AFRO-NETS> TWN Cancun Briefing 4 on TRIPS/Health

[Beverley Snell <bev@burnet.edu.au>]

TWN Cancun Briefing 4 on TRIPS/Health
-------------------------------------
 
The Third World Network (TWN) has provided a good explanation of 
the 'new deal' on TRIPS and essential drugs. It is a bit long but 
is clear. [cross-posted from TWN by Beverley Snell]
 
TWN Info Service on WTO Issues (Sept03/5) 10 Sept 2003 
Third World Network <http://www.twnside.org.sg>
 
TWN Briefings 4 Third World Network for Cancun Visit 
<http://www.twnside.org.sg> for full series

 
THE NEW DEAL ON TRIPS AND DRUGS: WHAT DOES IT MEAN FOR ACCESS TO 
MEDICINES?
 
By Cecilia Oh
 
Background
 
In November 2001, when Trade Ministers in Doha agreed on a spe-
cial Declaration recognising the right of countries to take meas-
ures to protect public health and promote access to medicines, 
over and above the obligation to protect intellectual property 
rights, it was widely acclaimed. The Doha Declaration on the 
TRIPS Agreement and Public Health enshrined the principles of the 
primacy of protecting public health and in particular, promoting 
access to medicines for all, and that the interpretation and im-
plementation of the TRIPS Agreement would not prevent governments 
from taking such measures. It was declared a victory for develop-
ing countries and civil society organisations that had fought for 
this right to health. More importantly, it gave hope that devel-
oping countries would be able to take concrete steps to make 
cheaper versions of patented medicines available to the poor and 
sick in urgent need of them.
 
The Doha Declaration had confirmed, among others, the right of 
developing countries to use compulsory licences to override pat-
ents on medicines, in order to allow generic drug manufacturers 
to produce cheaper versions of patented medicines. The Ministers 
at Doha could not however, agree on how to solve the problem of 
how those developing countries without domestic pharmaceutical 
manufacturing capacity could effectively use the compulsory li-
cences. This became popularly known as the Paragraph 6 problem, 
named after that paragraph dealing with this issue in the Doha 
Declaration. The Declaration instructed WTO Members to find "an 
expeditious solution" to this problem by December 2002. On 16 De-
cember, the Chair of the TRIPS Council came up with a text con-
taining a proposed solution, which was accepted as a compromise 
by almost all Members except the US. The deadline was thus 
missed. Negotiations then stalled on the proposed solution, known 
as the December 16 text. Recently in Geneva on August 30, WTO 
Members finally adopted the December 16 text, together with an 
accompanying Statement by the Chair of the WTO General Council.
 
Ministers in Cancun will now welcome the "Decision on the Imple-
mentation of Paragraph 6 of the Doha Declaration on the TRIPS 
Agreement and Public Health". However, the reception to the Deci-
sion may be more muted than that which greeted the Doha Declara-
tion in 2001. Civil society organisations have expressed reserva-
tions that the Decision and the Chair's Statement represent a 
compromise that may have the potential of pushing back the gains 
made at Doha.
 
The Paragraph 6 problem
 
The TRIPS Agreement allows the grant of compulsory licences (CL) 
to override patents, so that generic manufacturers may produce 
their cheaper versions of patented drugs. Countries with insuffi-
cient or no domestic manufacturing capacity in pharmaceuticals 
are faced with a problem because there are no generic manufactur-
ers to produce the drugs domestically. An option for these coun-
tries is to grant a CL for the import of such drugs. However the 
supply of drugs for these countries to import may be limited and 
insufficient because of constraints placed by the TRIPS Agreement 
on the countries that have the capacity to produce and export the 
generic versions. The reason is that the TRIPS Agreement (Article 
31(f)) requires that the production of generic drugs under a CL 
is "predominantly for the supply of the domestic market". This 
restriction would mean that exports of drugs produced under a 
compulsory licence is only possible only if the "predominant" 
portion of the production output has been supplied to the domes-
tic market. This raises the concern that the non-predominant por-
tion may not be sufficient for the needs of the importing country 
or countries.
 
The agreed "solution"
 
The "solution" is essentially a waiver of the Article 31(f) limi-
tation on exports, which lifts the requirement of Article 31(f) 
that pharmaceutical products produced under a CL shall be "pre-
dominantly for the supply of the domestic market". With this 
waiver in force, it means that a predominant portion or even the 
total amount of production under a CL could be exported to a 
country wishes to import.
 
WTO Members also agreed to an accompanying statement by the Gen-
eral Council Chair which spells out a number of "key shared un-
derstandings" of how the Decision would be interpreted and imple-
mented. The Chair's Statement is widely known to be the US' at-
tempt to seek "comfort language" that would assuage concerns of 
its powerful pharmaceutical lobby that the Decision would allow 
generic manufacturers to gain a stronger foothold in the profit-
able pharmaceutical market. The US had, in mid-August 2003, come 
up with its proposal for a Chair's statement that would enable 
them to agree to the December 16 text -- 8 months after the US 
stalled negotiations by withholding consensus after (almost) all 
WTO Members had agreed to it in December 2002.
 
After hurried consultations in the few weeks before the end of 
August, Members agreed to the final version of the Chair's State-
ment. The Statement confirms the common understanding of Members 
that the Decision should be used in good faith to protect public 
health purposes, and not for industrial or commercial policy ob-
jectives. It also emphasises the need to prevent diversion of 
medicines from the markets for which they are intended -- elabo-
rating on the trade diversion prevention measures that are re-
quired to be taken by countries using the Decision.
 
Will it work? And how?
 
The objective of the Decision is to allow for countries wishing 
to import generic medicines to do so from a foreign generic pro-
ducer. Where a patent is in force in the importing country on the 
drug in question, the importing country government will have to 
issue a CL to enable the import of the generic version of the 
patented drug. In the exporting country, the patent status of the 
drug is also relevant -- if a patent is in force, then the ge-
neric manufacturer would have to obtain a CL to produce the drug 
and export it.
 
In countries where there is no patent in force --for example, 
least-developed country (LDCs) Members need not allow for drug 
patents until 2016 - the importing country need not issue a CL. 
Similarly, in the exporting country where there is no patent in 
force, the production and export can take place without issue of 
a CL. However, there are very few countries in this situation --
India, being a notable exception until 2005, when all countries 
will have to provide full patent protection. This is the reason 
why it was of crucial importance that a solution to Paragraph 6 
was found quickly.
 
Therefore, in many cases, two CLs will have to be issued. Under 
the TRIPS Agreement and confirmed by the Doha Declaration, WTO 
Members have the right to determine the grounds for the grant 
compulsory licences. The standard procedural conditions for the 
grant of CL are set out in the TRIPS Agreement (Article 31), 
which includes the conditions that an application for a CL should 
be preceded by a failed attempt to obtain a voluntary licence 
from the patent holder and the payment of compensation to the 
patent holder. The Decision now modifies some of these require-
ments and sets out another set of procedures to be complied with, 
when the waiver of Article 31(f) is required to allow for generic 
medicines made in one country to be exported to another.
 
A compulsory licence to import
 
So, when a developing country wishes to import generic medicines 
(and the said medicine is under patent protection in the coun-
try), the importing country will have to do the following:
 
(a) Notify the WTO of its intention to use the solution as an im-
porter (LDCs are not required to notify); the names and expected 
quantities of product(s) needed; its confirmation that it as es-
tablished that it has insufficient or no manufacturing capacity 
(see (b) below); and its grant or intention to grant a CL. 
 
(b) Establish insufficient or no manufacturing capacity: LDCs are 
automatically eligible, while other developing countries have to 
qualify to use the solution. Developing countries have to estab-
lish either that: 1) they have no manufacturing capacity in the 
pharmaceutical sector; or 2) the capacity is currently insuffi-
cient for the purpose of meeting its needs. The Decision suggests 
that countries make this determination themselves; i.e., it is a 
self-determination test. Developed countries have "opted out" of 
using the solution and 11 high-income developing countries say 
they will only use it in times of emergency, as will the 10 coun-
tries EU accession countries. On joining the EU, these countries 
will not use the solution at all. 
 
(c) Take measures against trade diversion All importing countries 
will have to take "reasonable measures within their means" to 
prevent re-exportation, as "proportionate to their administrative 
capacities and to the risk of trade diversion". This appears to 
be an obligation but it is unclear what the consequences of non-
compliance or insufficient compliance will be.
 
A compulsory licence to produce and export
 
The importing country will need to locate a generic manufacturer 
that is willing and able to supply the medicines required. The 
generic manufacturer will require a CL if the medicine is under 
patent protection on its country. In theory, any country may 
grant a CL to its domestic generic manufacturer to produce and 
export to the importing country. It can be expected however, that 
developed country governments, such as the US, Canada and the EU, 
will not be granting CLs to their generic manufacturers, given 
the pressure of their pharmaceutical lobby.
 
When a government decides to grant a CL, it must notify the WTO 
of grant of CL and its conditions, including the name and address 
of generic manufacturer, the product, the importing countries and 
the duration of the CL, as well as, address of website on which 
information regarding product has been posted.
 
The CL must also be subject to the following conditions: 1) it is 
only for the amount required by the importing Member and must be 
exported in total to the importing country; 2) the products pro-
duced under CL must be clearly identifiable through labeling or 
marking (e.g., special packaging, colouring or marking); and 3) 
the generic manufacturer is obliged, prior to shipment, to post 
on the website information on the quantities supplied to each im-
porting country and the distinguishing features of product.
 
Procedural deterrents and the Chair's statement 
 
These terms and conditions in the Decision are viewed with con-
cern, in that they will be too burdensome and thus, act as a dis-
incentive or a barrier against the use of the Decision. This is 
particularly true of the obligations placed on exporting coun-
tries and the generic producers. A generic manufacturer would 
have to be convinced that it would be worth his while (and be 
economically viable) to apply for a CL - especially where he 
would also have to satisfy the conditions of having had unsuc-
cessful negotiations with the patent holder for a voluntary li-
cence and pay the compensation amount).
 
If granted a CL, the generic manufacturer may go ahead to produce 
but be subject to the conditions of the CL as stated above. It 
would appear that the requirements have to be fulfilled anew for 
each batch of medicines produced under a CL, and for each and 
every country to which the drug will be exported. There may also 
be other product registration and drug safety (such as proof of 
bio-equivalence of the generic product) requirements that may 
have to be satisfied. For these reasons, there are serious con-
cerns that these conditions may deter a generic manufacturer, in 
terms of the cost implications, as well as the bureaucratic red 
tape.
 
For prices to be lowered to levels affordable to the majority of 
the developing country populations, it would make sense to en-
courage competition between as many generic manufacturers as pos-
sible. Competition from the introduction of generics would also 
bring down prices of patented medicines - and this has been dem-
onstrated in many studies. However, the generic manufacturers 
would have to be able to achieve economies of scale or cost effi-
ciencies to remain viable. And this would be dependent on large 
production runs - large enough orders - to stay in business. The 
trade diversion prevention measures - in requiring each batch of 
medicines to be manufactured in different shapes or colours - may 
prevent this from happening.
 
Added to these several conditions in the Decision (or the Decem-
ber 16 text) is now another set of conditions contained in the 
accompanying Chair's Statement. That Statement, with its "under-
standings", adds to the deterrent effect that hinders or prevents 
countries from actually making use of the "solution." The Chair's 
Statement has been criticised by civil society organisations as 
yet another attempt by the US to restrict or limit the effective-
ness of an already less-than-perfect solution to the Paragraph 6 
problem. Among the potential problems of the Chair's Statement 
are the following:
 
(a) The reference to the Decision not being used for "industrial 
or commercial policy objectives" would at worst prevent the use 
of the Decision if it were to result in a expansion of the ge-
neric drugs industry or if the generic manufacturers were to make 
any profit. At best, it adds a layer of uncertainty in terms of 
how the Decision could be used. 
 
(b) The Statement also seems to suggest that generic manufactur-
ers producing for export under the Decision will now have to com-
ply with the requirement for special packaging and/or special 
colouring or shaping, regardless of its impact on the price of 
the product. This essentially is a re-writing of the December 16 
text, which had stated that this requirement need not be satis-
fied unless it was feasible and would not have a significant im-
pact on price. 
 
(c) The Chair's Statement also establishes a right and mechanism 
for Members to challenge the validity of another Member's use of 
the system in the draft decision. Whilst it is not clear what the 
legal implications are, it is feared that these elements would 
have a "chill effect" on countries in their use of the Decision.
 
The Chair's Statement would seem to be the last (and successful) 
in the series of attempts to restrict the use and effectiveness 
of the solution. In the early stages of negotiations on Paragraph 
6, the US had sought to put limits on the scope of diseases to 
covered under any solution for Paragraph 6. When this was re-
jected, an attempt was made to restrict the circumstances in 
which the solution may be used. Developing countries also re-
jected the proposal for a Chairman's understanding that the solu-
tion be used only in circumstances of national emergency or ex-
treme urgency. Then, there was the attempt to pressure some coun-
tries against using the solution, questioning their eligibility. 
It had been reported that a number of developing countries have 
been informed by the US that they are considered ineligible, even 
though the December 16 text had clearly made eligibility a matter 
of national decision.
 
Put it to the test
 
It now remains to be seen whether or not developing countries 
will make use of the solution, and if it will in fact, make ac-
cess to affordable medicines a reality. The Decision will have to 
be tested as to whether countries will try to use it, and whether 
it can be used successfully.
 
This means that developing country governments will have to issue 
the necessary compulsory licenses for the import of generic medi-
cines. Generic manufacturers in other countries will have to re-
spond to this call by making applications for compulsory licences 
to produce and export. In some cases, where product patent pro-
tection is not yet in force, such as in India, generic manufac-
turers may produce and export without the need for compulsory li-
cences until 2005. In the cases where compulsory licences are re-
quired, governments will have to issue compulsory licences for 
production and export by their generic manufacturers to produce 
and export. Developed country governments can prove their good 
faith by granting compulsory licences for export when requested 
by their generic manufacturers.
 
The Decision also confirms that it does not prejudice the exist-
ing rights and flexibilities available under the TRIPS Agreement, 
including the extent to which pharmaceutical products produced 
under compulsory licence can be exported under the present provi-
sions of Art 31(f). The TRIPS Agreement currently allows export 
of the non-predominant portion of production under CL (theoreti-
cally, anything up to 49% of production) without these additional 
conditions. Where a CL for remedying anti-competitive practices 
is granted, the total production output (i.e., 100%) can be ex-
ported, without any of the additional conditions specified in the 
Decision. Therefore, it would appear that where a Member seeks to 
export under these circumstances, it need not meet any of the 
terms and conditions specified under the Decision. WTO Members 
should therefore explore the means of using these rights and 
flexibilities as an alternative or in conjunction with the Deci-
sion.
 
The Decision represents only one aspect of the broad framework 
that the Doha Declaration provides to safeguard against unafford-
able prices for much-needed medicines. The Doha Declaration af-
firms the right of WTO Members to employ other measures to fa-
cilitate the protection of public health and promote access to 
medicines. The implementation of these measures in developing 
countries is far from complete. Therefore, countries should take 
urgent measures to adopt and adapt their national patent laws, so 
as to make full use of the flexibilities in the TRIPS Agreement, 
as affirmed by the Doha Declaration. This includes not only the 
adoption of rules and guidelines to facilitate the grant of com-
pulsory licences on public health grounds, but also to provide 
for the appropriate institutional and administrative framework 
that is necessary for the effective implementation of public-
health-sensitive patent laws. There are also other TRIPS-
consistent measures, including the use parallel imports, govern-
ment use provisions and exceptions to patent rights that may be 
used to mitigate the effects of pharmaceutical patents, and the 
use of these measures should be properly explored by developing 
countries as alternatives.
 
The Doha Declaration also granted the right to not provide for 
pharmaceutical patents to least-developed WTO Members (LDCs) un-
til 2016. Therefore, these countries should be cautioned against 
enforcing or providing for patents on pharmaceutical products un-
til 2016 at the earliest. LDCs should use this flexibility to en-
able them to structure their patent laws and data protection 
rules, so as to better protect public health and promote access 
to affordable medicines.
 
The negotiations leading up to the Doha Declaration and the re-
cent Decision, have highlighted the effects of patents on the 
prices of, and access to, medicines. The implications of the 
TRIPS Agreement on public health and access to medicines are now 
better understood. International public opinion will have to be 
the judge of whether the declarations and decisions in the WTO 
have had a real impact on improving people's access to affordable 
medicines. If it is judged that these have not been effective, it 
may be that pressures will then begin for more far-reaching 
changes.
 
--
Beverley Snell 
Centre for International Health 
Macfarlane Burnet Institute for Medical Research & Public Health 
GPO Box 2284
Melbourne 3001 Australia
Tel: +61-3-9282-2115 / 9282-2275
Fax: +61-3-9282-2144 or 9282-2100
mailto:bev@burnet.edu.au

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