WIPO Journal - World Intellectual Property Organization

the domestic perspective. This additional deadweight loss is approximately equal to the proportionate
change in production times the value of production, multiplied by the fraction exported, k e, and divided
by the overall demand elasticity.
Following Alston, 47 the deadweight loss (DWL) from using a GI (by shifting demand at an ad valorem
rate of τ Q), in an open economy is:
(8)
Where dlnQ is the proportional change in quantity associated with the use of GI, η is the overall demand
elasticity, and ε is the overall supply elasticity. Given that the total expenditure of using a GI approximately
equals τ Q PQ, the deadweight loss as a share of the total expenditure is:
(9)
The Economic Effects of Geographical Indications on Developing Country Producers 171
This calculation ignores the costs of compliance and enforcement and the marginal social opportunity
cost of government funds. Using the following values for parameters in equation (9) [ε=.01 for Darjeeling
tea, ε=.38 for Oolong tea, η=1, k e=.7 for Darjeeling tea, k e=.29 for Oolong tea, and τ Q=.1] gives a value
of 1 per cent for Darjeeling tea and 10 per cent for Oolong tea. 48
Conclusions, policy implications and extensions
We have shown by case examples and in line with the theory that GIs can indeed benefit consumers and/or
producers of food products. The distribution of benefits is dependent on the relative elasticities with the
majority of benefits accruing to the least elastic element. These results, and the model for applying them
to other products, are important for policy planners concerned with whom benefits accrue to. The analysis
should be repeated for each current and planned GI, but patterns are evident. For products with narrowly
geographic scope, meaning limited opportunity for increased production (the Darjeeling tea case), benefits
will accrue largely to landowners. Policy planners may have to consider how much public funds to invest
in establishing a system benefiting already well-off groups with few benefits for other inputs, including
labour. The results do raise questions about the EU inference that primarily smallholders from developing
countries will benefit from using GI on agricultural products and foodstuff. In fact, the greatest benefits
are likely when production is tightly controlled, but then it is the relatively wealthy landowners who benefit
the most.
At the other extreme of a very large area GI production increases following any price rise would
redistribute benefits to consumers, many international. That would effectively export any public investment
in legislation, enforcement or promotion, but would lead to a higher level of domestic production, enhancing
non-land input markets, including labour. That is, employment would be transferred away from competitor
nations to the nations of the GI. Our model does not explicitly evaluate that outcome—it estimates shares,
not aggregates—but a trade model with a reduction in international competition could be used. Then there
are the examples of GIs for obscure products at least for international markets (for example, Kangra tea
47
Alston, “Benefits and Beneficiaries from U.S. Farm Policy” (2007), at http://www.aei.org/docLib/20070515_alstonSubsidiesfinal.pdf [Accessed
March 15, 2011].
48
κe for Oolong tea is the 12-year average of the percentage of Oolong tea exports: see Chinese Custom Yearbook (2007); Chinese Agricultural
Statistics Yearbook (2007). κe for Darjeeling tea is calculated based on 2007 data: see http://in.reuters.com/article/businessNews/idINIndia
-34037020080612?pageNumber=2&virtualBrandChannel=0 [Accessed March 28, 2011].
(2011) 2 W.I.P.O.J., Issue 2 © 2011 Thomson Reuters (Professional) UK Limited