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Summary
This paper examines the recent WTO decision
on TRIPS and health. A short background on
the decision is given followed by an analysis of
its implications and discussion of related
concerns. An illustrative example of how the
agreement may work in practice is also given.
The 30 August 2003 WTO decision
On 30 August 2003 the TRIPS Council of the
WTO reached a decision that seemingly brings
to an end a two-year standoff on access to
medicines in poor countries.
Several solutions had been proposed and
rejected at various stages during this time. In
December 2002, when it appeared consensus
on the issue was within reach, the USA alone
vetoed the proposed solution. The USA wanted
the agreement to a) specify countries that could
benefit from the proposed solution, b) limit the
scope of diseases that would be covered by the
solution, c) make provisions for an opt-out
clause that would allow developed and some
developing countries to state that they would
not resort to the use of the compulsory licence
solution and d) limit the use of the solution to
humanitarian crises or emergencies.
What does the decision offer?
Technically, the decision allows countries
lacking adequate pharmaceutical manufacturing
capacity to issue a compulsory licence and
import generic drugs from countries that do
have such capacity and have issued a
compulsory license themselves. The decision
reflects a compromise by the USA and its allies
(EU and Japan) in two key areas: a) there is no
restriction to emergencies or circumstances of
extreme urgency and b) there is no restriction to
a set of diseases or specific countries. The USA
did manage to retain the opt-out clause in the
final decision. Twenty-three developed
countries have used this clause to state that
they will not use the system set out in the
decision as importers, while some others
(largely developing countries) have stated they
will only use the system in national
emergencies or other circumstances of extreme
urgency.
Any interpretation of the decision and
implications needs to recognise that there are
currently 3 potential categories of generic
drugs; those whose patents have been
exhausted, those produced under compulsory
licence and those patented before patent laws
were enacted or made compliant with WTO
requirements. An example of the third category
would be all the generic HIV/AIDS drugs
produced in Brazil and India.
Key concerns on the decision:
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Although the role of generic drugs in
lowering the cost of medicines is
acknowledged, the decision ignores
competition as the very factor that
results in such price reductions. By
requiring that licences specify quantities
and that manufactured quantities must be
for specific markets where compulsory
licences must be issued, the decision limits
the number of potential actors in a
particular market, and therefore
competition. The small size of individual
markets would make any one market
unattractive for a firm to enter into
production of generic drugs for. The issue
of economies of scale is addressed in
paragraph 6 of the decision; but the solution
suggested places the onus on securing
such economies of scale on governments
using compulsory licences rather than
leaving the responsibility with the suppliers
of generic medicines.
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While generic drugs have the effect of
lowering prices, the majority of generic
drug manufacturers will have to await
the exhaustion of patents (unless granted
a compulsory licence) before they can
begin manufacturing such drugs and
yielding lower prices for consumers. This
will remain true for many drugs that are
currently on the market as well as any new
drugs.
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Drugs produced under compulsory
licence will not necessarily translate into
the lowest possible cost. The drugs
patented before the enactment of WTO
compliant national patent laws will be
subject to restrictions unless the necessary
compulsory licenses are issued. The
issuing of the licences will restrict the size
of the market for the drugs and require that
they be for public non-commercial use.
Thus, in the medium to long-term the
decision does not guarantee low prices,
especially for newer medicines.
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The decision places the onus to foster
technology transfer and capacity
building in the pharmaceutical sector on
importing and exporting countries.
Paragraph 7 of the decision reinforces the
need to facilitate technology transfer and
capacity building in the pharmaceutical
sector, though places no responsibility on
the WTO to foster the implementation of
this part of the agreement. This implies that
such capacity building will occur without a
defined plan and without WTO support.
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The lack of research and development
on diseases that primarily affect poor
countries is not addressed in any way.
While focusing on the ‘desirability of
promoting the transfer of technology and
capacity building’ the TRIPS Council makes
no specific reference to diseases that afflict
mainly poor countries. The current
provisions may, in the short-term, make
available in poor countries drugs that have
been developed to address health problems
that are shared in common with developed
countries.
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The decision places the management
and monitoring of the system with the
WTO. The WTO will now need to receive
information on intended use of compulsory
licences, with details on product type,
distinguishing features, quantities, and
licensees, amongst other information. This provision of the decision places a huge
administrative burden on the WTO that
hitherto, has dealt only with complaints
brought by individual members rather than
the administration of contracts.
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Many LDCs already lack capacity to
develop and implement legislation that
makes use of the flexibility allowed
under the TRIPS Agreement, and are
unlikely to be able to do so without
increased technical support. While this
constraint is recognised, the decision again
does not make a firm commitment to
provide such support, leaving the onus on
developing countries to negotiate with and
seek the support of developed countries.
This implies that enforcing the rules and
regulations of the system is seen to be
more important than ensuring that poor
countries can actually use it to address
public health concerns.
Illustrative example on how the TRIPS
Agreement will stand in the way of access to
new life-saving medicines:
Scenario
Company X develops a drug that can treat a
new strain of HIV found only in Southern Africa.
The drug is patented globally in 2003 with
patent protection until 2023. The company sells
it at US$3,600 for a year’s supply. The
government of country A lacks manufacturing
capacity and decides to issue a compulsory
licence for the manufacture of the drug, notifies
the WTO of its intention, and issues the
compulsory licence. At this point country A must
specify the product and its distinguishing
features, quantity and identify the licensee.
Problems that will be encountered:
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Difficulty in finding a generic manufacturer.
In the USA a generic manufacturer has to
wait five years after the registration of the
patent before they can access data, test
and begin registration of a generic version
of the drug. In the European Union,
following the extension of the data exclusivity period from 8 to 10 years, the
wait is longer.
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If a generic manufacturer can be found,
country A must ask country B to issue a
compulsory licence for the drug to be
produced on its territory. Country B must
specify the manufacturer, product quantities
and the destination for which the licence
has been issued.
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The generic manufacturer, who would like
to produce the drug after the data
exclusivity period ends, finds that investing
in the production of the drug is costly when
the market to be supplied is small.
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In the meantime, the patent holder also
lowers their prices to country A thereby
increasing the potential loss and risk for the
generic manufacturer.
Outcome:
Country A will find that the system is restrictive
for access to new drugs, thereby finding itself at
the mercy of monopolies held by patent
holders. Country A also finds the system
appeared to have worked in its favour initially,
as many of the drugs that were previously
supplied by generic manufacturers had been
patented before countries developed TRIPS
compliant legislation and today would require a
compulsory licence for a few producers to make
them. The alternative would be to await the
exhaustion of the patent for more suppliers to
emerge.
Concluding comment
The TRIPS Council decision does very little to
make affordable medicines available in poor
countries in the long-term. While acknowledging
the value of generic competition in lowering
drug prices, the TRIPS Council decision does
little to foster such competition. Fostering
competition would require a large number of
suppliers as well as free entry and exit from the
market by such suppliers. Such conditions will
in effect only exist upon the expiration of a
patent. Newer medicines will remain
unaffordable and again people from poor countries will be excluded from the benefits of
scientific progress.
The HIV/AIDS epidemic has created a
potentially large market in poor countries, but
the economic potential of this market is
constrained by the inability of people in such
countries to pay for the medicines they need.
The TRIPS Agreement provides extended
protection only to rich governments and
pharmaceutical giants. Any concessions given
serve only to open up small fractions of the
market and moreover, only the least-lucrative
sections of the market, thereby ensuring new
competitors do not pose any real threats.
Developed countries will, under the provisions
of the TRIPS Agreement, be able to effectively
keep out competition from generic drugs made
by developing countries. The right to health
continues to play second fiddle to commercial
interests.
The TRIPS Council decision of 30 August 2003
will be reviewed next year when the WTO
TRIPS Agreement is amended. ActionAid
believes that there is a need to continue
advocating for a more viable and workable
solution, as the 30 August 2003 decision will
likely prove inadequate in ensuring that
medicines reach those most in need in poor
countries. For recommendations on the
development of such a solution, please see
ActionAid’s discussion paper Access to
Medicines: Ensuring People’s Rights.
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