The United States is likely to impose economic sanctions against India that may include withdrawal of duty-free benefits or imposition of penal duties, in an extended trade row over India's intellectual property (IP) regime.
In its annual Special 301 Report, expected to be released by the month-end, the office of the US Trade Representative is seeking effective measures by trading partners to protect the IP rights of the US pharmaceutical companies.
Washington is seeking changes to India's IP regime in tune with the requirements of the US pharmaceutical lobby and may withdraw duty-free benefits, impose penalties, forcing India to move the World Trade Organisation (WTO) against any possible US move.
India's commerce ministry on the other hand, argues that the country's intellectual property laws are in conformity with the WTO rules and is studying the possible impact on trade with the US if Washington goes ahead with its action.
According to the commerce ministry, the USTR threat of placing India under the category of 'priority foreign country' is unjustified as it is reserved for very serious intellectual property law offenders.
India's IP regime is in accordance with the WTO requirements, the ministry points out. India had amended its patent laws in 2005 to bring them in line with the Trade Related Intellectual Property Rights of the World Trade Organisation.
Ukraine is the only country on the 'priority foreign country' list at the moment and the commerce ministry is weighing options available under the dispute settlement undertaking of the WTO, in case India gets categorised as a 'priority foreign country.'
The US is one of India's largest export destinations and it is important for the country to estimate the impact of possible US sanctions on its trade.
Cabinet secretary Ajit Seth has called a meeting of senior officials of the concerned ministries and departments, including commerce, industry and pharmaceuticals, to discuss the sanctions threat.
US drug majors are upset with section 3 (d) of the country's patent law, which refuses to grant patents for incremental innovations.
With patents on most block-buster drugs of drug majors expiring in 2014, pharmaceutical companies are expected to take a hit of over $40 billion in revenues this year and $50 billion the next year.
US drug major are also annoyed at New Delhi's decision to grant compulsory licence to Indian companies for the manufacture of a copied version of Bayer's cancer medicine, Nexavar.