3 Reflecting Financial and Other Incentives of the TMOIFGR: The Biodiversity Cartel

Joseph Henry Vogel1

Executive summary

Genetic resources are natural information. The physical truth of that statement has tremendous implications when applied to access to genetic resources and the fair and equitable sharing of benefits (ABS). Much of the tortuous evolution of the Convention on Biological Diversity (CBD) owes to suppression of that truth. Established economic theory can elucidate what should now be done to achieve the laudable goals of the CBD. The author of this chapter, Joseph Vogel, is a noted and fiery iconoclast. The strength of his commitment to his research and conclusions, and the unreserved manner in which he expresses that commitment have sometimes distracted his readers from the fact that his work is carefully and intensively researched and his economic analysis is of the highest order. Through his analysis of the transaction costs of ABS, one can evaluate the relative efficiency and equity of an oligopoly over genetic resources and associated knowledge which, in plain English, is a “biodiversity cartel.”

This chapter notes a list of caveats that have not been stated to date. First it poses the question: Can economic theory be applied to ABS? Then it suggests that economic theory has been perverted in deceptive metaphors of efficiency. It identifies 16 distortions in ABS, as compared under the Bonn Guidelines and the proposed cartel. Vogel concludes that a cartel approach removes almost all of these distortions.

This chapter suggests a Special Protocol to the Convention on Biological Diversity which is designed to both minimize transaction costs and align incentives. Its transaction costs are compared against those of bilateral bioprospecting under the Bonn Guidelines and the cartel fares very well. This also holds true when one compares tracking and monitoring the international flow of genetic resources under the cartel versus the proposal by the European Union based on the Bonn Guidelines.

This chapter notes that much which is alleged to be biopiracy is actually “gene-dumping.” To clarify the situation and its objectives, it proposes to create an arena where the controversy about bioprospecting, intellectual property rights, and the public domain can be aired. Contrary to 1970s wisdom, one must think locally and act globally.

Ronald H. Coase won the 1991 Nobel Memorial Prize in Economics for an idea that he first expressed in 1932 as a 21-year-old college student: transaction costs can explain the nature of the firm and the absence or presence of markets.2 This simple intuition lends itself well to access to genetic resources and a fair and equitable sharing of benefits (ABS) as mandated under the Convention on Biological Diversity (CBD). Through an analysis of transaction costs, one can explain the nature of the pre-CBD regime over genetic resources as well as the absence of a robust market to emerge in the current regime of national sovereignty. The scope of such analysis is not only explanatory but also prescriptive. By analyzing the transaction costs of the current regime, one can evaluate the relative efficiency and equity of a conceivable alternative. The alternative to be examined here is an oligopoly over genetic resources and associated knowledge which, in plain English, is a “biodiversity cartel.”

In some discussions, one may get the wrong impression that Tracking and Monitoring the International Flow of Genetic Resources (TMOIFGR) is an end in and of itself. TMOIFGR is merely a means that will take different configurations given the type of legal regime that governs ABS. The first section of this chapter will revisit the argument that a biodiversity cartel is the most efficient and equitable regime (Vogel 1995, 1997, 2000). In other words, the moving target in the title of the anthology can also refer to one's interpretation of national sovereignty in the context of genetic resources and associated knowledge. The next section will compare the implications of the cartel for TMOIFGR against a proposal that has been advanced by the European Community and its Member States in the World Intellectual Property Organization (WIPO). The final section will go beyond the merits of the cartel and to the uneconomic rhetoric that accompanies popular accounts of ABS. To date, economics-as-rhetoric (McCloskey 1983) has not been deployed very successfully in defining public perceptions about ABS. To illustrate what can be done, I will conclude the chapter by making economic sense of an article from The New York Times about bioprospecting.

A caveat is in order. Economists seldom accept facile explanations of success or failure in the allocation of any resource. As this chapter will suggest, the failure of “stake-holders” to achieve significant ABS under the CBD may not be a failure at all; it could actually be the success of those intimately involved in the design of the regime. Undiplomatically, we must question the motivation and legitimacy of the participants in the debate. Those who craft policy are not true stakeholders but agents (i.e., politicians or management) whose incentives will diverge from those of the principals (i.e., citizens or shareholders). Agents should be viewed as neither winners nor losers in ABS; they are merely facilitators or impediments to the most efficient and equitable solution. Their participation began in December 1994 with the first Conference of the Parties to the CBD, held in Nassau, Bahamas. Fast forward to February 2005 and Bangkok, Thailand, and one will hear delegates to the ABS Working Group hinting that a multilateral regime may take 10 more years (Grain 2005). Clearly, the agents have become an impediment. To make a facilitator out of an impediment means to align incentives and such alignment lends itself well to economic theory. So, the task at hand is also mundane: in the light of the efficiency and equity of a biodiversity cartel, how will we engage principals to mount pressure on the agents to reform ABS policy?

3.1 Economic logic

3.1.1 The importance of “getting the name of things right”

E.O. Wilson begins a number of his writings with the importance of classification: “The first step to wisdom, as the Chinese say, is getting things by their right names.”3 In the case of ABS, the first step would be getting whatever-it-is-we-wish-to-conserve by its right name. Most people have assumed that that object is “biodiversity” which was defined in the CBD as: “...the variability among living organisms from all sources including, inter alia, marine and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems” (Article 2). If strictly applied, such a definition would not be operational as the object of conservation. The inclusion of the variability among living organisms from all sources is physically impossible as some biodiversity within species is expunged in the simple act of eating (Vogel 1992). To accept the CBD definition of biodiversity and its overarching goal of conservation, one would have to reject the Second Law of Thermodynamics – not a very tenable position.4

This criticism of the CBD definition of biodiversity is based on the Second Law which is also known as the Entropy Law. A measurement of entropy exists in the Boltzmann equation which calculates the information of any physical state. From the thermodynamic perspective, it is no metaphor to say that the sequence of purine and pyrimidine bases of DNA is information. From the economic perspective, one would want to conserve information that maximizes net benefits. By so understanding the object of conservation as functions coded in (natural) information, policy-makers could have imported the well-established economics of (artificial) information into the design of the CBD. The reason they did not has much to do with rhetoric. By the mid-1980s, the neologism “biodiversity” had become wildly successful in the mass media; ABS is the lingering victim of that success.

Considering that economists are obsessed with the internal logic of any argument, it is somewhat surprising that economists ever tolerated the word “biodiversity.” Rather than returning to square one, i.e., definitions, when square one was still within sight, most simply decided to reclassify biodiversity in terms of economic theory. The classification assigned was “public good” (Randall 1988) which simply means that one's enjoyment of biodiversity does not reduce anyone else's simultaneous enjoyment. Because the value of biodiversity-as-public-good has multiple components (e.g., aesthetic, meteorological, recreational, and bioprospecting), an ambitious challenge suddenly emerged: computing the “Total Economic Value of Biodiversity,” (TEV) (Munashinge 1992; Turner et al. 1993; Landell Mills[A1] and Porra 2002). Once estimated, a TEV can then be plugged into cost-benefit analysis to determine, say, “the optimal level of tropical forests.”5 Such calculus will give biologists much pause. By the species-area equation of biogeography (MacArthur and Wilson 1967), any optimum that is non-zero deforestation legitimizes extinction. Perceiving this sleight-of-hand, David Ehrenfeld joked that by the time economists have sorted out all the valuation issues, there wouldn't be much biodiversity left (Ehrenfeld 1988). That joke was prescient and one can identify Ehrenfeld's and Randall's chapters in the landmark anthology Biodiversity as a bifurcation point in subsequent ABS economic literature. For ease of exposition, I will categorize the two approaches as Track I and Track II.

Whereas Track I accepts TEV and cost-benefit analysis in an “economics of biodiversity” (Perrings 1995), Track II rejects both as an “economics of extinction” (Vogel 1997). Sharing Wilson's sentiment that “[i]n the end, I suspect it will all come down to a decision of ethics,”6 Track II begins with ethics. Non-negotiable is any further loss of habitat. Rather than calculating an optimum level of conservation (read extinction), Track II asks: What are the most cost-effective modes of achieving conservation? How do we enable society to “live within limits?” (Hardin 1993). Because half of the planet's terrestrial biodiversity resides in tropical forests, “no deforestation” is of utmost priority. Whereas Track II resonates with heterodox economists (Austrian, ecological and institutional) and its allies in civil society, Track I resonates with orthodox economists (neoclassical or mainstream) and its allies in biotechnology.

David Simpson and his colleagues at Resources for the Future wrote the most cited work in the Track I literature on ABS (Simpson et al. 1996). They have computed the value of biodiversity for pharmaceutical bioprospecting at precisely US$ 2.29/hectare-year in the hottest biodiverse “hot spot” in the world – the Chocó biome of Ecuador. Like so much of orthodox economics, the calculation depends on a scaffolding of assumptions. A few years later and in the same journal, Gordon Rausser and Arthur Small published a model that, lo and behold, showed that genetic resources have a very high value (Rausser 2000; Small 2000). Well, which is it?

For Track II economists, the answer is beyond our lens of resolution and reflects a poor choice of questions. One should be asking: Does probable cause exist to justify public investment in the infrastructure needed to enable a market in genetic resources? Anecdotal evidence such as Thermus aquaticus, a microorganism that resulted in a billion dollar industry worldwide, suggests that it does (Scott 2004).

Because one can easily establish probable cause, Track II economists would re-allocate intellectual resources away from calculating the value of genetic resources and to the arena of political institutions. How does one make and fund laws that would enable a viable market in genetic resources and associated knowledge? One need not reinvent the wheel. Much can be learned from transnational corporations. For example, Edmund Pratt, CEO of Pfizer Corporation, built a system of “nodal governance” in the early 1980s that would eventually end in Trade-Related Aspects of Intellectual Property Rights (TRIPS).7 Part of the success of the corporate campaign for TRIPS was the simplicity of the message:

  1. creating information (R&D) is expensive; while reproducing it (manufacturing) is cheap;

  2. without monopoly intellectual property rights (IPRs), everyone waits for someone else to innovate, and then copies the innovation;

  3. the market for copies does not generate sufficient revenues for the innovator to recoup the fixed costs of R&D; and

  4. few information goods/services are launched; society suffers from technological stagnation.

Track II economists would recommend that conservationists apply the same argument to natural information and appeal to quid pro quo:

  1. protecting habitats is expensive, while accessing samples (collecting) is relatively cheap;

  2. without oligopoly rights, i.e., a cartel, unenlightened biotechnology interests will foment a price war and access natural information in a country willing to sell slightly above the cost of collection;

  3. the market for samples does not generate sufficient revenues to offset the opportunity costs of conservation; and

  4. hence, pressures will mount on wilderness areas whenever opportunity costs are high; society suffers habitat loss and subsequent extinction.

The logic above is straightforward and the argument, symmetrical with IPR. Why has it not prevailed in the 12 years of ABS policy debate? The answer lies in realpolitik. Industry has succeeded in privatizing benefits for artificial information through TRIPS and socializing costs of natural information through “The Bonn Guidelines on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising out of their Utilization.”8 To see this, one need only consider the issue of royalties. The Guidelines allow them to be negotiated on a case-by-case basis and are silent about whether the rate negotiated should be disclosed to the public. From the viewpoint of industry, such silence is very welcome. Novartis, for example, offered Brazil a rate which is insignificantly different from zero: 0.5% (Pena-Neira et al. 2002). Tellingly, the category “royalty” in the Guidelines [letter (d) of Category 1 of Appendix II] gets no more play than “Access fees/fee per sample collected” [letter (a)] and the list of monetary benefits [letters (a)–(j)] is followed by a much longer list of non-monetary benefits: capacity-building, technology transfer, and the like [letters (a) through (q) of Category 2]. The impression is unmistakable: little money will change hands in ABS, and be happy with those non-monetary benefits! However, disinterested economists on either Track I or II will be uneasy. By virtue of the benefits of Category 2 being non-monetary, measurement of their value is all but impossible [e.g. (n): “Institutional and professional relationships...”] and the possibilities for fraud seem infinite. Even if one were to very generously assume good faith on the part of all parties, such non-monetary benefits would be a form of earmarking and earmarking is anathema in the economics of public finance. Earmarking precludes the allocation of the budget to those activities with the highest social return (Southgate 1997).

3.1.2 An analogous argument for associated knowledge

The economic justification for a biodiversity cartel over genetic resources can be extended to the knowledge associated with those resources. To appreciate the logic, one should distinguish between “random” and “ethno-” bioprospecting. The former refers to a search for commercially useful natural information that is unbiased by the artificial information residing in traditional communities. The latter biases the search. The literature on random- and ethno-bioprospecting does not use the nomenclature “natural” and “artificial information” even though such terminology would be readily understood by the scientific community. Instead, experts speak of “traditional knowledge” and “genetic resources.” When referring to the bioprospecting literature, I will use the established terminology and only revert to the terms of artificial and natural information when making the economic argument.

The literature in ethnobioprospecting emphasizes that traditional peoples have accumulated much useful knowledge about the genetic resources in their environments. That knowledge can now augment the probability of a “hit” in modern screens for bioactivity. Although the CBD contemplates benefit sharing when such hits occur, the CBD is not clear regarding the rights of communities regarding the benefits. Unlike its provisions for ABS, the CBD's language is weak and hortatory in all mentions of community rights, starting with the Preamble,

The Contracting Parties, Recognizing the close and traditional dependence of many indigenous and local communities embodying traditional lifestyles on biological resources, and the desirability of sharing equitably benefits arising from the use of traditional knowledge, innovations and practices relevant to the conservation of biological diversity and the sustainable use of its components [italics mine] (Para. 12).

Doubts about benefit sharing in the CBD were voiced immediately from experts in diverse disciplines. Darell Posey, an anthropologist, wrote: “[t]he word ‘desirability,’ in itself, is hardly strong enough to bind the State to legal implementation, besides which, no criteria for or mechanisms to implement this concept are provided in the CBD or elsewhere.”9 Dinah Shelton, a legal scholar, was similarly circumspect: “...the state's obligations are limited to ‘encouraging’ the equitable sharing of benefits. No right to compensation is explicitly recognised.”10 Despite non-committal wording like “desirability” and “encouraging,” the CBD does provide sufficiently strong wording to empower communities to negotiate. The word “approval” in Article 8(j) would enable “holders of such knowledge” to withhold knowledge if they do not expect “equitable sharing of the benefits arising from the utilization of such knowledge, innovations and practices.” Such withholding can become the leverage needed to create a market in traditional knowledge.

Although a market in traditional knowledge could be created, the economist would still be a wet blanket for any hope of fair and equitable benefit sharing. He or she would duly point out that the mere ability to sell does not mean that any one will buy. Demand may not intersect with supply. In the case of traditional knowledge, three basic problems undermine the demand. The first is that of the public domain. Much traditional knowledge is already in the public domain and lies beyond legal claim. It is not only archived in libraries but can also be found in on-line databases. Why pay for new information if you can get the old for free? Recognizing this problem, many conservationists believe the solution is a sui generis legislation that covers knowledge already in the public domain. Such opinions were often expressed in WIPO's fact-finding missions on intellectual property and traditional knowledge conducted in 1998–99 (WIPO 2001). In the vanguard of such reforms is Peru which became the first country to institutionalize sui generis protection for knowledge published in the last twenty years (Venero 2003). Despite the high hopes for the Peruvian legislation, the economist would still press: Why pay for leads from the last twenty years, if you can get the older information for free? As troubling as such loopholes are for sui generis legislation, more troubling is its apparent retroactivity. The rhetorical implications are disastrous for the material welfare of Third World countries. One need only imagine Bayer A.G. arguing for compensation on its expired 19th century patent over aspirin.

Without retroactivity, sui generis protection would be limited only to that knowledge not yet in the public domain. In other words, the first problem could be eliminated for traditional knowledge not yet published. Nevertheless, the economist would still not be hopeful even for that subset of traditional knowledge. The second problem is that of competition. Much of the unpublished traditional knowledge is diffused among communities and ethnic groups. For example, many ethnic groups in Peru (speakers of Quichua/Quechua) are also found in neighbouring Chile, Bolivia, Brazil, Ecuador, and Colombia. Competition for PIC will drive the benefit for access down to the marginal cost of being interviewed – a few hours of work and that at the minimum wage. The rents needed to motivate the conservation of unpublished traditional knowledge will have been eliminated.

As if the economics of Track II were not dismal enough, a third problem existsthe fact that identical genetic and/or knowledge resources exist in several countries or communities. Under the CBD, the State is sovereign over the genetic resources while the communities can only withhold approval from accessing knowledge associated with those genetic resources. This means that the State can collect randomly without the consent or participation of the communities. One need not be a Philadelphia lawyer to appreciate this loophole: the State can circumvent “approval” of the communities by simply collecting “randomly” in the general proximity of a settlement.

The solution to problems one and two is the transformation of traditional knowledge into trade secrets and their subsequent cartelization. Claimants would be identified by filtering databases managed by traditional communities and benefits would be distributed to communities that share the same trade secret (Vogel 2000). Unlike the first two problems, the third problem has no technical solution – just political ones. In the political arena, NGOs must raise the transaction costs of faux random bioprospecting. Success is obtained whenever the State perceives that it is more revenue-enhancing to share its royalties with traditional communities than to defraud them.

Success would bring new questions in its train: How much should the State (or more accurately, the Cartel of States) receive for being sovereign over the genetic resource? And how much should communities (or more accurately, the Cartel of Communities) share for their associated knowledge? Microeconomic analysis can shed much light on what are the limits of efficient sharing. Through some reasonable assumptions about the production function of ethnobioprospecting, one can show that a 50-50 split of royalties is the maximum that the State will be willing to pay communities for their traditional knowledge (for a mathematical proof, see Box 1).

Box 1. The behavioural economics of efficient sharing

In the language of mathematics, the problem for the State is to maximize its share of bioprospecting profits, &pgr;, which equals gross revenues (the royalty rate, p, it receives on sales, Q) less costs (the share of royalties, c, it pays to the Communities). However, Q is also a function of c. In other words, higher royalties paid to the Communities will induce more inputs of secret traditional knowledge and more hits. Q will rise with c but not indefinitely as diminishing returns set into c. A simple function that expresses this relationship is the square root. Suppose that the relationship between the reward to the communities and the final product can be characterized by Q(c) = a√c. The State wishes to

MAX p = p a√c – c a√c
Solving for the first order conditions, yields
c = 1/3 p

The proof that 1/3 the royalties collected by the State should go to the Communities hinges upon the assumption that Q(c) = p a√c. Suppose that the relationship is linear, Q(c) = ac, then the first order condition yields c = 1/2p which means one half the royalty collected by the State should go to the Communities. However, linearity violates the assumption of diminishing returns. Hence, a State that shares 50% of its royalties with the Communities has approached the upper limit it can justify under the reasonable assumptions of profit maximization and diminishing returns.

The question of sharing is not finalized with a 50-50 split between the State and the communities. An embedded question is how one shares the benefits within the community. The easiest solution would probably be a disbursement of money among all families of the community. Microeconomic theory implies that money is always at least as good, and almost always better, than in-kind transfers. However, the easiest solution may not be the most effective in encouraging participation. Traditional knowledge is seldom evenly distributed within a community; usually it is concentrated in the shaman. Although a pro rata division of money would not contradict the CBD, such disbursements would not leave the shaman with very much incentive to participate in ethnobioprospecting; he or she may even become resentful that others within the community are benefiting equally despite the unequal burden of stewardship. Without the cooperation of the shaman, little traditional knowledge will be deposited in the regional databases that is not already freely accessible in the published ethnobotanical literature; one returns full circle to the first problem. How can the shaman be induced to participate without a disproportionate compensation? Here behavioral economics has much to offer. In the synthetic literature of economics and psychology, it is well known that status is a strong motivating force (Alhadeff 1982; Frank 1985). In order to align incentives in ethnobioprospecting, the shaman should select the public goods which will be funded from the benefits for access.

3.1.3 “Tilted playing fields” and the theory of second best: The counterintuitive argument

The previous discussion may not be the right rhetoric to convince politicians. It is too economic. Politicians prefer the language of sports and will even assume that metaphors from cricket, football, or rugby can capture the nature of an economic problem as well its solution. An opportunity to persuade politicians arises in their own rhetoric of “tilted playing fields.” Applied to ABS, the metaphor suggests that we level the playing field and design a legal system which entails fewer distortions.

What are the distortions of the Bonn Guidelines? How do they compare with those of the Biodiversity Cartel? Table 1 makes such a comparison and the Cartel fares very well. However, advocates who think in terms of economics should temper their enthusiasm and recall some basic theory. In a seminal paper entitled “The Theory of Second Best,” the mathematical economists Richard Lipsey and Kelvin Lancaster showed “it is not necessarily true that a situation in which more, but not all, of the optimum conditions are fulfilled is necessarily, or is even likely to be, superior to a situation in which fewer are fulfilled.”11 In less technical language, second best means that one cannot claim that a legal system that removes a distortion or even a series of distortions will actually improve efficiency as long as another distortion still stands. The sports metaphor fails because playing fields in cricket, etc., occur in three-dimensional space whereas institutional distortions lie in an abstract hyperspace of multiple dimensions.

One can illustrate the theory of second best in the justification for monopoly IPRs. A competitive market in information will never fulfill the optimum conditions from microeconomic theory, viz.

Price = marginal cost = average cost.

Instead,

average costs >> marginal costs = price,

and innovators will go broke. The granting of a monopoly IPR allows the possibility that the price equals or exceeds the average cost. As analyzed in the previous section, natural information does not share any right, under the Bonn Guidelines, analogous to the monopolies of artificial information under TRIPS. Therein lies a tilted playing field. Consumers of R&D in synthetic/combinatorial chemistry are paying a “monopoly rent” for complex information, while those of natural product chemistry pay none. Rent in economics has a distinct meaning that is somewhat abstract. It is the payment in excess of the cost of the factor. For patented products that arise from synthetic/combinatorial chemistry, consumers pay a full monopoly rent for such R&D. For patented products that arise from natural product chemistry, consumers pay only a monopoly rent on the value added to the genetic resources. So, the tacit subsidy or tilt is pro bioprospecting and contra synthetic/combinatorial chemistry. To level the playing field, one would have to charge an oligopoly rent for natural information. However, in light of the theory of second best, advocates of a biodiversity cartel should not seize on this justification unless all the other optimum conditions are also satisfied. What are they?

The question requires reflection. Not only is it difficult to identify all the tilts in institutional hyperspace, it is also easy to misidentify them. For example, bioprospecting in plants appears to be favored over animals. Toxins have evolved much more often in plants than they have in animals, and many can be manipulated into medicines. However, the asymmetry between plants and animals does not qualify as a distortion. It arises from the evolution of defensive strategies and not from human institutions. One can illustrate this point by a counterexample: a misguided tax on the bioprospecting of plants would not level the playing field; it would further distort it.

Sixteen tilts can be identified in the playing field of the Bonn Guidelines. Again, in light of second best, one cannot say that the Cartel is optimal simply because 12 of the 16 tilts would be eliminated and three diminished. As explained in the table, still present would be the tilt favoring the bioprospecting of the human genome. Nevertheless, that tilt may be offset by another in the opposite direction. One recalls that The Human Genome Diversity Project of the early 1990s was dismantled due to human rights violations; its reincarnation in the new millennium under the Genographic Project may suffer a similar fate.12 If the additional transaction costs in accessing the human genome offset the differentially favorable ABS rules of the International Declaration on Human Genetic Data 2003 (IDHGD), then the Biodiversity Cartel is approaching the rare case of a “first best” solution.

Table 1. Tilted playing fields in the hyperspace of ABS

Ceteris paribus, where the Bonn Guidelines tilt How they tilt Explanation of presence/absence in a biodiversity cartel
1. Users will prefer to work with non-ratified countries rather than ratified countries. No clear obligation to share anything when resources accessed in non-ratified countries. Absent. Royalty rate invariant regardless of source; collected as a duty on imports from non-ratified countries.
2. In marine zones, users will prefer to gather resources from waters beyond the Exclusive Economic Zone (EEZ), rather than those within 200 nautical miles (nm) of a country. The International Seabed Authority (ISA) of the United Nations Convention on the Law of the Sea (UNCLOS) enjoys monopoly power over the seabed. Even though still not functional, its role focuses on minerals and any authority over “living resources” is disputed. In contrast, countries can compete for low-royalty bilateral bioprospecting within their EEZ. Absent. Royalty rate invariant regardless of source; for waters beyond 200 nm, royalties remit to the ISA.
3. Users will prefer to go to countries which are not members of the Group of Like-Minded Megadiverse Countries, which is committed to “harmonizing” benefit sharing. Greater negotiating power to extract low royalties from non-members. Absent. Royalty rate invariant regardless of source.
4. Users will prefer to go to weak governments and those that have not adopted any law, policy or process for dealing with its sovereign rights over genetic resources, rather than to strong governments. Greater negotiating power to extract low royalty from weak governments. Absent. Royalty rate invariant regardless of source.
5. Where traditional knowledge is involved, users will prefer to deal with countries w/few patent attorneys, and little patent-related experience over countries w/many patent attorneys. Greater negotiating power to extract low royalty from countries w/few patent attorneys. Absent. Royalty rate invariant regardless of source.
6. Users will prefer to get samples from ex-situ collections (and persons who have previously collected samples and moved them across national boundaries) rather than to engage in direct in-situ collecting in the source country. Some users still believe that the genetic resources of biological samples held in pre-CBD ex-situ collections are “in the public domain” and, therefore, may be used without compliance with ABS. Try competing with someone giving away a substitute for free! Absent. Royalty rate invariant regardless of source.
7. Users will prefer to find and use traditional knowledge which they can argue is in the “public domain” instead of traditional knowledge that is or may be proprietary knowledge of the country or community. Published traditional knowledge pre-CBD is public domain. Again, try competing with someone giving away a substitute! Absent. Royalty rate invariant whether public or secret traditional knowledge, distribution is distinct when secret (split between Cartel of associated knowledge and that of genetic resources).
8. Users will prefer to utilize microorganisms rather than multi-cell organisms. Elevated transaction costs in policing microorganisms as easier to camouflage country of origin as a non-ratified CBD country. Absent. Royalties remitted to general fund of Cartel to defray fixed costs when claimants cannot be identified.
9. Users will prefer to use plant extracts or other commodities, rather than genetic resources obtained through ABS. Whitewashing: easy to export plant extracts as commodity to a non-ratified CBD country and avoid ABS altogether. Absent. Royalties charged on species independent of how accessed.
10. Users will prefer random bioprospecting when possible, rather than ethnobioprospecting. Fewer transaction costs in negotiating access; possibility to whitewash secret traditional knowledge as if randomly accessed. Absent. Same royalty rate whether random or ethnobio-prospected, simply distributed differently. Incentives to white-wash eliminated.
11. Users will prefer widely dispersed rather than endemic genetic resources. Through competition, lower royalty rate can be negotiated on widely dispersed resources with multiple “countries of origin.” Absent. Same royalty rate whether widely or narrowly dispersed.
12. Users will prefer to use human rather than non-human genetic resources. ABS is stronger than similar provisions under IDHGD. Present but offset. Elevated transaction costs on human genome bioprospecting seem to be a countervailing distortion.
13. Users will prefer symbolic phenotypic expressions rather than genetic resources. With digital photography, truly impossible to police images that arrive instantaneously into a non-ratified country. Diminished. For patents on designs inspired from nature, transaction costs are surmountable; for copyrights on images that include nature, transaction costs appear insurmountable.
14. Users will prefer simple over complex molecules. It is easier to recognize a natural source when the genetic or biochemical characteristics of its components are complex. Similarly, transaction costs of determining provenance of simple molecules are markedly higher than complex molecules. Possibilities arise for whitewashing as if simple molecules were the product of synthetic/combinatorial chemistry. Greatly diminished. Due to the number of potential claimants in the Cartel, greater scrutiny of patent applications.
15. The system will favor natural product chemistry rather than synthetic/combinatorial chemistry. Through the price war induced by Material Transfer Agreements (MTAs), no rent is paid for complex information that, had it been created artificially through synthetic/combinatorial chemistry, would have enjoyed a monopoly rent. Absent. The costs of accessing natural information from the wild will approximate more closely the costs of creating artificial information in the laboratory.
16. Paradoxically, users will often prefer non-viable relic populations over species whose habitat is sufficiently protected to assure sustainability. Biogeographic islands provide access over the time-horizon of industry even though the population of the species bioprospected lies below critical dispensation for survival. Greatly diminished but not eliminated. Royalty share is calculated on percentage of habitat in countries of origin. The tilt persists in the Cartel for endangered endemic species whenever politicians are not positively reinforced from the royalties on endemics.

Point 6 in Table 1 deserves explanation. When genetic resources are recognized as information, the issue of when the medium of that information, viz., the specimen, left or entered a country is irrelevant. The countries of origin still have a claim, much as an author still holds copyright no matter in which library the author's book happens to be shelved. Thanks to the path-breaking work of the ESCR Centre for Economic and Social Aspects of Genomics (CESAGen), we now know that hundreds of thousands of patents have been granted and millions more are pending on products and processes involving natural components since the CBD was ratified in 1993 (Oldham 2003). The implications for ABS are staggering. Biopiracy is happening on a vast and almost unimaginable scale.

3.2 Institutionalizing a new regime

3.2.1 Special Protocol to the CBD

The legal vehicle for a biodiversity cartel is a Special Protocol to the CBD. At a minimum, the Protocol would incorporate the following features:

  1. The amendment of national laws on applications for intellectual property rights to require a specific and confirmable disclosure of the species of origin for the biochemical developed into a biotechnology.

  2. Scientific analysis to determine the taxon in which the biochemical is found and the geographic range of organisms belonging to that taxon. Using Geographic Information Systems technology, a mechanism (possibly the Clearing House Mechanism of the CBD) would identify the countries that would be collective claimants for each biotechnology.

  3. The establishment of a fund to receive an oligopoly rent of 13% on net sales of biotechnologies that use the biochemical and their distribution to cartel members according to the representation of habitats in the taxon in which the biochemical is found. The country that provides the physical samples negotiates an appropriate payment (whatever the market will bear) for the right to enter and collect the natural information bioprospected (usually ranging from 0.5–2%), above and beyond the rent.

  4. The establishment of databases of traditional knowledge at the community level to determine what has already fallen into the public domain and what can still be transformed into a trade secret.

  5. The filtration of any patented biotechnology from random bioprospecting against the traditional knowledge databases to determine whether there is a coincidental match. If so, then the 13% rent will be divided between the Cartel of States and Cartel of Communities that hold the secret traditional knowledge. In the case of direct ethnobioprospecting, 6.5% of net sales accrue to the Cartel over genetic resources and 8.5% to the Cartel over associated knowledge.

  6. A tracking of holders of intellectual property to uncover any uses of a biochemical to determine whether the rent has been paid to the fund.

  7. Whenever the rent has not been paid, a trebling of the royalty on prior sales of the biotechnology export and its deposit into the fund; whenever a biotechnology has not disclosed its use of a genetic resource, the trebled levy will remain in effect for the duration of the patent.

The Special Protocol will drastically reduce the transaction costs of ABS in the long run. Nevertheless, significant transaction costs are involved in institutionalizing the cartel in the short run. Table 2 compares the costs under the two regimes.

Table 2. The transaction costs of ABS

Under the Bonn Guidelines Under the Cartel Are the transaction costs of the Cartel (much greater than) / (greater than) / (the same as) / (less than) / (much less than) those of Bonn?
1. Establishment of a Competent Authority to handle the flow of petitions for access. Once a ratified member to the Special Protocol, there is no additional government approval for access as long as other legal requirements are met [e.g., phytosanitary norms, obligations under Convention on the International Trade in Endangered Species of Flora and Fauna (CITES), etc]. (Much less than) No special bureau is needed to evaluate, grant, and monitor access under the Cartel.
2. PIC on a case-by-case basis for random bioprospecting to determine mutually agreed terms within each country. Opportunities arise for rent-seeking behavior. Flat royalty is the mutually agreed term. Filtration against Traditional Knowledge (TK) requires a network of databases managed at the community level. (In the short run, much greater than). Cartel requires databases on TK, herbaria, and training at community level to prevent random bioprospecting from coinciding with TK.
(In the long run, much less than). Once databases on TK, etc. are established, titles can be clouded whenever access to secret TK has been illicit.
(In the long run, much less than) The Cartel is a standardized mechanism for benefit-sharing; Bonn is case-by-case.
(In both the short and long run, much less than). The Cartel obviates rent-seeking behavior in PIC; Bonn requires much oversight to prevent it.
3. PIC on a case-by-case for entho-bioprospecting within each contracting community. Identification of public good projects to which funds will be used; standardized PIC across communities. (In the short run, less than). Easier for shaman to identify public good project than achieve community consensus.(In the long run, much less than). Due to legal challenges of “fair and equitable” by communities left out of any bilateral agreement under the Bonn Guidelines.
4. Amendment of the Patent Cooperation Treaty (PCT) to require disclosure of species. Amendment of the PCT to require disclosure of species. (The same).
5. Disclosure requirement triggered by intent of R&D. Disclosure only at the moment of patent or other IPR protection. (Much less than). Unlike Bonn, one would not have to disclose the source before even beginning R&D. Instead, one simply reports the species in the patent application.
6. Sanctions still undefined for failure to disclose or disclosing falsely. Temporary trebling of base royalty rate to 39% when failure to pay but no failure to disclose. Permanent trebling of base royalty rate with discovery of failure to disclose. (Much less than). A simple penalty that is consistent with GATT fine structures.
7. Political hurdles to transform the voluntary Bonn Guidelines into a binding instrument. Agreement of 66% of the Parties for the Protocol to enter into international law (Much greater than). One has to convince principals in the industrialized countries that it is also in their interests to pressure their agents to adopt a Special Protocol.

3.2.2 A cascade of means and ends

From an analytical perspective, a Special Protocol is one of the means to the end of institutionalizing a biodiversity cartel. But the cartel is not the ultimate end; it is one of the means to the end of fair and equitable benefit sharing. Similarly, fair and equitable benefit sharing is one of the means to the ultimate end of conservation. Where does the Tracking and Monitoring the International Flow of Genetic Resources (TMOIFGR) fit into this cascade of means and ends?

TMOIFGR is a second-tier means to the end of a biodiversity cartel and is explicit in point 6 of the proposed Special Protocol. Table 3 allows comparison of TMOIFGR under the two systems: on the left-hand side is a summary of the highlights from a proposal based on the Bonn Guidelines; on the right-hand side, the implications of a Cartel.

Table 3. Tracking and monitoring of international flows of genetic resources

*Directly quoted from Proposal by the European Community and its Member States for Disclosure of Origin or Source of Genetic Resources and Associated Traditional Knowledge in Patent Applications (16.12.2004).13
According to the Proposal by the European Community and based on the Bonn Guidelines* According to the implications of a cartel legalized through a Special Protocol to the CBD
a) a mandatory requirement should be introduced to disclose the country of origin or source of genetic resources in patent applications a) a mandatory requirement should be introduced to disclose the species of origin in patent applications
b) the requirement should apply to all international, regional and national patent applications at the earliest stage possible b) the requirement should apply to all international, regional and national patent applications
c) the applicant should declare the country of origin or, if unknown, the source of the specific genetic resource to which the inventor has had physical access and which is still known to him c) [NOTHING REQUIRED]
d) the invention must be directly based on the specific genetic resources [italics added for emphasis] d) the invention must be based on genetic resources and/or traditional knowledge not in the public domain
e) there could also be a requirement on the applicant to declare the specific source of traditional knowledge associated with genetic resources, if he is aware that the invention is directly based on such traditional knowledge; in this context, a further in-depth discussion of the concept of ‘traditional knowledge’ is necessary. e) the requirement that species be filtered against the indigenous databases to determine whether there are any “hits.” In the affirmative case, the royalties will be shared according to the terms established in point 5 of the Special Protocol
f) if the patent applicant fails or refuses to declare the required information, and despite being given the opportunity to remedy that omission continues to do so, then the application should not be further processed f ) if the patent applicant fails or refuses to declare the required information, and despite being given the opportunity to remedy that omission continues to do so, then the application should be processed but the royalty rate trebles from 13% to 39% for the life of the IPR protection
g) if the information provided is incorrect or incomplete, effective, proportionate and dissuasive sanctions should be envisaged outside the field of patent law g) if the information provided is incorrect or incomplete, effective, proportionate and dissuasive sanction is specified, e.g., trebling of the royalty rate for the life of the IPR protection
h) a simple notification procedure should be introduced to be followed by the patent offices every time they receive a declaration; it would be adequate to identify in particular the Clearing House Mechanism of the CBD as the central body to which the patent offices should send the available information. h) Some mechanism [possibly the Clearing House Mechanism (CHM)] will maintain royalties in escrow until sufficient funds accumulate to cover the transaction costs involved in their disbursement. Should that threshold never be met over the patent life of the biotechnology, the mechanism will appropriate the royalty stream to defray the incremental fixed costs of managing the fund. It will also retain royalties for genetic resources which are endemic in any non-ratified CBD country until that country ratifies the Protocol.

3.2.3 Principal-agent problems

One should expect resistance to the institutionalization of a biodiversity cartel. This expectation is based on a synthesis of transaction costs analysis and the theory of groups in formal economics (Olson 1965). It can be summarized in three steps:

  1. agents inflict expenses on principals who are diffused,

  2. the transaction costs of protest for any one principal is greater than his or her personal loss even though aggregate losses among principals exceed aggregate benefits to agents,

  3. acting selfishly, principals hope that other principals, i.e., co-victims, pursue action against agents; inasmuch as redress will be a public in nature, the silent principals will be able to free-ride.

The principal could be a citizen or a shareholder and the agent, a manager or a politician. Applied to ABS, the principals in biotechnology ventures are the shareholders and the agents, the management. Despite the textbook wisdom “to diversify” one's financial portfolio, many shareholders invest disproportionately in biotechnologies because they understand that industry and are “in for the long-haul.” Their exposure is not irrational given the principal-agent problems systemic to brokerage houses. The shareholders would rather risk a downturn in the sector they know than be defrauded by the advice given by a Merrill Lynch or Morgan Stanley for sectors they do not know. However, the concentration is only inter-industry; intra-industry, these same shareholders diversify according to the financial performance of each biotech firm. Unlike the shareholder, managers in biotech are in for the short-haul and are rewarded according to the expected profits of the firm. Because access to genetic resources consummated for a royalty of 1/2 of 1 percent is more profitable than a royalty of 15%, managers foment a price war among supplier countries. What is good for the management of one firm is disastrous for the industry when practiced by the management of all firms.14 The resulting downward spiral in price erodes the long-term sustainability of genetic resources and associated traditional knowledge which, in turn, shrink the future possibilities of biotechnology and the expected value of the portfolio.

The unfolding story of Vioxx, a block-buster drug produced by Merck, Inc., is the most recent illustration of how agents (management) act against principals (shareholders) in the biotechnology sector. The story bodes ill for the Bonn Guidelines and I shall re-tell it through the lens of the principal-agent problem.

The marketing division of Merck recruits prestigious academic physicians to engage in medical education of any new product (Prakash 2005). Obviously, the agent is the academic physician, but who exactly is the principal? The principal is not Merck even though Merck foots the bill of the agent. The principal is the patient. The academic physician has simply been persuaded by the evidence of the efficacy and safety of the new drug and is engaged in medical education. What happens when the agent is no longer convinced of the efficacy/safety? Prof. Gurkirpal Singh of Stanford University found out. Exercising the Hippocratic Oath, he asked in a public forum “how many heart attacks, how many strokes, how many deaths were occurring in each one of the groups, and what were the actual number of patients at risk, and how many ended up having an event?”15 The darling of Merck was quickly converted to its enemy. Dr Louis Sherwood, Medical Director at Merck, placed calls to Stanford accusing Singh of having made “wild and irresponsible public statements about the cardiovascular side effects of Vioxx.”16

This statement was made on October 28, 2000 and the leverage applied was the US$29 million that Stanford receives as an annual research budget from Merck. Vioxx remained on the market until the fall of 2004; during that time, an expert at the FDA estimates that 38,000 people died because of the side effects.17 Through the lens of the principal-agent problem, one would hypothesize that agents at Merck attempted to corrupt another agent and leave the principals, i.e., the shareholders, holding the bag of liabilities. Evidence that would not refute the hypothesis comes from both shareholder value and the personal decisions of the CEO. From a high of $91 in January 2000, Merck stock plummeted as low as $25 in the wake of the news; in advance of the nosedive, the CEO cashed out his stocks.

The lesson from Merck is simple. One cannot create any system that relies on trust. Yet trust is exactly what the Bonn Guidelines require. As long as companies can invoke the confidentiality of contracts, Material Transfer Agreements (MTAs) can be consummated with royalties that are fractions of one percent. Evidence of such tricks is common in Big Pharma. For example, to secure tax relief from the “American Jobs Creation Act” in October 2004, Big Pharma now attributes its profits to international sales – a most curious claim given that prices are substantially higher in the U.S. than overseas and more than 60% of sales are national (Berenson 2005). Unlike the Bonn Guidelines, a biodiversity cartel assumes no trust. Assiduous auditing of the royalties is the sine qua non of points 3 and 5 of the Special Protocol. One need only recall that Genentech, once a paragon of biotech entrepreneurship, was fined US$ 300 million for having failed to pay royalty payments to the City of Hope Medical Center (Pollack 2002).

It would be naïve to assume that the governments of the South have been the hapless victims of ruthless biotech management from the North. They have often engaged in aggressive rent-seeking behavior. The “timing of benefits” in the Bonn Guidelines encourages more of the same. It allows governments to collect benefits now under the rubric of “up-front payments.” Again, one sees the unctuous nature of Track I economics. Such payments are rationalized by Track I economists as the simple consequence of discounting future benefits! In contrast, economists using Track II logic will invoke realpolitik. The up-front payments are the inverse of a phenomenon well documented by political scientists: NIMTO (not in my term of office) – decisions made now that generate costs later. Because ABS implies benefits over time, not costs, NIMTO has morphed into SIMTO: solely in my term of office – the benefits from access now, the costs of conservation later. An extreme example of SIMTO behavior comes from Ecuador, which routinely appears in the top ten slots for most corrupt country by Transparency International. Gustavo Noboa, interim president (2000–2003) and currently a fugitive in the Dominican Republic, wanted to sell hundreds of millions of dollars in future contracts on oil exploration during the last weeks of his administration. The money now, the oil production later. Fortunately, the Ecuadorian Constitution foresees such chicanery and the judicial branch prevented it. Like those constitutional protections in Ecuador, the Biodiversity Cartel would prevent SIMTO and a related problem to which I have already alluded. In deference to the analytical power of political science, I shall call it FIMBY: first in my back yard.

FIMBY occurs whenever a country beats its neighbor in the race to the bottom of ABS. Just as SIMTO is the flip side of NIMTO; FIMBY is the flipside of NIMBY: not in my back yard. If agents in the competent authority can muster a PIC before counterparts do so in a neighboring country, then one of those multiple non-monetary benefits will come their way. It will take the form of a pet project administered by an NGO in which the agents have a conflict of interest. Most frustrating of all is the fact that many such projects are irrelevant for conservation. In order to save biodiversity, there is usually no need to do something. There is a desperate need for governments to do nothing. I refer specifically to road building. The opening of highways in the Amazon has been and continues to be the leading agent of deforestation (Wunder 2000; Laurence 2005). Few of these roads are privately funded and even when privately funded, they still need government authorization. Item 3 of the Special Protocol would discourage authorization for such road–building-cum-habitat-fragmentation. Royalty shares are calculated as a percentage of extant habitat and are paid over time; less habitat, lower future royalties over time.

3.3. The role of rhetoric in ABS policy making

3.3.1 The Group of Like-Minded Megadiverse Countries

Nothing in the previous sections involves novel economic logic. The fact that such logic was not reflected in the design of Article 15, augurs poorly for the institutionalization of a Special Protocol. The challenge for conservationists is to use rhetoric in a fashion that coincides with economic thinking. Particularly persuasive are tight analogies and an appeal for quid pro quo or universality. As already argued, the justification for an oligopoly over natural information and associated artificial information is the same justification that the biotech sector has used successfully for monopolies over artificial information. Unfortunately, stated as such will convince no-one! Few people outside the economic profession can define the word “oligopoly” and many will confuse it with “oligarchy.” Likewise, “natural information” appears only in journals of molecular biology. In contrast, every one knows the meaning of a “cartel” and “biodiversity” also enjoys much currency in popular speech. Even for policy makers who pay lip service to economic theory, a “biodiversity cartel” is easier to communicate to law makers and their constituents than is an “oligopoly of natural information.”

Despite the rhetorical advantages of a “biodiversity cartel,” advocates must also recognize its disadvantages and confront them headlong. Biotech management will exploit the pejorative connotations of the “c” word, viz, gambling, drug trafficking, and prostitution. Perhaps in anticipation of such tactics, the biodiverse-rich countries opted for a synonym. China, Brazil, India and nine other nations met in Cancún, Mexico in February 2002 to form an alliance which would later be called the “Group of Like-Minded Megadiverse Countries” (Stevenson 2002). Their numbers have expanded to 17 and the Group now constitutes a majority of the 25 most biodiverse countries (see Figure 1). Through the lens of economic theory, what the founding members of the Group launched was not an alliance but a cartel, as evidenced by the pursuit of rents tacit in the member's objectives:

(d) To explore jointly ways to interchange information and harmonize our respective national laws for the protection of biological diversity, including associated knowledge, as well as for access to genetic resources and the distribution of benefits derived from its use...

(h) To drive the development of an international regime that promotes and effectively safeguards the just and equitable distribution of benefits from the use of biological diversity and its components. This regime should consider, inter alia, the following elements: the certification of the legal provenance of biological material, prior informed consent and mutually agreed terms for the transfer of genetic material as prerequisites for the application and issuance of patents, in strict adherence to the conditions of access granted by the countries of origin of this material.18

Figure 1.

Note: The Group of Like-Minded Megadiverse Countries affords the possibility to capture rents (dark-shaded). The biodiverse countries which ratified the CBD but are not members of the Group (medium-shaded) can expect an elimination of rents through competitive bidding for common genetic resources. The biodiverse country that has not ratified the CBD has no expectation of rents and considers genetic resources “open access” (identification of biodiverse countries based on World Atlas of Biodiversity, UNEP/WCMC, 2002).

Inasmuch as a biodiversity cartel is grounded in the same economic theory that justifies monopoly IPRs, the Group of Like-Minded Megadiverse Countries erred greatly in choosing a name. Whereas “cartel” is provocative and means business, the word “group” is pusillanimous and suggests accommodation. Moreover, the word “cartel” invites frank talk. As Paul Krugman, a distinguished Professor of Economics at Princeton University and weekly columnist of The New York Times, points out “good economics is also good politics.”19 Just as Northern industry has persuaded governments through economic logic to respect monopoly IPRs despite the odious connotations of monopolies, those same governments should also be able to accept a biodiversity cartel as an analogous means for the efficient and equitable allocation of natural information. In September of 2002, the president of Venezuela, Hugo Chávez, became the first world leader to speak openly in favour of a “biodiversity cartel” (Doyle 2002). The venue was well chosen: The Earth Summit, Rio+10 in Johannesburg, South Africa. Since Rio+10, Mr Chávez has emerged as an international persona and Venezuela could assume a role in ABS reminiscent to its heady days in the 1960s when it launched OPEC.

3.3.2 ABS as a subterfuge for a campaign against the IPR system

The biodiversity cartel recognizes the desirability of intellectual property rights as a mechanism for efficient resource allocation. Many participants in the ABS debate do not. Logically consistent, these critics must also be critics of the biodiversity cartel and they indeed are. In a farcical ceremony at COPVII held in Malaysia, the NGO Erosion, Technology, and Concentration [(ETC) (formerly Rural Advancement Foundation Institute (RAFI)] derided the Group of Like-Minded Megadiverse Countries as a “biodiversity cartel” and named it “runner-up” for the 2004 Captain Cook Award.20 Such protests against the IPR system are not just good theatre; reasons exist to oppose monopoly IPRs that are also grounded in good economics. A serious challenge begins with estimates of the “deadweight welfare loss” of any IPR monopoly. In the case of pharmaceuticals, one would also call into question the rationale for granting the monopoly, citing that annual budgets on marketing surpass those on R&D. An examination of that R&D also reveals product differentiation in “me-too” drugs (Angell 2004). To top off the economic case against pharmaceutical IPRs, competitive alternatives exist: governments could buy patents in open bidding and then throw them into the public domain for generic production (Kremer 1998). As worthy as is this debate, it is nevertheless a separate kettle of fish; indeed, a red herring for ABS. The CBD explicitly accepts the legitimacy of IPRs in Article 16(5). Critics of IPRs loudly denounce acts of biopiracy and have scored some notable successes (e.g., the cancellation of the Maya-ICBG project in 2001). To avoid being “RAFI'd,”21 bioprospectors now dance, linguistically speaking: what they do is no longer “bioprospecting”, but “biodiscovery” or even “biotrade.”

The advocates of a Special Protocol would do well to concentrate on how language is framing the unfolding debate about ABS. Should the term “biopiracy” be associated with the cartel, then the advocates must insist that the critics be explicit regarding the implications of biopiracy. As emphasized, most definitions include a flat rejection of the monopoly IPR system. That rejection has several logical implications. First and foremost would be the free nature of the value-added. If one gives away the value added to a genetic resource, should one also have to compensate the country of origin for that resource? If no, then there still would exist a claim of biopiracy – taking from the poor to give to the rich. If yes, then how would one sustain compensation? The only answer is bigger government. However, both free access and bigger government go against the spirit and letter of the CBD. Framers of the Convention set out to overturn the doctrine of “Common Heritage of plausible explanation is the fallacy of equivocation Mankind” and garner private funds for conservation (McManis 2004). The public confuses “biopiracy” through sustainable use. So, an enigma emerges. Why with what can more accurately be labeled “biofraud” is the public so receptive to claims of “biopiracy”? A and a host of other neologisms (see Box 2).

Box 2. Not quite synonymous: A BioLexicon of ABS

The northern dialect

The southern dialect

Neologisms in the light of economics

3.3.3 Choosing the right metaphor: Is the U.S. a haven for biopirates? or is it gene-dumping?

As we have seen from the application of economic theory, the non-ratification of the CBD by the U.S. poses a monumental threat to benefit sharing for the countries that have ratified the CBD. Further aggravating that threat is the biogeography of the U.S. The habitat of many species in the U.S. extends outside U.S. jurisdiction: Hawaii, Guam, and Samoa (ecosystems similar to those found in the jurisdictions of South Pacific Island nations), Alaska (Canada and Russia), Puerto Rico (Latin American nations), ex-situ genebanks, botanical and zoological gardens, and possibly even U.S. embassy grounds. A comparative advantage has emerged for the U.S. in bioprospecting simply for not having ratified the CBD. This became apparent shortly after the CBD entered into force in December of 1993. The chairman of Bayer AG expressed diplomatically the rationale for the relocations of laboratories: “North America [U.S.] has not replaced Germany as a location for business, but there are certain innovative activities which are best performed in the U.S.”27 While foreign firms were coming to America to test their genetically modified organisms (GMOs), American firms, using the same logic, were staying home to bioprospect.28 One could say that the US had become a haven for biopirates.

The metaphor “haven for biopirates” is provocative and provocation is a good thing for public debate. Unfortunately, the metaphor extends the contradictions inherent to the word “biopiracy” and contradiction is a bad thing for public policy. What is an alternative metaphor that better captures the implications of the U.S. not having ratified the CBD? An economist might suggest “gene-dumping” and point out that the free access to the genetic resources of the U.S. is in the context of significant opportunity costs for habitat protection. For example, under the 1968 Endangered Species Act, the red-cockaded woodpecker (Picoides borealis) has frustrated much development in piney woods of the southeastern U.S.; the happy re-discovery of the ivory-billed woodpecker (Campephitus principalis) in 2005 will constrain it even more.29 To the extent other countries do not afford similar protection to endangered species, the U.S. can be said to be dumping its genetic resources on world biotechnology markets and frustrating ABS as a source of economic rents for conservation overseas.

What can be done? The metaphor we choose will bias the recommendations we advocate. When one chooses “gene-dumping,” a policy implication emerges straight out of GATT: “...the imposition of a duty. The countervailing duty is essentially a tariff designed to ‘counter’ the effects of the foreign export subsidy.”30 The GATT definition of “export subsidy” applies whenever the patented biotechnologies are sold more cheaply overseas than in the U.S., thereby complementing and strengthening the rationale for item number 7 in the proposed Special Protocol.

3.3.4 A case study: Reporting ABS sans economic theory

The Bonn Guidelines are prima facie evidence that economists do not have the ear of policy-makers. Advocates of a cartel should not despair. Instead, they should take their message to the public. The best venue is the mass media of high status. But even there, one cannot escape the problem of transaction costs; applying economic theory is work and journalists may fear that the very language of economics will turn off editors and readers alike. Fortunately, as we have seen, the economics needed to make sense of ABS is not that difficult and corresponds to what is covered in an introductory college course. Given the fact that tens of millions of people around the world have formally studied economics, and a good number are concerned with conservation, the potential readership is huge and potentially influential. One could even say that the serious journalist has little choice but to report ABS in the light of economics. Once the logic of a biodiversity cartel becomes apparent in the mass media, agents will begin to feel pressure to act in the interests of the principals.

Nothing persuades like a well-chosen example. So, I have combed through the news media to find an article that epitomizes both the problem of reporting bioprospecting sans economics as well as the opportunity of making whole the sundry facts presented. I have found a fairly comprehensive story (2090 words) which appeared on the front page of the Science Times Section of the May 7, 2002 edition of The New York Times (NYT), approximately one month after the sixth Conference of the Parties to the Convention on Biological Diversity (COPVI). The author is Andrew Revkin who has won accolades in journalism for going the extra mile to get the story right – quite literally in the case of The Burning Season (Revkin 1990). Despite Revkin's scientific background and journalistic skill, there is no economic reasoning in “Biologists Sought a Treaty; Now They Fault It.“ This should not surprise us. The sheer volume of Revkin's productivity (some 829 bylines in the NYT since 1996) may preclude the downtime necessary for making economic sense of bioprospecting. Moreover, the work in organizing the story in the light of economics is intrinsically different than that of tracking down facts and tying them up into crisp prose. An economic interpretation requires that the journalist tease out causes and effects and then display the chutzpah to voice unwelcome implications. The result will be a story that will not sit well with many of the sources of the sundry facts. Inasmuch as Revkin has not done this, an opportunity arises to unify and connect the hitherto unrelated facts.

Because many newspaper readers never get beyond the title of an article, analysis should begin there. Irony carries a certain cachet and Revkin sets the tone with “Biologists Sought a Treaty; Now They Fault It.” Pity that that title misrepresents the sequence of events that culminated in the CBD. The text of the CBD was the product of arduous negotiations that took place in the late 1980s and early 90s under the auspices of UNEP in Nairobi, Kenya. The representatives from the North and South were so divided that they never settled their differences; instead they immortalized them in a wishy-washy language that was faxed out of Africa just hours before the inauguration of The Earth Summit in Rio de Janeiro, in June 1992. Revkin's article could have just as ironically, and much more accurately, been entitled “Critics of the Convention on Biological Diversity Foresaw Failure from the Outset.”

Even when readers are drawn by the title, most will probably not get beyond the first 100 words. This is unfortunate as the misconstrued irony in “Biologists Sought a Treaty; Now They Fault It” is quickly compounded: “...biologists say, in many tropical regions it is easier to cut a forest than to study it.”31 That salvo is immediately supported by a quote from Dr Douglas C. Daly, curator at the New York Botanical Gardens: “Something that was well intentioned and needed has been taken to an illogical extreme.” Revkin then builds the story to elucidate Daly's thesis, showing how nationalist groups have become so obsessed with biopiracy that they are running scientists not only out of countries but out of their own fields of study. “Christiane Ehringhaus, a German botatist pursuing a doctorate at Yale, was teaching Brazilian students and studying plants in the state of Acre in the Brazilian Amazon when newspapers implied that she was collecting seeds and insights from indigenous people in pursuit of drugs... the resulting difficulties had prompted her to abandon botany altogether...”32

With a modicum of economic theory and the chutzpah to expose the vested interests in bioprospecting, Revkin could have integrated the sundry facts into a more comprehensible whole. Let's return to that opening statement about the relative ease of cutting the trees versus the difficulty in studying them and then move on to Christiane Ehringhaus. The essential fact needed to resolve the paradox is the non-ratification of the CBD by the U.S. Revkin missed the significance of that fact: genetic resources that wind up in the U.S., by hook or by crook, are the property of no one and, hence, fair game for R&D. Any biologist who comes to study the environment may inadvertently or advertently facilitate “biopiracy.” Regarding the disheartened Christiane, Revkin quotes her as saying: “First...they drove me completely away from medicinal plants and now from plants, period.” Had Revkin thought like an economist, Christiane's comment would have raised a red flag. Any botanist researching medicinal plants is there to throw such knowledge into the public domain through publication, thereby disenfranchising both the country of origin and the traditional peoples. Should the published traditional knowledge provide a lead for R&D, then the resultant biotechnology will enjoy a monopoly patent both in the U.S. and, under TRIPS, the country of origin. What Revkin portrays as irrational xenophobia – the exclusion of foreigners from collecting medicinal plants in Brazil – is economically quite sensible. Inasmuch as there has also been gene-culture co-evolution between ancestral peoples and their environment, the exclusion of all plants makes similar economic sense.

Nowhere in the article does Revkin broach the topic of royalties. The omission constitutes a conspicuous absence of economic thinking. Had he cast the story in the light of economics, the magnitude of royalties would have taken central stage. From there, follow-up stories could have emerged regarding the rationale of a biodiversity cartel and its role in the overarching goal of conservation.

3.4 Conclusion: On being (not just thinking) outside the box

Selim Louafi and Brendin Tobin recommend that “[t]he development and implementation of an efficient system of ABS governance requires one to look beyond the law.., in the direction of the network of actors and institutions on which implementation will depend.”33 In a similar vein, Tomme Young has implored policy makers to “think outside the box”34 with respect to ABS. This chapter suggests that the box which confines our thought is national sovereignty over genetic resources. Thinking in that box has led to flawed solutions like the Bonn Guidelines and, not surprisingly, to calls to think outside the box. Outside that box is the biodiversity cartel which sounds radical but is really a rather conservative proposal, grounded in the same economic theory that justifies monopoly intellectual property rights.

Louafi and Tobin are correct: a network of actors and institutions does exist. However, they are wrong to assume that the network is acting in good faith in the design of ABS. That network will exclude anyone who thinks outside the box. The Vioxx story is a grim reminder of what will happen to any agent who bucks the corporate system of subservience to more powerful agents. Unfortunately, Merck is not a “bad apple” nor is the medical faculty at Stanford the only victim of the principal-agent problem. Across the San Francisco Bay, Prof. Ignacio Chapela was denied tenure because he had the audacity to publish in Nature his findings of transgenic pollution, thereby risking corporate grants at UC-Berkeley (Quist 2001; Chapela 2001). Can any non-tenured professor analyze the MTAs so coveted by industry? Complementary to an intimidated faculty is a cowed news media. Can any journalist make sense of the sordid facts of bioprospecting if his newspaper draws income from the source of those facts?

To think outside the box, we must live outside the box. Fortunately, academic freedom and a free press have not yet become the transaction costs of a biodiversity cartel. Nevertheless, both could use a bit of help (Cary 1999). It is not enough that the facts, opinions, and analysis of ABS float in cyberspace or appear in printed anthologies like this one. They also need a physical space where people can discover how ABS integrates with the international IPR system and how that system is impacting their material welfare.

Because the issues involved can raise passions, apathy is not the problem. Ignorance is. To understand more easily how economic theory applies to ABS and IPRs, the public should be given a range of stimuli. For example, many citizens would be intrigued by the hallucinogenic properties of Banisteriopsis caapi and its role in indigenous cultures in the Amazon. They should able to touch specimens of the thick and twisted vine and, through video clips, see how shamans administer B. caapi in diverse religious ceremonies that induce altered states of consciousness. Integrated into such a display could be a chronology about how the plant patent was discovered only years after it was filed. The ensuing international uproar translated into a legal challenge which was also a flamboyant affair. The trajectory of B. caapi affords many counterintuitive lessons about the IPR system (McManis 2004); primary among them is that the CBD rewards prior acts of biopiracy (Alarcon and Morales 2000). B. caapi is not an anecdote. No less dramatic an example is the endangered poison dart frog Epipedobates tricolor. Thumbnail-size specimens were spirited out of Ecuador in the 1970s and, according to rumors, in a U.S. diplomatic pouch to avoid CITES. A toxin in the skin of E. tricolor was isolated and used in the R&D of an analgesic (ABT-594) that is orders of magnitude stronger than the morphine family but non-addictive. In homage to the frog, the patent-holder, Abbott Laboratories, named the principal agent “epibatidine.” Under the Bonn Guidelines, no country of origin stands to gain anything for B. caapi or E. tricolor; however, under a Special Protocol, a 15% royalty could still be negotiated and divided among countries of origin according to their respective share of the habitat. The storyline behind B. caapi and E. tricolor is not unique (Delgado 2002) and every region in the world probably has a similar experience. Because the biodiversity cartel is unabashedly a top-down approach, citizens must “think locally and act globally.” What is needed most is engagement.

I close with this suggestion: advocates of “fair and equitable benefit sharing” should schmooze a philanthropist or a government to build a museum dedicated to the controversy of bioprospecting, intellectual property rights, and the public domain – no strings attached – and let the exhibits travel.

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1 Director, Economics Research Unit, University of Puerto Rico, San Juan, PR 00931-3345, josephvogel@usa.net.

2 See the Prize Lecture “The Institutional Structure of Production” by Ronald Coase at http://nobelprize.org/economics/laureates/1991/coase-lecture.html.

3 Wilson 1998, at p. 4.

4 Sir Arthur Eddington said it best “...[i]f your theory is found to be against the second law of thermodynamics I can give you no hope; there is nothing for it but to collapse in deepest humiliation.” The Nature of the Physical World. Macmillan, New York, 1929 at p. 74.

5 López at p. 3.

6 Wilson 1988 at p. 16.

7 Drahos at p. 260–261.

8 See Decision VI/24 of COPVI at www.biodivi.org/decisions

9 Posey at p. 7.

10 Shelton at p. 25.

11 Lipsey and Lancaster at p. 11.

12 See https://www5.nationalgeographic.com/genographic/

13 See http://www.wipo.int/tk/en/genetic/proposals/european_community.pdf#search=’Disclosure%20of%20Origin%20or%20Source%20of%20Genetic%20Resources%20and%20Associated%20Traditional%20Knowledge%20in%20Patent%20Applications’

14 Economists will recognize this as the fallacy of composition: what is true of a part is not necessarily true of the whole. Ecologists will recognize it as one of the many manifestations of the “tragedy of the commons,” so vividly elaborated by Hardin (1968).

15 Listen at http://www.npr.org/templates/story/story.php?storyId=4696609

16 Ibid.

17 Ibid.

18 Cancún Declaration, February 2002, http://www.unido.org/file-storage/download/?file_id=11803)

19 Available online at http://query.nytimes.com/gst/abstract.html?res=F70611F6355C0C708DDDAF0894DD404482; http://www.truthout.org/docs_2005/printer_061305H.shtml

20 See http://www.captainhookawards.org/

21 McManis pointed this out at p. 460.

22 See www.aar.com.au; http://www.legislation.qld.gov.au/LEGISLTN/CURRENT/B/BiodiscovA04.pdf#search=’Definition%20of%20Biodiscovery’ at p. 70.

23 See www.environment.jbpub.com or http://en.wikipedia.org/wiki/Bioprospecting

24 See http://www.biotrade.org/QuickPlace/biotrade/Main.nsf/h_B4BD9585D70EA32CC1256C0000352A94/8CE3DC12F9D60922C1256C0000352C55/?OpenDocument

25 Vogel, J. (ed.) 2000, at p. 125 in Spanish text; English version online at www.thebiodiversitycartel.com

26 RAFI (Rural Advancement Foundation International). 1995. Conserving Indigenous Knowledge: Integrating Two Systems of Innovation. Independent study to the United Nations Development Programme. Ottawa: RAFI.

27 See Nash at D5.

28 See RAFI at 5.

29 See Fitzpatrick J, M. Lammertink, M. Luneau, Jr., T. Gallagher, B. Harrison, G. Sparling, K. Rosenberg, R. Rohrbaugh, E. Swarthout, P. Wrege, S. Barker Swarthout, M. Dantzker, R. Charif, T. Barksdale, J. Remsen, Jr., S. Simon and D. Zollner, 2005. “Ivory-billed Woodpecker (Campephilus principalis) Persists in Continental North America”. Science 308(5727). 3 June 2005. 1460–1462.

30 Available at http://www.sidsnet.org/francais/latestarc/trade-newswire/frm00316.html

31 Revkin 2002 at p. 2.

32 Ibid.

33 Louafi and Tobin at p. 2.

34 Young at p. 289.


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