advantages of cost reduction of individual fingerprints is lost. Random and modest-intensity sampling of breeding products through the assessment of the presence in the genome of introgressed genetic material is an alternative strategy, complementary to the analysis of products in suspect cases or of high-value products.

Approaches to tracking. Regarding tracking, a series of fundamental choices faces a provider, either a country, an institution, or an international mechanism as the ITPGRFA Multilateral System, including:

These choices will determine to a large extent the costs of tracking. A number of the requirements listed above should generally be met by the user, suggesting that the “user country” may need to be involved in their application and enforcement.

Possible components of monitoring. Monitoring may relate to effects of providing access on the conservation of biodiversity, or it may focus on the effects of utilization, in particular the benefits arising out of the use of the genetic resources to which access was granted.5 In this study, the term monitoring is used only to refer to the utilization of the required genetic resources.

Monitoring may include, amongst others:

In the case of the ITPGRFA, monitoring is necessary and may include:

2.6 An estimation of transaction costs under different scenarios

Four tracking scenarios. To elaborate on the possible level of transaction costs of tracking and monitoring, we have developed four scenarios varying according to the level of comprehensiveness achieved. We first discuss the scenarios and then categorize the various transaction costs associated with the components of tracking and monitoring. For the principal components that would entail the financial expenses on the part of users, providers or other stakeholders, we then proceed to estimate the costs that would be incurred on an average annual basis. The scenarios are not intended to represent fully coherent and planned options at this point. Such a level of detail and completeness should be the next step in the analysis. Instead, the scenarios should serve to sketch out options along one or more variables, including relatively “extreme” options. Relatively imprecise estimates of the cost implications can then be used to identify options or even specific components for more detailed analysis, if warranted. These scenarios only refer to the exchange of plant genetic resources for purposes of food and agriculture.

Scenario A is the most comprehensive and involves documentation of MTAs, including the data provided to the user regarding the material and any other associated information, both by the provider and by the user(s). Genetic material is followed through the development chain until it reaches the market. Note that the recently concluded Standard MTA for the material distributed from the Multilateral System of Facilitated Access and Benefit-Sharing obliges the recipient or user to notify the FAO when such material is provided to third parties. Scenario A also includes the creation of new centralized regional databases in which all such data are stored. Furthermore, under this scenario all distributed material is fingerprinted by the provider and this information is also stored in centralized databases. Finally, this scenario also includes a verification (by patent offices or authorities granting plant breeders' rights) of the information provided in a disclosure of origin or source in the application for IPR protection against the information in the centralized database(s) concerning the germplasm previously accessed by the applicant from providers (or received as a third party from other recipients). Relatedly, under this scenario, upon granting protection, IPR offices will forward basic information concerning the submitted applications.

Scenario B differs from scenario A in that it only requires the documentation of MTAs and associated data as under scenario A, complemented by selective fingerprinting which could be on a random and/or targeted basis. Random fingerprinting may act as a deterrent against misuse, and targeted (post-distribution) fingerprinting might be warranted in those cases where misuse is suspected based on the profile of a commercial product, or where (potential) benefits are extremely large. In order to be feasible it presupposes that the exchanged material will also remain available to the provider in order to allow for DNA sampling at a later stage. Storage of the material by the provider is, however, an increasingly common practice and we therefore do not attempt to estimate increased costs of storage for some providers. Scenario B also includes a system of central databases containing information on the transfer of material as under scenario A.

Scenario C is identical to scenario B except that C relies on decentralized documentation as opposed to centralized documentation, and hence does not involve verification by patent offices of disclosure of origin claims. Decentralized documentation of data on distributed accessions should be available and accessible in the long term and existing databases of many providers might have to be updated. Compared to the first two scenarios, scenario C thus places responsibility for the documentation on the individual providers. The extent to which this includes additional costs depends on the upgrading that some providers will have to undertake, and we do not attempt to estimate these costs below. It does include random or targeted fingerprinting to be executed and documented by providers, as in scenario B. Scenario C will decrease to a large extent the search options for officers examining applications for intellectual property rights, and these search efforts are therefore no longer included in this scenario.

Scenario D only requires any user to provide the MTA at request by the authorities and to document the flow and use of the PGRFA accessed. Systematic fingerprinting is not undertaken at all when material is distributed. In the case of a dispute, or suspected case of misuse, fingerprinting might need to be undertaken at a later point in time. But we do not build this into the scenario explicitly at this point.

In analyzing these four scenarios it should be realized that a substantial number of providers already keep records concerning all material distributed and to which recipients, including also which information was made available, and store as hard copies or in the form of electronic information all contracts covering exchanges. For none of the scenarios do we attempt to make a projection of the possible number of suspected cases of misuse. It is worth noting that these may well vary according to the comprehensiveness of the tracking system. In other words, more comprehensive tracking might have a stronger deterrent effect on misuse.

Table 1: Stakeholders incurring transaction costs under four tracking scenarios

Scenario A B C D
Cost components (italics indicates that these are at least partly estimated in current study) Comprehensive documentation and comprehensive fingerprinting Comprehensive documentation and occasional fingerprinting Decentralized documentation and occasional fingerprinting Decentralized documentation only
Finding information about available accessions (including characterization information) Users Users Users Users
MTA handling Providers and users Providers and users Providers and users Providers and users
Documentation (database of exchanges) Central body Central body Providers Providers
Fingerprinting Providers Providers Providers
Database searching costs IPR offices (patents, PVP) IPR Offices IPR Offices
Documentation (database) of disclosures in IPRs (patents, PVP) Central body or separate (inter)national body Central body or separate (inter)national-body
Additional costs on collecting data on potential misuse Providers or central body Providers or central body Providers Providers
Legal costs in case of dispute (arbitration or litigation) Providers and users Providers and users Providers and users Providers and users

Table 1 summarizes the components of transactions costs (represented by the rows) under the four scenarios for tracking germplasm flows (represented by the columns), and indicates the general groups of stakeholders that would incur these costs. The cost components are organized in order leading from provision of germplasm, to documentation of these flows, to commercialization of a product derived (in part) from the germplasm. Where no stakeholder is specified for a particular cost component, as in the case of fingerprinting under scenario D, this indicates that there is no relevant transaction cost under that scenario. It is important to remember that in most cases, the size of specific cost components in terms of resources, both financial and others, will vary between the scenarios.

We have attempted below to propose some initial estimates in monetary terms for some of these transaction costs. These cost components are indicated in Table 1 with italics. For the most part, these are administrative costs, as distinct from other types of transaction costs. In particular, as can be seen in the table, we do not estimate costs for users of acquiring information about which germplasm is available from which providers, or information concerning its characteristics. In economic terms, breeders in both the public and private sectors repeatedly emphasize the importance of these search costs (see, for example, Wright 1997) although they are not expected to vary substantially across scenarios. We also have not estimated how the transaction costs may vary across scenarios according to differences in the uncertainty associated with rights and responsibilities in MTAs and the broader international agreements, or with likely behavior of both providers and users. This is a clear limitation of the analysis. We do expect in general that some such uncertainties would be reduced by more comprehensive scenarios. But incorporating the level of these uncertainties into the empirical analysis would require at the very least, a broad survey of stakeholders, and thus a considerable investment of research resources. Nonetheless, we feel that some insights can be gained by first estimating the transaction costs of a more administrative nature, so that these results may be useful in guiding further investigation of the relationship between differing levels of uncertainty and transaction costs.

Level of transaction costs of tracking under four scenarios. Before embarking on a discussion of the estimates, it should be emphasized that such transaction costs are very hard to estimate, and our figures and calculations could only be based on experience, including personal experience, in germplasm exchange as well as related fields. As such, the calculations should be viewed as informed guesstimates with a very rough level of precision. This should however be sufficient to stimulate discussion and debate on the possible components of a tracking system, and in particular, to identify specific issues for more exhaustive research.6 In other words, the specific monetary figures produced in this study are not as useful as the discussion on how they were generated and, more importantly, what they imply for a complete comparison of costs and benefits. Note that in all cases, we attempt to be conservative in terms of estimated costs. We also work on the basis of constant annual costs over time and do not make any attempt to examine the likely time path of variables that could lead to annual fluctuations or even long-term trends.

In order to estimate some of the costs involved in a system of tracking of germplasm flows, we rely on a forecast of the annual amount of exchanged material. By this we mean the number of accessions of germplasm that are supplied by genebanks and other providers to those requesting such material who could include both private-sector and public-sector organizations (such as research organizations, or other genebanks) – “users.” We are abstaining from fluctuations in this use as these are too difficult to foresee. In an earlier analysis (Visser et al. 2000), we estimated the total number of exchanged accessions worldwide at 300,000 accessions or other types of samples on a yearly basis. This included an estimate of 150,000 from the collections of the Future Harvest (CGIAR) Centers held in trust, developed by Fowler et al. (2001), as well as an estimate of 150,000 from other publicly-maintained collections.7 On this basis, we derive our cost estimates using the following calculations, explained according to each cost category.

MTA handling. Costs for processing and storing MTAs apply to all four scenarios. Sending, content checking and storing of a single, previously agreed, hard copy MTA would require, on average, 10 minutes for the provider and 10 minutes for the user.8 We use an average labor cost (including overhead and benefits) of US$ 50/hour for a technical assistant level in a public agricultural research organization. Such salaries vary of course widely across institutions and countries. Within the Wageningen University and Research Centre, the hourly rate in 2006 was between US$ 100 and US$ 105 (depending on euro/dollar exchange rate fluctuations). We suspect, based on personal experience, that this is close to the maximum on a global scale. Costs in developing countries will be much lower, which is particularly relevant here since a substantial number of accessions are provided for institutions located there. Using a study undertaken in 2001 of salaries for agricultural research personnel in Brazil, we calculate a current (2006) hourly labor cost of US$ 28 on average, varying between US$ 25 and US$ 50.9 We choose the higher figure (and not even the average) because it corresponds to national level institutions, such as those responsible for national germplasm collections. While the figure will vary among developing countries, Brazil is a useful example. It is more in line with salaries in the Future Harvest Centers of the CGIAR, from which many of the accessions are distributed. Finally, this higher figure does also take into account the large number of accessions distributed from collections in industrialized countries. In summary, without conducting a survey of all such institutions, we feel that this is a reasonable figure to take as an average basis. These assumptions thus imply US$ 17 per distributed accession, or US$ 5.1 million per year.

Central documentation. New centralized databases to document the exchange of germplasm and associated information made available will also add to transaction costs. The active management and maintenance of seven regional databases (representing the seven UN regions often distinguished) has been estimated to cost one person-year for database management at US$ 35,000 per region, and a yearly conservative estimate of the global cost of the necessary data loading from provider sources in the region for each of these databases of US$ 55,000, totaling US$ 630,000 for scenarios A and B. Taking into account the relatively high European salary level, such estimates are partly based on the notion that the three-year 40-country development of the EURISCO10 database cost approximately US$ 600,000, with maintenance of this database requiring a substantial percentage of the development phase budget. No satisfactory software applications able to handle the processing, storage and retrieval of large datasets resulting from fingerprinting are currently available, but it is assumed that this situation will change within a few years and that the necessary software packages can be obtained from other parties, for example, the Future Harvest research centres of the CGIAR (e.g., GENERATION, the relevant CGIAR Global Challenge Programme).

DNA Fingerprinting. In scenario A, we assume that each accession that is accessed would have to be fingerprinted. This would most likely be undertaken as accessions were requested, possibly resulting in a higher demand based on the increased value of the characterization information. Based on the projection of 300,000 accessions distributed per year, it would be possible to make the cost estimates using some assumptions concerning the likely overlap from year to year in accessions previously requested and thus previously fingerprinted, as well as duplication of distributed accessions held in different collections. Rather than follow that approach, we prefer the simpler assumption that over the medium to long term, all of the unique germplasm accessions will be fingerprinted. Estimates of the number of unique accessions held in collections range between one and two million (Global Plan of Action on Genetic Resources for Food and Agriculture) out of the total estimate of 5.5 million accessions (Visser et al. 2001; ten Kate and Laird 1999), and we take a median value of 1.5 million. We do not attempt to define a time path for how many accessions will be distributed. Instead, we simply estimate this total cost (as a one-off expenditure) and use the standard financial formula for converting this present value into an annual expenditure into perpetuity using a modest interest rate of 5% (see, for example, Sydsaeter et al. 1999, p.165).11

We furthermore assume that fingerprinting would cost an average of US$ 80 per sample.12 Thus the total cost (in present value terms as of 2006) of fingerprinting all material is US$ 120 million, implying a perpetual annual cost of US$ 6 million under scenario A. In scenarios B and C, only selective tracking of marketed products would be undertaken. This might be reserved for genetic resources with a high potential value such as those likely to lead to medicinal products or high-value ornamental plants. Assuming the testing of up to five samples further down the product development chain, this might be relevant in 100 distributed accessions (targeted) to 1000 distributed accessions (random) per year. Note that a figure of 1000 accessions per year, comprising both random and targeted, still accounts for only one-third of one percent of all distributed accessions and is itself a conservative figure. While conservative, the extremely limited number of reported cases to date of suspected misappropriation or non-compliance of contractual terms involving the use of agricultural plant germplasm does not warrant a higher estimate. The assumption of 1000 accessions per year results in an estimate of US$ 80,000. These costs are incurred by the provider.

Database searching at IPR Offices. We also estimated costs for IPR authorities to verify information provided concerning the source of genetic material in applications for plant variety protection and patents, using the database developed under the central documentation. For simplicity, it has been assumed that patent applications and applications for plant breeders' rights will include the requirement of disclosure of origin or source, and that in scenarios C and D the authorities granting such intellectual property rights may rely on the information offered and do not need to pursue independent searches for those applications in which it is stated that no germplasm or associated information was accessed, or where the origin has been clearly indicated. Beginning with patents, we assume a modest number of 1000 patent applications per year13 involving cultivated plants and their wild relatives. To derive an estimate of the additional costs of verifying such applications against a database documenting the potential sources of germplasm, we are required to make some very simplifying assumptions. More specifically, we assume that the verification of such applications will involve only an additional 10% of time for examiners to process a patent application in this field.14 To translate that estimate into additional costs, we note that patent offices in industrialized countries generally run on a cost-recovery basis, meaning that revenue from the various fees for applications, searches, renewals and other services provide the financing for the operations, of which examination of patent applications is the most consuming of resources (Jaffe and Lerner 2004; see for example Annual Reports of the EPO at http://annual-report.european-patentoffice.org/facts_figures/). We therefore make the simple assumption that the fee charged for patent examination is a direct reflection of the cost of the search, and take one-tenth of the current search fee, using a rounded-off average between the EPO15 and the USPTO16 to arrive at US$ 80 per application as additional costs of database searching.17 This leads to an estimate of US$ 80,000 per year.18

For PVP applications, we follow a similar approach, assuming a total of 2,500 applications per year at an additional cost of only 10% in the average application fee (using an average between the European CPVO and the US PVP Office weighed by the number of applications). This leads to a rounded-off estimate of US$ 100 per application, and a total therefore of US$ 250,000.19 Adding up the costs for the patent and PVP offices gives a total of US$ 330,000.

Summarizing the differences between the scenarios, note that scenario B is identical to the most comprehensive scenario A, except that standard fingerprinting is replaced by occasional fingerprinting. Scenario C maintains the same occasional fingerprinting but does not include the costs of maintaining the centralized documentation and databases. Scenario C also does not involve the costs of IPR offices searching databases as part of the examination of applications for intellectual property rights. Finally, scenario D does not include any fingerprinting and would only involve documentation by the user in combination with occasional tracking (based on documents only) as in Scenario B. Most users (e.g., plant breeding companies) will already employ some sort of documentation system, thus likely reducing the actual additional costs of this scenario D.

Table 2: Estimates of selected components of annual tracking costs under four scenarios (figures in million US$; figures rounded to nearest tenth of a million; see text for explanation)

a Estimated at US$ 12.5 million per year which amounts to 10% of 0.5% of estimated sales in the plant breeding sector of US$ 25 billion (see discussion in next section); note here we are not taking into account variations in benefits resulting from differences in the effectiveness of the tracking under the various scenarios.
b Estimated at US$ 50 million per year by ASSINSEL (see text).
Scenario A B C D Stake-holder bearing costs
Comprehensive documentation and fingerprinting Comprehensive documentation and occasional fingerprinting Decentralized documentation and occasional fingerprinting Decentralized documentation only
MTA handling 5.1 5.1 5.1 5.1 Provider and user
Central documentation 0.6 0.6 0 0 Central body (A, B)
DNA fingerprinting 6.0 0.1 0.1 0 Provider
Database searching costs IPR offices 0.3 0.3 0 0 IPR authority
Total tracking costs 12.0 6.1 5.2 5.1
Total tracking costs as percentage of potential benefit sharinga 97% 49% 41% 41%
Total tracking costs as percentage of total private PGRFA investmentsb 24% 12.2% 10.4% 10.2%
Total monitoring costs 1.2 1.2 1.2 1.2 Parties to the Treaty

From these very rough and conservative estimations it may be concluded that a major component of the administrative costs of tracking consists of the additional administration of MTA documentation on the part of both users and providers. This cost is estimated at approximately US$ 5 million per year and does not vary from one scenario to another. But comprehensive fingerprinting of all distributed germplasm could more than double that cost. On the basis of the analysis here, it is not possible to say to what extent this fingerprinting will reduce the additional costs required for pursuing suspected cases of non-compliance with MTAs, which should be pursued in further work. Furthermore, other administrative components, such as the costs of centralized databases or their use by IPR authorities, do not appear to be nearly of the same order of magnitude as that of simple document handling, although it would be worthwhile to develop more rigorous estimates to confirm this, including some expert judgment on the added value of such centralized databases.

Transaction costs of monitoring. The transaction costs of monitoring the overall effectiveness of systems of access and benefit sharing are even harder to estimate than tracking costs. The reason for this is that many of the monitoring costs are likely to be hidden costs, made by institutions (government offices, institutional providers and users) that already exist and are required to add the tasks of monitoring to their agenda.

Monitoring costs are most probably more modest in the case of the ITPGRFA than for exchange falling under the CBD. In the case of the former, a single institution, the Governing Body of the ITPGRFA, which is made up of all Contracting Parties of the Agreement, will perform a number of tasks while for transactions falling under the CBD, monitoring may have to be performed by each individual government involved. It is therefore useful to inspect more closely the tasks of the Governing Body and to estimate the investments required to allow the Governing Body to execute those tasks. It should be noted that no formal arrangements have been agreed for monitoring of exchanges under the CBD. However, it can be assumed that the actual need for monitoring will not be different for exchanges under the CBD versus exchanges under the Multilateral System of the ITPGRFA.

First, the ITPGRFA requires that the Governing Body meets at least once every two years. Assuming that such meetings take five working days and that no travel costs will be incurred since the meeting will be held in conjunction with the meeting of the FAO Commission on Genetic Resources for Food and Agriculture, total costs of a meeting can be estimated at least at US$ 200,000, or US$ 100,000 on a yearly basis. Furthermore, under the ITPGRFA a position of Secretary will be created and staffed. Assuming that this will involve a full-time, highly-qualified officer requiring office support, something that cannot be made available from the current staff of the secretariat to the FAO Commission referred to above, this would amount to approximately US$ 250,000. Whereas both the Governing Body and the Secretary will engage in activities exceeding the scope of monitoring, a substantial part of these activities may still be considered as monitoring activities. Subsidiary bodies to the Governing Body and the Secretary may be established, and consultancies commissioned to support the monitoring tasks of these two institutions. The costs of these additional initiatives are taken to equal approximately the costs of hours that the Governing Body and the Secretary will not directly or indirectly devote to monitoring. This leads us to estimate a total sum of US$ 350,000 on a yearly basis to be needed for monitoring of the implementation of the ITPGRFA. Whereas these costs are substantial, they are also close to the minimum that any monitoring mechanism will require.

Transaction costs made by individual Contracting Parties to the ITPGRFA have not yet been taken into account in this estimation. Such costs depend to a large extent on the policy decisions of the Contracting Parties and their internal government structures, and may equal two months per year per delegate per country. At the current membership of over 100 countries and mean salary costs of US$ 50,000 per year, this would result in added annual costs of US$ 800,000. These are costs that are incurred by the governments of the member countries. But again, these estimates are likely to be substantial even at a minimum level (e.g., the salary costs of those government representatives preparing for and participating in the meetings of the Governing Body).

Transaction costs incurred by countries in developing and implementing legislation. Most likely, the transaction costs incurred from monitoring by individual parties (governments and institutions) to agreements falling under the CBD will further add to the total monitoring costs, but are not further considered here, since the number of transactions under the CBD on a yearly basis is apparently quite small, based on the low number of published reports on individual transactions of PGRFA, and thus the monitoring costs for the implementation of such agreements can be assumed to come under the costs incurred for the monitoring of the ITPGRFA.

Monitoring attempts at the national level have been primarily of a hypothetical nature. The UC-Davis/GRCP study of legislative development trends in the Pacific Rim (Carrizosa et al. 2004) shows that most laws and policies regarding access and benefit sharing are comprehensive and, therefore, also costly and difficult to implement. All but one of the countries analyzed in the UC-Davis/GRCP study have proposed measures to ensure that bioprospecting projects comply with access and benefit-sharing regulations. However, none of these monitoring mechanisms are operational yet. Not even the Philippines, which has had legislation in place for many years and has granted access to a small number of bioprospecting projects, has a monitoring system up and running. Likewise, in Costa Rica, the technical monitoring office, charged with monitoring compliance to the access and benefit-sharing agreements, has not been established apparently due to lack of a budget, personnel, constitutional action and political will, and therefore monitoring procedures have not been carried out. Obviously, this is related to the fact that setting up this kind of system is a complex and expensive endeavor. Countries that have had legislation in place since the mid-1990s are still in the process of defining the scope of their access laws, the strategies to protect the knowledge of indigenous peoples, and the conditions to facilitate access to non-commercial bioprospecting activities.

2.7 Costs of tracking and monitoring in relation to expected benefits

Presumably, no Party will want to incur costs, if no benefits are expected or if the expected costs are likely to exceed the expected benefits. This is a basic principle in particular for private industry. But it also holds for the Parties (governments) designing new institutional arrangements governing the international transfer of genetic resources.

What are the benefits of tracking and monitoring the flows of genetic resources? For providers, a system of tracking and monitoring should contribute to the functioning of a transparent system of access and benefit sharing. It will allow the movement and use of genetic resources to be documented and support the case for sharing the benefits derived from their use. With such a system in place, these providers would presumably be willing to engage in exchange agreements, regulated by an MTA. For the users, this willingness on the account of the providers constitutes the benefit that can be ascribed to the tracking and monitoring system. In other words, the users (re-)gain access to the genetic resources shared by the providers.

In this section, we compare the transaction costs in the form of tracking and monitoring with what we think are reasonable estimates for amounts of benefits received and/or shared. We avoid getting into the details of how a mechanism for benefit sharing would function (including its own associated transaction costs). The reasoning here is that transaction costs would, in effect, have to be paid for out of the benefits shared. Or, put another way, the net balance sheet for tracking and monitoring systems involves a comparison of the benefits and the costs. Note though that our approach does not attempt to estimate how much access and exchange of resources would (further) decline if the Multilateral System, including a system of tracking and monitoring, had not been implemented. Another issue that we do not address concerns differences in the effectiveness of the various scenarios for tracking and monitoring. We will return to this issue below when we discuss the issue of fraud.

Expected levels of benefit sharing. No figures are available, of course, on total obligatory benefit sharing involved. For the purpose of this analysis here we follow a procedure similar to the analysis in our earlier paper (Visser et al. 2000). We begin by noting that revenues from the sale of seed and planting material are estimated worldwide at US$ 25–30 billion (e.g., International Seed Federation website). The Standard MTA of the ITPGRFA specifies two benefit-sharing formulas ranging between 0.5 and 1.1% of sales for material not available for further research and breeding purposes.20 Given current protection strategies pursued by breeders and the IPR regimes present, most of the material would still be available for further research and breeding and thus not subject to such compulsory benefit sharing. We therefore conjecture that over the next decade genetic materials obtained from the Multilateral System would be present in 10% of newly commercialized products and thus calculate potential benefits as 10% of 0.5% of US$ 25 billion, which amounts to US$ 12.5 million.21 A second reference point is provided by private sector R&D expenditures in the plant breeding sector which have been estimated at approximately US$ 1 billion per year, and of this, about US$ 50 million (or 5%) is used for maintaining PGRFA collections or an increase in R&D expenditures of about 2.5% and corresponding to an increase of about 50% in costs for the private plant breeding sector in maintaining stocks of germplasm.

A figure of US$ 12.5–25 million for benefit sharing might seem high, particularly to those paying. We emphasize, however, that we are trying to base our rationale on our conjecture regarding what the situation for access and benefit sharing might be in the future after an initial adjustment period (i.e., it would probably only be realistic to move gradually to such an amount for benefit sharing). From another perspective, it is worth highlighting that the costs of implementing the Global Plan of Action on Genetic Resources for Food and Agriculture were estimated at anywhere between US$ 150–450 million.

It appears from Table 2 that a comprehensive system of tracking (scenario A) would not be attractive since almost all (97%) of the potential benefits might be necessary to cover tracking costs. The largest portion of the costs is accounted for by systematic fingerprinting of all material accessed and distributed. When this is done on only a limited basis (scenario B), the costs fall considerably and may be more acceptable, but are still close to 50% of benefits shared, dependent of course on the real costs of handling MTAs. It follows then that other options with decentralized documentation (scenario C) plus possibly dispensing entirely with fingerprinting (scenario D) appear even slightly better, although they are still substantial. Another perspective on these estimates is that any such tracking system (any of the scenarios) might only be economically viable if the benefit sharing can also include contributions from users that are additional to those currently specified in the standard MTA. This would mean either higher percentage formulas, or contributions that might be based also on products derived using material, even when that material does remain available for future breeding and research, or alternatively a substantial level of complementary voluntary contributions. Such a perspective is reinforced by recalling the range of transaction costs in Table 1 that have not been included in the monetary estimates.

Allocating costs of tracking and monitoring. So far the discussion has centered on a comparison of total estimated transaction costs and total estimated benefits. In reality though, the apportioning of both the transaction costs and the generated benefits amongst the various stakeholders is an equally important key factor in establishing whether any system might be acceptable to all parties and effective.

We should revisit the parties involved. Whereas the parties in a Material Transfer Agreement will be the provider and the user of the biological resource, the provider is not necessarily a government, but may be a natural or legal person under the jurisdiction of that government. Likewise, in many cases the user will not be a government either, but a private company or an independent public sector institution (e.g., a university). In the case of the ITPGRFA, the Multilateral System can be considered a third party beneficiary to the exchange of genetic material, and this third party beneficiary will be connected to the Contracting Parties to the ITPGRFA. Thus, in analyzing the likely or possible apportioning of costs and benefits, next to providers and users, governments should be included in the analysis. A system of tracking and monitoring has to be attractive for each of these three groups in order to be effective.

The capacity and willingness of the user, in particular the private sector that is likely to commercialize products based on the genetic resources obtained under access and benefit-sharing agreements, has been briefly addressed above. The figures above indicate that any system involving elaborate genetic (or biochemical) characterization or complex and costly procedures to obtain written proof of prior informed consent and export permits would add considerably to the total transaction costs. If these were apportioned to the user (for example in charges for fingerprinting “included” in an MTA), then this would be a significant increase in the “costs” already incurred to the private sector in the form of benefit sharing. This may well constitute a further disincentive for such users to even seek access to genetic resources from the providers in the Multilateral System. Consequently, and as a strategic measure, if comprehensive characterization were to be contemplated, it would probably have to be paid for either by the providers themselves, or – in the case of the ITPGRFA – from the Governing Body, presumably out of benefit-sharing funds.

Legislation determining ownership of and access to genetic resources is likely to take into account that the provider may not be a government but an independent entity under the jurisdiction of a government. It may be a local company, or a farmers' community, or university. The capacity of such non-governmental providers, and of governmental providers in developing countries, to track genetic resources and monitor the implementation of the transactions involved will be very limited in many cases, and these providers may have to rely on the government for such endeavors. This also provides a rationale for governments and some central body, perhaps under the auspices of the Governing Body, to organize some aspects of the tracking system and pay the costs.

Thus, governments play a key role in two respects. First, as legislators (collectively), governments may be able to determine to a large extent the level of total transaction costs of tracking and monitoring when deciding to use more complex or simpler tracking and monitoring systems. Second, they can determine to a certain extent how such transaction costs will be apportioned to providers, users and government offices.

In this regard, it is important to evaluate to what extent governments are able and willing to bear part of the transaction costs of tracking and monitoring to facilitate the international exchange of biological resources that may result in benefits, shared between the user and the provider, assuming that they attach importance to promoting domestic socio-economic development. While this question is difficult to answer, it may be too optimistic to expect that governments can afford transaction costs that the user community, including the private sector, is unlikely to find acceptable. In other words, a comprehensive system of tracking and monitoring for which the costs are substantial is not only unattractive for the private sector but also unaffordable for governments.

Current government initiatives in some countries attempt to allocate some of the costs of enforcing access and benefit-sharing agreements to the user in the area of bioprospecting. The Peruvian draft regulation on access to genetic resources would require bioprospectors to pay 15% of the total budget of the bioprospecting project as a bond or guarantee that there will be total compliance with the provisions agreed in the contract (M. Ruiz, pers. comm.). Furthermore, penalties for violations of access agreements would be used to finance facilitating the establishment of access and benefit-sharing agreements as well as the tracking and monitoring involved in such agreements. In Nicaragua, access contracts will have to include obligations for the establishment of an evaluation and monitoring system that will be financed by the access applicant. These examples show that governments will aim to divert transaction costs to users. As a consequence, the acceptance by the users to assume the costs of tracking and monitoring as part of the total costs and benefits is a key factor.

Transaction costs of tracking and monitoring in relation to fraudulent access or use. The costs of a system for tracking and monitoring should ideally also be compared to its benefits in terms of identifying or discouraging fraudulent access to or use of genetic resources. In this context, it is useful to distinguish between two types of fraudulent or illegal activities: cases where access and benefit-sharing agreements are signed but subsequently not adhered to; and cases where resources are utilized illegally, without obtaining any permission at all. The scenarios for tracking and monitoring above are primarily designed to address the first category. Such systems would, in principle, serve to increase adherence to agreements, such as MTAs. We have not, however, made any distinction between the four scenarios in terms of their effectiveness in encouraging such adherence, or in uncovering cases where users violate the provisions contained in the agreements. Indeed, we have not even attempted to estimate a baseline or average result of the various scenarios in this respect.

It is important to emphasize that the tracking and monitoring systems envisaged would have little effect on reducing the cases of illegal access and use. For example, a verification of a disclosure of origin at the point of a patent application requires that the applicant has made such a disclosure. A party seeking to circumvent benefit sharing would probably not include a truthful disclosure of origin, perhaps claiming that the germplasm had been in their own collection for many years predating the ITPGRFA and the CBD. This type of transgression could only be detected with great difficulty, if at all (i.e., with high transaction costs). In this regard, it is worthwhile pointing out that the number of cases in which illegal access and benefit-sharing agreements have been discovered is relatively small, and probably does not exceed thirty cases over the last decade. It is not clear whether this fact reflects the lack of such cases, or the inability of providers to apprehend violators for the various reasons described earlier in this chapter. Such deliberations may form another argument for cautiousness in developing costly tracking and monitoring mechanisms: the added benefits may be more limited than sometimes expected and may be more simply described as only policing the good guys.

In this respect, it should be mentioned that the work of a small number of international NGOs, in particular the ETC Group (formerly RAFI), has been crucial in bringing a few cases to the attention of the public, providers, governments and government institutions involved, and that as a result non-compliance or undesirable misappropriation has been corrected. A small and dedicated task-force might be more effective in detecting illegal access and use than a bureaucratic system that collects information but does not necessarily identify the worst transgressors.

The specific properties of plant genetic resources for food and agriculture (PGRFA). In establishing access and benefit-sharing regimes for PGRFA, such as in the framework of the comprehensive international regime currently discussed within the CBD, and in the form of the voluntary Bonn Guidelines of the CBD as well as the Multilateral System of Access and Benefit Sharing of the ITPGRFA, the specific nature of most PGRFA, as well as their use in breeding and subsequent food production have to be taken into consideration. Even more than for genetic resources in general, the specific nature and use of PGRFA should take into account the balance between costs of tracking and monitoring incurred, and the added benefits obtained as a result of implementation of such tracking and monitoring mechanisms. Some considerations are given below:

These statements are true for all PGRFA, whether they are included in the Multilateral System or not. These considerations may show the strong mutual interdependence and speak against the development of systems with high transaction costs that would hamper progress in breeding, whether by professional breeders or by farmers.

2.8 Conclusions

In this contribution we have analyzed the components of possible systems of tracking and monitoring, the flow of genetic resources, and the transaction costs these systems would entail. We have evaluated different scenarios for tracking and monitoring, and although reliable cost estimations are difficult to make and precise data are lacking, we then proceeded to compare the likely costs of these scenarios with the likely benefits generated by access to genetic resources and the proportion that may be shared with the provider based on current or proposed legislation and user behavior. We have also addressed apportioning the costs of any system for tracking and monitoring amongst providers, users and governments. Attention has concentrated on costs for tracking and monitoring that are likely to follow from the implementation of the ITPGRFA and its Multilateral System, as opposed to costs that may follow from the implementation of access and benefit-sharing agreements under the CBD.

Costs to monitor the international exchange systems and/or to track the flow of individual samples may partially be implied in the current international agreements, may be open to conscious manipulation only to a limited extent, and may largely fall on national governments that may seek compensation for such costs from the users.

Comparing incurred costs and likely benefits has led us to the conclusion that any effective system of tracking and monitoring should be low-cost in order to obtain sufficient interest from users and cooperation from governments, assuming that most providers will have to rely on governments for tracking and monitoring. In our opinion, any low-cost tracking and monitoring system will have to exclude a standard genetic or (bio)chemical analysis of the biological resource to be made available, since the costs of such analysis will certainly seriously affect the expected net benefit-sharing levels. Such standard analysis could only be justified by gains in detecting or deterring misuse of resources. While we have not analyzed this aspect in depth, we do not feel that the argument for such gains is very strong.

Low-cost tracking and monitoring systems may involve centralized or decentralized documentation of access and benefit-sharing agreements and of the material and associated information involved in the transfer. Whereas centralized databases would have to be established anew, decentralized documentation in existing database systems may form an alternative if guarantees can be given on the long-term availability and accessibility of the data referred to.

Low-cost systems may also include mechanisms and facilities for occasional tracking of the flow of particular genetic materials, either because they represent high potential value or because non-compliance is suspected, or as a strategy of random sampling and random assessment of compliance.

Nonetheless, the cost of such low-cost tracking systems concentrating on documentation may still be substantial relative to potential benefit sharing in financial form. Indeed, it would be some time before the benefits specified in the standard MTA would be able to cover these costs. This suggests that financial viability of a tracking and monitoring system urgently deserves attention and further research. Indeed, to the extent that the mere existence of such a system is necessary to build trust among providers, this issue may be of pivotal importance for the success of the Multilateral System.

The authors have extensively drawn on information contained in the IUCN review on Accessing Biodiversity and Sharing the Benefits edited by Carrizosa et al. (2004a; 2004b). The extent to which the information contained in that book contributed to this chapter is explicitly acknowledged.

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1 Bert Visser is the director of the Centre for Genetic Resources, The Netherlands (CGN) while Derek Eaton is a researcher at the Agricultural Economic Research Institute (LEI), Wageningen University and Research Centre in The Netherlands. The authors have focused on transaction costs involved in the exchange and use of genetic resources for several years. Practical experience is based on the transaction costs incurred by CGN for collecting germplasm from other countries, notably from Uzbekistan, Kyrgyzstan, Peru and Sierra Leone, and for distributing germplasm in conformity with the ITPGRFA and CBD including an average of 6000 accessions to users in an average of 30 countries per year. The authors also advised FAO on the importance of non-monetary benefit sharing and the ITPGRFA funding strategy (see ftp://ftp.fao.org/ag/cgrfa/BSP/bsp30e.pdf and ftp://ftp.fao.org/ag/cgrfa/BSP/bsp31e.pdf).

2 The terms “genetic resources” and “genetic materials” are used here interchangeably. PGRFA refers to a subset of these materials, also referred to as “plant germplasm.”

3 “Genetic resources” often refers not only to the germplasm, but also to the indigenous knowledge associated with the use of those genetic resources. Tracking the use of indigenous knowledge will require strategies and methodologies that are different from those for the resources themselves. We will not deal with this issue here any further but this should not be interpreted as indicating that it is any less important.

4 One such issue concerns the criteria determining whether a patent application must include a disclosure of origin or source.

5 In the former case, collecting in the wild might be bound to the requirement of an Environmental Impact Assessment (EIA) that usually investigates the possible effect of the collecting activities on the ecosystems involved. Such collecting might be relevant for transactions under the CBD as well as for transactions of crop wild relatives under the ITPGRFA. The issue of performing an EIA and the associated costs will not be discussed here any further, since there is no direct relation with the costs of tracking and monitoring the utilization of the provided genetic material that form the focus of this study.

6 This approach is one typically followed in assessing investment decisions in both the public and private sectors. Initial proposals are first subjected to very crude estimates of costs (and benefits), which then provides an initial basis for decision-making concerning either the overall viability or what further information is required.

7 Further details concerning this estimate can be found in our earlier paper (Visser et al. 2000; in particular, p.9). We emphasize that we consider this estimate to be on the high side, particularly given recent trends which have included a greater reluctance among users to request germplasm due to some of the continuing uncertainty concerning access and benefit-sharing requirements under the CBD and the ITPGRFA. Nonetheless, we think this should be seen as a reasonable estimate of the medium or long-term average number of accessions requested.

8 This estimate is based on experience acquired at the Centre for Genetic Resources, The Netherlands (CGN) in applying their current documentation practices.

9 These calculations are based on monthly salaries reported for technical assistant category for a wide range of agricultural research institutions in Brazil by Beintema et al. (2001; p.74) converted to hourly rates for 2006 assuming 3% annual inflation, an overhead rate of 100%, an average of 104 effective work hours per month.

10 EURISCO forms an on-line accessible database with passport data of over a million publicly available accessions held in European collections. It may act as a prototype for implementation in other regions.

11 The assumption of perpetually recurring expenditure, as opposed to one spread over a finite number of years, coincides with our conservative approach. For example, using the 5% interest rate, changing from a perpetual horizon to a period of 25 years increases the annual costs as calculated here, by 30%. The assumption of 5% is also conservative given historical long-term interest rates and cost of capital. Of course, it would be possible to undertake a more formal sensitivity analysis of the results, but again we stress that we are attempting to be conservative and aim for reasonable lower-bound figures.

12 At the Centre for Genetic Resources, The Netherlands (CGN), the average cost is approximately US$ 50 per sample (source: internal management documents). Note this is a relatively conservative estimate; CGN staff recently published a study in which a cost-benefit analysis of a rationalization of the genebank's wild potato collection was undertaken (van Treuren et al. 2004; see, in particular, 2004). That study (undertaken in 2002) involved a cost of at least US$ 130 per accession fingerprinted (calculated using reported costs of personnel and laboratory consumables for DNA extraction and RFLP analysis over a total of 350 accessions characterized). A research organization located in a lower-cost country can generally be expected to undertake the molecular marker analysis for considerably less, given that a major portion of the cost is accounted for by laboratory staff. As is typically done with this current type of study, conservative (low) estimates are used. Personnel communications from staff of some of the Future Harvest Centers of the CGIAR indicate that an average cost is approximately US$ 10 per fingerprinted plant, which has been used in the analysis here. We also assume an average of eight plants sampled per accession to be fingerprinted (see Visser et al. 2001) to arrive at US$ 80 per accession.

13 Detailed analysis of trends in biotechnology patents is necessary to make more precise predictions of the number of patents that would have to be analyzed. As noted by Oldham (2004), there are considerable methodological issues to be resolved before precise estimates of indicators in biotechnology patents are available; work in this area is being undertaken by various patent offices with some coordination by the Organisation for Economic Cooperation and Development (see, for example, OECD 2002). Oldham also undertook his own analysis (Oldham 2002; pp.23–29) of trends in patent publications in biotechnology over the period 1990–2003 using the EPO's Esp@cenet worldwide database which covers primarily the USPTO, the EPO and the JPO. His “preliminary” analysis for 2003 indicates 683 patent publications referring to “plant gene” compared to 8343 referring to “gene” in general. Oldham also cites analysis of patent data produced by the OECD in 2003 to which reference here is also made. Using the International Patent Classification System, the OECD found 802 patent publications in 2003 under the classification “plants, processes for modifying genotypes” (A01H1) and 226 under the classification “plant reproduction by tissue culture techniques” (A01H4), totaling thus 1028 publications. These are the two most relevant classifications for patents referring to innovations in which plant germplasm has been used. We also analyzed data retrieved from the Esp@acenet database which indicated, for example, 380 patent publications during the six-month period from March to September falling under the general classification of “flowering plants” (A01H) which includes patents on plants and plant varieties (e.g., as granted in the USA), as well as patents on genetic sequences and their incorporation into cultivated plant species (e.g., as possible in the EC under the Biotechnology Directive 98/44). Thus, on these grounds, we propose that our estimate used here of 1000 applications per year is reasonable and probably conservative (as desired). For at least two reasons, there are likely to be more than 1000 relevant patent applications for which a disclosure of origin would need to be verified. First, these statistics refer to publications whereas the total number of applications to be analyzed includes at least some of those that are rejected. Second, considerable increases in the numbers of these patent applications have been documented for patents published in the class of “plants, processes for modifying genotypes” (though this increase is partially offset by a decrease in the class “plant reproduction by tissue culture techniques”). There are, however, expectations among stakeholders that current use of genetic resources will increase in the future, particularly once the Multilateral System is running.

14 This is based on informal discussions with a European patent attorney experienced in the field of biotechnology as well as with a senior policy specialist in the patent office of an EU member state (who have requested not to be cited) that is relatively active in the processing of applications in the field of agricultural biotechnology compared to other European countries.

15 http://www.european-patent-office.org/epo/fees1.htm

16 http://www.uspto.gov/web/offices/ac/qs/ope/fee2006september15.htm

17 A more systematic assessment would involve further enquiries with patent offices, including access to internal financial records.

18 US$ 80 per application x 1000 patent applications per year = US$ 80,000. Note that this applies to all relevant patent offices as the estimate is based on the Esp@cenet database.

19 Over the past 10 years, the CPVO has received and processed an average of almost 2,000 (1,990) applications per year while the US PVP Office has processed approximately 340 per year over the years 2003 and 2004 (based on figures available on respective websites). Our total estimate of 2,500 per year is somewhat higher then but note that we have not included applications in any other countries. Presumably some efficiencies can be gained through cooperation among PVP offices so that once an application for a new plant variety has been checked in one country, its verification can be recorded in the database, easing the work for other countries. We estimate again only a 10% increase in the costs for the application. The cost for an application at the CPVO is approximately US$ 1115, and the fee in the USA is US$ 432, not including DUS testing, and the average of the two, weighed by relative number of applications processed, is US$ 978.

20 See Annex 3 of the Standard MTA, in particular Article 1, available in the Report of the First Session of the Governing Body of the International Treaty on Plant Genetic Resources for Food and Agriculture, IT/GB-1/06/Report, Madrid, Spain, 12–16 June 2006.

21 A figure of 10% may seem high but could reflect two considerations. First, it is likely that resulting products that generate higher revenues and profits are those for which protection strategies, such as patenting, pursued by the developers might preclude further use of genetic material for further breeding and research. Second, there is an ongoing trend of increased use of patenting of varieties and also of biotechnological inventions incorporated into new varieties.


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