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The Wto Medicines Decision: World Pharmaceutical Trade and the Protection of Public Health

Posted on: Sunday, 24 July 2005, 03:01 CDT

On November 14, 2001, the Ministerial Conference of the World Trade Organization, meeting in Doha, Qatar, adopted the Declaration on the TRIPS Agreement and Public Health (Doha Declaration).1 The declaration affirms that the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights "can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all," and it reaffirms that the Agreement "provide[s] flexibility for this purpose."2 The Doha Declaration mandated further negotiations on one important subject, providing in its paragraph 6: "We recognize that WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem . . . ."

Nearly two years later, on August 30, 2003, the WTO General Council adopted the Decision on Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health (Decision).3 The leadership of the WTO hailed the Decision as evidence that the organization could deal effectively with important issues of social concern.4 However, the reaction among a broad cross- section of stakeholders was more tempered.5 Nongovernmental organizations (NGOs) concerned about access to medicines were disappointed by the complexity of the arrangement, arguing that it would be unworkable in practice.6 Similar misgivings were expressed by developing country producers of generic pharmaceuticals.7 Spokespersons for the group of pharmaceutical companies that engage in substantial research and development (commonly known as Pharma) said they welcomed the Decision as finally resolving an open issue, but these companies later lobbied actively in Canada to restrict implementing legislation.8 The developing countries that had led the negotiations expressed satisfaction with the result,9 but others harbored doubts.10 The United States accepted the Decision as a problematic compromise, but has since sought to limit its scope of application.11

What is it about the Decision that provoked such a broad range of reactions? Specifically, what were the policies of the interested parties that succeeded in giving the Decision its final shape and what is the meaning of the interplay between them? In exploring these questions, this article pursues two principal lines of inquiry. First, it analyzes developing country negotiating strategy regarding the Decision in light of the result achieved and draws lessons from that experience. Second, it places the Decision in the context of the trend in U.S. trade policy toward the use of bilateral and regional arrangements to correct what the United States perceives as specific deficiencies in WTO rules, with particular reference to the TRIPS Agreement. The article considers this trend from the standpoint of developing countries, which have substantially increased their negotiating effectiveness in Geneva but have yet to come to grips with the U.S. forum-shifting strategy. The success of this strategy to date suggests that economic and political power remains a key factor in determining the outcome of trade negotiations-a fact that should not come as a great surprise- and that the United States may be more effective in exerting its power in bilateral or limited multilateral settings than at the global multilateral level. Drawing in substantial part on an analysis of negotiating strategies at the WTO, the article considers ways that developing countries might address U.S. efforts to restrict flexibilities regarding TRIPS and public health in bilateral and regional settings.

Clearly, the Decision adopted by the WTO is not a solution to the HIV/AIDS pandemic or the myriad other public health problems confronting developing (and developed) countries.12 The global response to HIV/AIDS remains a continuing catastrophe and, more generally, billions continue to live with inadequate health care. Nonetheless, the Decision constitutes one helpful piece of a much larger public health puzzle.

I. THE PROBLEM ADDRESSED BY THE DECISION

To understand how the Decision was supposed to achieve the objective of paragraph 6 of the Doha Declaration-to enable countries lacking manufacturing capacity in pharmaceuticals to make effective use of compulsory licensing-one must first examine the nature of the problem.

The TRIPS Agreement Text

Article 31 of the TRIPS Agreement permits all WTO members to grant compulsory patent licenses, that is, licenses to another producer to make the patented product without the patent holder's consent.13 The article does not limit the grounds on which such licenses may be issued,14 but it does impose certain obligations of a substantive and procedural nature. On the substantive side, Article 31 requires that the patent holder be paid adequate remuneration in the circumstances of the case and that licenses be "non-exclusive." License applications are to be considered on their individual merits.15 On the procedural side, an ordinary commercial track requires that the applicant first seek a voluntary license from the patent holder on reasonable terms and conditions.16 Under a separate "fast track," the precondition of prior negotiations may be waived (for national emergency, other circumstances of extreme urgency, or public noncommercial use).17 Licenses are subject to termination when the conditions giving rise to the grant are no longer present.18

Article 31(f) provides that licenses should be issued "predominantly for the supply of the domestic market" of the member granting them.19 Thus, a country with manufacturing capacity for a pharmaceutical product can issue a license for its local manufacture and supply all of the country's internal needs, and it can also authorize export of a "non-predominant" part of the production. A member may also issue a license for the importation of a product to meet all of its domestic needs.20 The Article 31(f) restriction on exports does not apply when a compulsory license is issued to remedy an anticompetitive practice.21

A government may issue a compulsory license on a pharmaceutical patent to remedy a problem associated with pricing or availability.22 It can authorize a domestic producer to make the medicine, assuming that there is a domestic producer with that capacity. Such producers may be found in the United States, Germany, India, Brazil, and China, or in other pharmaceutical-producing countries, but not in most countries.23 Additionally, if "generic" off-patent supplies of the product are available abroad, a country may authorize the importation of the product without the consent of the domestic patent holder. But prospective users of compulsory licensing face problems if (1) there is insufficient or no domestic manufacturing capacity for the product, and (2) the product is on patent in potential exporting countries and exports from these countries under compulsory licenses are limited by Article 31(f).

The Practical Implications

Until January 1, 2005, the restriction imposed by Article 31(f) of the TRIPS Agreement was not likely to present a practical problem because India, a thriving generic drug manufacturer and exporter, would not be providing patent protection for pharmaceutical products before that date.24 India had successfully developed its generic drug industry partly because it had not provided patent protection for the products of the Pharma companies under patent elsewhere.25 If a developing country in Africa, for example, wanted to grant a compulsory license to import a low-priced generic version of an antiretroviral medicine (ARV) to treat HIV/AIDS, it could import the medicine from an Indian producer. However, India was obligated to introduce patent protection for pharmaceutical products as of January 1, 2005, when a ten-year transitional period under Article 65 of the TRIPS Agreement came to an end. In fact, it issued an executive ordinance to that effect in late December 2004.26

What are the consequences of the introduction of patent protection for pharmaceutical products in India? There are two. First, newly developed medicines (post-January 1, 2005) will be subject to patenting.27 If new ARVs are developed to address, for example, resistance to existing ARVs, these drugs will not be available in low-priced generic versions (i.e., from a person other than the patent holder/originator)28 unless India (or another country) issues compulsory licenses.29 As long-term ARV treatment is provided, resistance to at least some regimens will emerge and new medicines will be needed. Second, India will process the patent applications that have collected in its "mailbox" since January 1, 1995.30 The drugs that are the subject of "approved" mailbox applications will be patented for the remainder of the twenty-year term from the filing of their mailbox application.31 This two-fold nature of the end of the transitional period should be borne in mind. After January 1, 2005, "new" medicines had to be offered patent protection \in all developed and developing (though not least- developed)32 countries and "old" medicines sitting in India's mailbox could be patented.

A large number of applications regarding pharmaceutical products collected in India's mailbox from January 1, 1995, through December 31, 2004.33 When this article was completed, the precise contents and potential effect of these applications had not yet been determined (and India had not yet formally codified amendments to its patent legislation). The large number of applications suggested that many older established medicines would come under patent, which may present an immediate problem because it would restrict the world supply of generic medicines. However, at least with respect to HIV/ AIDS treatment, most of the first-line ARV regimens used around the world are based on medicines patented before January 1, 1995.34 Consequently, India's existing supply of generic ARVs may not be substantially affected by mailbox applications. Yet this is not a foregone conclusion, as pharmaceutical research companies typically file multiple patents on medicines and they can reasonably be assumed to have done so in India. They may patent formulations that represent improvements on patents first granted on "new chemical entities," and they may patent combinations of previously known compounds.35 Not uncommonly, patents on formulations and combinations are controversial, and the Indian controller of patents may take a different view of the validity of subject matter claimed in certain applications from that of the U.S. Patent and Trademark Office or the European Patent Office.36 There is some indication that Indian generic producers and Pharma companies have different expectations regarding the extent to which patents will be granted on mailbox applications.37

For these reasons, one cannot precisely foretell the extent to which countries importing generic ARVs from India after the 2005 transition will face problems resulting from the granting of mailbox- based patents. It seems likely that some (if not most) existing first-line treatments, at least in noncombination form, will remain available off patent. The terms of India's new patent legislation will be critical to determining other effects. The potential for ongoing production of generic ARVs in India was one subject matter the paragraph 6 negotiations were attempting to address. Nevertheless, no matter exactly how much the end of the transitional period affects current generic production of ARVs in India, dealing with that situation was only one objective of the negotiations.

Other countries with manufacturing capacity in the pharmaceutical sector, including developing countries such as Argentina, Brazil, and China, may choose to offer supplies of medicines under compulsory license to countries with public health needs, and in these countries the relevant patent protection has been in force for some time.38 South Africa, among others, may elect to increase its local manufacturing of medicines.39 As it turned out, the first countries to implement the Decision were developed countries-Canada and Norway.40

In addition, while the medicines controversy at the WTO arose out of events surrounding the HIV/AIDS pandemic, the problem of the supply of lower-priced "new" generic medicines is not limited to HIV/ AIDS.41 Most of the medicines on the "essential medicines list" of the World Health Organization are not under patent-though ARVs most notably are42-and for a range of medical conditions affecting the poor in developing countries, patent protection is not the principal obstacle to treatment.43 On the other hand, individuals in developing countries are by no means afflicted only by a limited range of "diseases of the poor" (such as malaria and tuberculosis).44 The statistical tables prepared by the WHO indicate that cardiovascular disease, cancer, diabetes,45 and respiratory disease (including asthma) are major causes of morbidity and mortality in developing countries,46 and newer, more effective treatments for these conditions are often patented and will be patented in the future.47 One of the principal issues addressed in the negotiations was whether the solution should be a short-term means to deal with an immediate public health crisis, or whether it should provide a long-term mechanism for dealing with a broad range of present and future (and possibly unforeseeable) public health problems requiring pharmaceutical intervention. In considering this issue, the broad scope of the change that took place on January 1, 2005, must not be overlooked. The mandatory requirement of patent protection for pharmaceutical products is not directed to a narrow range or class of medicines. It will affect the world pharmaceuticals market generally and reshape the economy of supply.

New public health challenges requiring low-cost access to newer medicines are almost certain to arise.48 The SARS outbreak gave notice that the TRIPS Agreement should provide the flexibility for responding to such challenges without the need for multiyear negotiations at the WTO.

Broadly Shared Interests

As a general proposition, developing countries at the WTO shared strong interests in the subject matter of the Decision despite substantial differences in their economic circumstances and immediate public health needs. Pharmaceutical companies based in a handful of industrialized countries own or control the vast preponderance of pharmaceutical patents.49 Because of the concentrated structure of the industry, this situation is likely to persist for some time. India, China, and other developing countries will increasingly compete in the development and introduction of new patented medicines, but this will not necessarily make matters better for other developing countries. Instead, it may mean that patterns of "country concentration" will shift. Developing countries on the whole have shared interests in assuring that there will be alternative production of medicines not under the control of patent holders and that they will have access to newer products, wherever produced.

Developed countries at the WTO also shared interests, but a disparity separated the stakeholders. The major patent-holding pharmaceutical companies are concentrated in a few countries, including the United States, Great Britain, Germany, Japan, and Switzerland.50 These countries earn substantial rents from the exploitation of pharmaceutical patents.51 The pursuit of patent rents, among other things, promotes future research and development. The United States is home to the largest concentration of pharmaceutical patent holders and generates the most revenue from this sector. It was not surprising that the United States was the leading advocate of patent holder interests, or that Britain, Germany, Japan, and Switzerland generally supported it.

Some developed countries, however, also expressed substantial interest in access to lower-priced patented medicines. For developed countries that are not the base of the major Pharma companies, the incentives to support the United States and similarly situated countries were not so compelling. That is, consumer interests strongly offset producer interests.52 Members of the European Union struggled to form common positions on the Decision, as Britain and Germany made different demands from those of the Netherlands,53 and government agencies with responsibility in different policy areas advocated divergent approaches.54 As a result of this internal competition, the European Union took a less aggressive position in support of patent holders than the United States.55

Impact on Pharmaceutical Development

Estimating the potential impact of the Decision would be facilitated by objectively assessing the validity of claims that incremental declines in future patent rents from developing countries would undermine Pharma's mission to develop new medicines.56 Such an assessment is difficult.

From the standpoint of developing countries, the value of increasing patent rent payments to Pharma companies can be questioned on several grounds.57 Until now, these companies have not relied on developing countries' patent rents for their research budgets.58 There is reason to doubt that the Pharma companies are underfunded from lack of patent rents from those countries. In addition, developing countries have little voice in the direction of Pharma research, which tends to focus on diseases prevalent in the developed countries.59 Pharma companies spend about 15 percent of their revenues on research and development, but a much larger portion of expenditures goes to administration, advertising, and promotion, which are also covered by patent rents.60 In effect, higher prices for medicines in developing countries will be used to finance advertising campaigns in the member countries of the Organisation for Economic Cooperation and Development (OECD). Of some importance in this context, new drug pipelines have been fairly fallow in recent years.61 At the same time, patent protection almost certainly results in higher prices for new medicines. All other things being equal, higher prices will impose burdens on public health budgets in developing countries.62

From the Pharma home-country standpoint, incremental patent revenues are used for research that results in new medicines. Stronger patent protection in developing countries will increase total research and development.63 No one denies that new medicines are necessary. The Pharma companies consider themselves the best suited to develop them. Moreover, the price of newer patented medicines is only one factor in the total health care package of developing countries, and new treatments may help to reduce nonpharmaceutical costs and perhaps overall health care costs.64 Action that would reduce patent revenues to Pharma would have the negative effect of reducing the pool of funds for research and development, and \inhibiting the development of new medicines that benefit all countries and individuals.

This article cannot resolve the debate about the role of patents in pharmaceutical development and pricing. Because of limitations associated with objective analysis, any judgment concerning the prospective impact of the Decision, including alternative approaches, will necessarily be subjective. It must take into account a wide array of factors, including a substantial number of unknowables.65 To this author, it seems unlikely that providing a mechanism by which developing countries could secure alternative, lower-priced sources of supply would materially affect the Pharma research mission. The negotiations on the Decision were not directed to the question whether developing countries should provide patent protection for pharmaceutical products. To the contrary, since January 1, 2005, all developing countries have been obligated to provide such protection. The patent pendulum is shifting in a major way m favor of Pharma interests. The question, instead, was whether a safeguard mechanism that allows countries to ameliorate the potential adverse effects of patents would be improved to take account of the interests of countries without adequate manufacturing capacity.

Compulsory licensing of patents has been a feature of the international patent system virtually since its inception.66 The availability of this safeguard has not undermined the system. For a decision directed to one element of that system to have such an impact would require a substantial break from past experience. To repeat: the subject matter of the negotiations on the Decision was not whether governments may issue compulsory licenses with respect to pharmaceutical products. Under Article 31 of the TRIPS Agreement, any country, whether developed or developing, can issue such licenses. These negotiations were limited to one aspect of compulsory licensing, the extent to which supplies could be made available to countries without manufacturing capacity.

II. THE NEGOTIATIONS

The problem posed by Article 31(f) of the TRIPS Agreement regarding the domestic market was recognized by developing countries and NGOs well before the 2001 ministerial meeting, and a proposal to address it was incorporated in a draft for the Doha Declaration prepared by the developing countries.67 However, while the United States and the European Union were willing to accommodate most of the developing countries' demands at Doha, they were not prepared to accept those countries' proposals to resolve the Article 31(f) problem.68 Instead, as noted above, the issue was put over for further negotiations under paragraph 6 of the Doha Declaration.

Paragraph 6 of the declaration directed the TRIPS Council to recommend a solution to the WTO General Council before the end of December 2002. The negotiations essentially proceeded in two sets. The first resulted in the text of December 16, 2002 (commonly referred to as the "Motta" text for Ambassador Eduardo Prez Motta of Mexico, who chaired the TRIPS Council during its negotiation).69 The United States blocked a consensus at the meeting of the TRIPS Council convened on December 20, 2002, to consider approval of the Motta text.70 The second set of negotiations, chaired by Ambassador Vanu Gopala Menon of Singapore, who succeeded Ambassador Prez Motta, resulted in the formulation of a statement that was to be read by the chairperson of the General Council prior to the formal adoption of the Decision.71

On August 28, 2003, the TRIPS Council approved the Motta text by consensus with instructions to forward it to the General Council for adoption, together with the text of the statement to be read prior to its adoption.72 On August 30, the General Council met in formal session. The chair of the TRIPS Council made a recommendation to the chair of the General Council.73 Members that wished to do so were given the opportunity to make statements regarding opting out of the system as importing countries.74 The chair of the General Council then read his statement and proposed the adoption of the Decision.75 The General Council, performing the functions of the Ministerial Conference in the interval between meetings, adopted the Decision by consensus.76 Various delegations then made statements to the General Council.77

When the General Council adopted the Decision, the Cancn Ministerial Conference was approaching (in September 2003). There had been considerable concern at the top level of the WTO Secretariat, as well as among the member countries, that if the public health issue was not resolved beforehand, it would overshadow all the other work there. Developing as well as developed countries had interests in items on the Cancn agenda. Developing countries, for example, were seeking major concessions in the field of agriculture. As a consequence, governmental quarters harbored little enthusiasm for a repeat of the Seattle Ministerial Conference, which ended in disarray resulting from inadequate advance preparation, combined with clashes between police and demonstrators. An agreement on public health would not ensure that the Doha Development Agenda would move forward in Cancn, but failure to reach an agreement on public health would virtually ensure a lack of progress on other matters.

Core Issues

This section focuses on three sets of issues that received preponderant attention in the negotiations: "scope of diseases," eligible countries, and the article(s) of the TRIPS Agreement that would be addressed by the solution. The so-called scope-of-diseases issue was the most contentious.

The "scope of diseases. " In paragraph 1 of the Doha Declaration, ministers "recognize the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics." The United States adopted as its preferred "limiting approach" to the negotiations the contention that paragraph 1 of the Doha Declaration limited the solution under paragraph 6 to identified diseases.78

Developing country delegations, however, agreed from the outset of the negotiations that the paragraph 6 solution should broadly cover their present and future public health needs.79 Their immediate and pressing concern was to address the HIV/AIDS pandemic, malaria, and tuberculosis, but it was also recognized that the potential problem of access to affordable medicines extended beyond a short list of enumerated diseases.80 From the standpoint of developing countries, this issue had been resolved at Doha by the adoption of a broadly framed declaration. To them, attempts to limit the solution to particular diseases therefore amounted to an effort to rewrite the Doha Declaration.81

The Doha Declaration refers to the protection of "public health," for example in paragraph 4, in the sense of the physical and mental well-being of individuals and groups. If developing countries were facing public health problems that required access to lower-priced medicines, it was not apparent why a distinction should be made between HIV/AIDS, on the one hand, and cancer, heart disease, diabetes, or asthma, on the other. NGOs rallied an impressive array of public health officials to criticize the approach of offering to help address only a few diseases.82 To counter the U.S. argument that developing countries such as India and Brazil intended to use the negotiations to promote the export of lifestyle drugs such as Viagra,83 developing country delegations and NGOs suggested the inclusion of negative lists to exclude such drugs, but these proposals were not taken up.

The common position of developing countries on this issue is reflected in the nonpaper on substantive and procedural elements that was presented to the TRIPS Council in early November by South Africa. This paper was supported by many developing countries.

4. Scope of diseases: Paragraph 1 of the Declaration does not in any manner qualify "public health" in paragraph 4; neither does it limit the scope of diseases that may be addressed when finding an expeditious solution to the problem referred to in paragraph 6. There must therefore be no a priori exclusions regarding diseases that may be addressed by importing and exporting Members or the products in the pharmaceutical sector used to address public health. It is neither practicable nor desirable to predict the pharmaceutical product needs of Members desiring to protect the public health by promoting access to medicines for all.84

From the standpoint of the United States and some other major Pharma home countries,85 the industrial policy reason for attempting to limit the solution to an enumerated list of diseases was to limit the number of patented technologies subject to compulsory licensing for export.86 The greater the number of patents that are subject to such licensing, the greater the risk that revenues will be eroded. From a health policy perspective, erosion of revenues reduces the pool of funds available for research and development of future medicines. The United States proposed distinguishing between infectious and noninfectious diseases. Presumably, an infectious disease would pose a greater risk of cross-border transmission and require more immediate attention. In addition to arguing that prospective exporting countries were angling to make inroads in the Viagra and diet drug markets,87 throughout the negotiations the United States made known its view that a scope-of-diseases limitation was inherent in paragraph 1, including by objecting to an explicit statement in the Decision that it was not limited to named diseases.88 The United States blocked approval of the Motta text and then declared a moratorium on dispute settlement actions that included a list of epidemic diseases that it believed should be covered by the Decision.89 Given the immediacy and scale of the HIV/ AI\DS pandemic and its impact on sub-Saharan Africa, the United States could (and did) claim that by holding out for a broader solution on the scope of diseases, other developing countries were undermining African interests. This argument put pressure on developing country negotiators to find an accommodation.

A major obstacle to the U.S. scope-of-diseases argument was posed by the text of the Doha Declaration itself. Paragraph 1 is a preambular statement in which WTO members "recognize" the significance of "public health problems" in developing and least- developed countries, and acknowledge that special problems result from certain medical conditions. In negotiating the declaration, the United States and a group of similarly minded countries had proposed that it be limited to addressing HIV/AIDS and other pandemics. This proposal was rejected by developing countries.90

The core of the Doha Declaration, paragraph 4, speaks broadly and does not refer to a list of diseases or conditions. After indicating agreement that members are not prevented from acting to protect public health by the TRIPS Agreement, paragraph 4 continues: "Accordingly, while reiterating our commitment to the TRIPS Agreement, [the ministers] affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all."

Paragraph 5(b) of the Doha Declaration recognizes that the TRIPS Agreement in no way limits the grounds on which members may issue compulsory licenses.91 Paragraph 5(c) recognizes that each member has the right to determine what constitutes a national emergency or circumstance of extreme urgency, and that HIV/AIDS, malaria, tuberculosis, and other epidemics could constitute such emergencies.92 Paragraph 7, which extends the transition period for least-developed countries, broadly refers to patent and data protection rules with respect to "pharmaceutical products"; nowhere in either the text or the subsequent implementing acts by the TRIPS Council and the General Council is it suggested that this provision is in any way restricted to pharmaceutical products used to treat a category of disease.

Paragraph 6 of the Doha Declaration, which formed the basis of the negotiations, refers broadly to "products of the pharmaceutical sector."93 No language in paragraph 6 implies or even suggests a scope-of-diseases limitation. The problem lies in capacity "in the pharmaceutical sector." The solution is to be directed "to this problem." If the drafters of paragraph 6 had intended to direct the TRIPS Council to find a solution to the problem of "AIDS medicines" or "epidemics" or "emergencies," it would have been a simple matter to use limiting language. The problem was instead in "making effective use of compulsory licensing" and, in paragraph 5(b) of the Doha Declaration, members affirmed that there are no limitations on the grounds for granting compulsory licenses.

In Chairman Prez Motta's initially distributed proposed elements of a solution, and in his first tendered draft of the definition of "pharmaceutical products," the words "public health problems referred to in paragraph 1" of the Doha Declaration were used.94 Developing countries objected to the "referred to in" language because it might imply that only specifically identified (i.e., referenced) diseases or conditions should be addressed by the solution. After repeated objections, the language was changed to the "public health problems as recognized in paragraph 1," a formulation that focuses on the acknowledgment of public health concerns without implying that only those problems "referred to" would be addressed.

The Motta text, which was later adopted as the Decision, resolved the scope-of-diseases issue in the definition of "pharmaceutical product" in paragraph 1(a). It provides:

"pharmaceutical product" means any patented product, or product manufactured through a patented process, of the pharmaceutical sector needed to address the public health problems as recognized in paragraph 1 of the Declaration. It is understood that active ingredients necessary for its manufacture and diagnostic kits needed for its use would be included.

The United States rejected the text of December 16, 2002, because it would not accept the consensus reached by other members on scope of diseases.95 The grounds were reflected in the minutes of the TRIPS Council.96 In January and February 2003, several proposals were floated to resolve the scope-of-diseases impasse between the United States and other WTO members.97 In January the European Union suggested a mechanism that would set out a presumptive list of diseases addressed by the Decision, and would involve the WHO in determining whether a public health need was present in other cases. Although the European Union argued that its proposal was not intended to limit the scope of diseases, it was difficult to understand how shifting the burden to users to establish their right to use the solution would not act as a restriction. In any event, developing countries and the United States evinced no enthusiasm for the proposal, and it did not move forward.98 Other proposals were floated in connection with a Tokyo miniministerial meeting in February 2003.99 USTR Robert Zoellick indicated at that meeting that the United States might be willing to concede on the scope of diseases if the solution were limited to Africa.100 After the Tokyo meeting, the Pharma companies floated suggestions along the lines proposed by the USTR in Tokyo, that the scope of diseases might not be limited if the list of eligible importing countries was restricted.101

The common view of developing countries was rearticulated by African, Caribbean, and Pacific Ministers (ACP) in May 2003, and communicated to the TRIPS Council:

The ACP position then was and still is that any text that restricts the agreement to a set list of diseases, even involving the WHO in assessing public health concerns, would constitute an unacceptable attempt to restrict ACP's use of compulsory licensing. The scope of diseases was already extensively discussed in Doha, and the consensus text included in the Doha Declaration rejected any limitations.102

When the United States offered to conclude the negotiations on the basis of the chair's statement, the initially proposed text contained language that might have raised questions about the scope of diseases.103 The United States agreed to modify the language so as to track the Motta text.

The reference in the definition of "pharmaceutical product" to the "public health problems as recognized in paragraph 1 of the [Doha] Declaration" does not limit the disease conditions that may be addressed under the Decision.104 It is up to each member to decide whether it faces a public health problem that should be addressed by the use of compulsory licensing, and to make a determination regarding the pharmaceutical products that are needed. The negotiating history of the Decision confirms this interpretation. In light of this negotiating history, it would be exceedingly difficult to conclude that the Decision does in fact incorporate such a limitation.105

On the scope-of-diseases issue, developing countries formulated and maintained a common position with a strong foundation in policy and law. The result was a major success in the negotiations. Why was the United States unsuccessful in this regard? First, its legal arguments were not adequately grounded in the Doha Declaration. Second, the U.S. position was hard to justify from a policy standpoint. The U.S. argument that broad scope-of-disease coverage would undermine future research and development was ultimately not persuasive to the broad spectrum of WTO members. Third, the United States was unable to convince the European Union to join it in demanding that the scope of diseases be limited. In the end, the United States was isolated, which put it in the diplomatically uncomfortable posture of being the sole obstacle to a solution to the paragraph 6 problem. This isolation raised the stakes to U.S. trade diplomacy of maintaining its hard line.

The scope-of-diseases issue did not end with the adoption of the Decision. Shortly afterwards, Canada announced that it would adopt legislation to implement the Decision.106 An unnamed "senior federal official" promptly said there was a lack of international consensus about the diseases that could be addressed and that Canada would need to act cautiously.107 Following extensive dialogue in Canada,108 the government dropped the argument that the Decision, as such, limited the scope of diseases. It did, however, draw up a list of products that would be subject to compulsory licensing for export, which may be expanded by the government in consultation with an expert committee.109

Norway, which has also implemented the Decision, did not establish a list of diseases that may be addressed, referring to the text of the Decision.110

The proposed EU regulation to implement the Decision (EU Draft Regulation), issued in late October 2004, covers all pharmaceutical products and provides for the authorization of compulsory licenses for "any" medicine.111 Such authorization includes vaccines that have the property of "preventing disease in human beings" or "restoring, correcting or modifying physiological functions."112

The Netherlands has adopted implementing policy rules that do not limit the pharmaceutical products that may be supplied.113 These rules will be modified, as needed, to conform with the EU Draft Regulation when it is adopted.114 The executive ordinance adopted by India to comply with its obligation under the TRIPS Agreement to implement patent protection of pharmaceutical products generally authorizes the controller of patents to issue compulsory licenses for manufacture and export without limiting the range of products.115 \Switzerland is proposing a formula in its implementing legislation that is consistent with the WTO texts. This proposal is intended not to introduce any limitation on the scope of diseases, as compared with the Decision.116 The draft that was initially proposed by the government raised some question in this regard and the government reacted favorably to comments received. Switzerland also expressly acknowledges that product coverage extends to vaccines.117

Eligible countries. As has been seen, paragraph 6 was intended to solve the problem of countries "with insufficient or no manufacturing capacities in the pharmaceutical sector." A second set of issues concerned the countries that would be entitled to make use of the solution. Most of the attention was devoted to whether any limitation would be placed on countries that could act as importers, although an early proposal by the United States would have limited the prospective exporting countries to developing countries.118

As a general proposition, developing countries saw themselves as having a common interest in preventing the limitation of the solution to a particular category or class among them. No country is immune from public health problems or insulated from the need for affordable medicines. No country is self-sufficient in the sense of producing the full range of medicines used in its health system. Each maintains an interest in acting as an importer and, at least in theory, as an exporter.

Developing countries, however, differ substantially in terms of their pharmaceutical production capacity. Only a few can produce the therapeutic components of pharmaceuticals, so-called active pharmaceutical ingredients, or APIs;119 but many act as "formulators" of finished pharmaceutical products.120 Existing capacities made it more likely for some developing countries to be asked to make and export products under compulsory license than others. It was generally assumed that Argentina, Brazil, China, and India would be able to act as substantial exporters in the relatively near term. Other countries, such as South Africa, were likely to increase their capacity.

Some developing countries, especially members of the African Group, expressed strong interest in increasing local production capacity.121 This ambition gave rise to potential tension between countries with manufacturing capacity and countries desiring to develop it. The ability of India, for example, to export low-priced medicines to Africa might reduce the incentive for local investment in Africa to develop its own manufacturing capacity. Thus, there was some potential for conflict between the objectives of developing countries on the question of eligible importing and exporting countries. Some developing countries would be more likely to reap rewards as exporting countries, and their success might inhibit local development in other developing countries.

Despite this potential for conflict, developing countries did not have difficulty formulating or maintaining a common position on the wide eligibility of importing and exporting countries, for at least two reasons. First, as a practical matter the interests of prospective importing and exporting developing countries were symbiotic. For the foreseeable future, African countries are going to be importing new medicines, and Brazil, China, India, and others are needed as sources of supply. African self-sufficiency in the production of medicines will not be realized in the next few years, or even within a decade.122 Second, achieving negotiating success demanded wide developing country support, and no group of developing countries would accept being excluded from the solution.

These countries therefore proposed that determinations of eligibility be based on the express language of paragraph 6: that is, that a country had insufficient or no capacity in the pharmaceutical sector and, further, that this determination should be made in the specific context of the needed pharmaceutical. Moreover, each country should be responsible for determining whether it has such capacity.123

From the U.S. and EU viewpoints, interest in limiting the prospective importing countries was consistent with a general interest in limiting the use of the system. The problem involved establishing a reasonable method for defining the limitation. One possibility would be to base entitlement on national income, on the theory that a country with adequate financial capacity should not need to import low-priced medicines.124 This approach proved impractical since prospective importing countries of major concern to the United States and the European Union, such as Brazil, China, and India, would not accept their own exclusion as importers. Another option was to develop predetermined lists of countries with and without production capacity. This approach also presented difficulties. First, data on worldwide production capacity were found not to be adequate.123 Second, it was clear that few, if any, countries would be found to be self-sufficient in pharmaceutical production capacity. In a given case, virtually any country might have insufficient manufacturing capacity.

The European Union proposed several possible ways of determining country eligibility, including by asking whether adequate manufacturing capacity existed for specific cases. One complex EU proposal would have distinguished between API production capacity and formulation capacity, and would have limited countries with formulation capacity to imports of APIs.126 The United States suggested looking to objective data on manufacturing capacities, and it offered to concede that all least-developed countries would automatically be determined to have insufficient manufacturing capacity. The United States consistently maintained that the solution was intended to benefit the countries of Africa confronting HIV/AIDs, and not countries like Brazil and India. Late in the negotiations, it suggested a compromise on the scope-of-disease issue on the condition that the solution be limited to Africa.127

As adopted, the Decision gives least-developed WTO members special treatment.128 They automatically qualify as "eligible importing Members" and are automatically determined to lack sufficient manufacturing capacity for products of the pharmaceutical sector.129 The situation is more complex for importing countries in other stages of development.

First, more than forty members (mainly developed) either have wholly opted out of using the solution as importing countries, or have declared that they will use it only in cases of national emergency or circumstances of extreme urgency. Some of these opt- outs are incorporated directly in the Decision, and some were undertaken by statement to the General Council before the adoption of the Decision. As noted below, members generally have the option under the Decision to modify their status as users of the system at any time, although this option may not be open to members that opted out ab initio.130

To use the system as an importer, a member (other than a least- developed country) must submit a one-time notification to the TRIPS Council of its intention to use the system in whole, or in a limited way.131 This notification may be transmitted at any time and may be modified. It is not subject to approval by any WTO body.132 This is a general requirement not associated with specific transactions.

When a country proposes to import under the system, it must (per paragraph 2(a)(ii)) make a determination that it has insufficient or no manufacturing capacity in the pharmaceutical sector for the "product(s) in question" and notify the TRIPS Council. This determination is made pursuant to criteria set out in an annex to the Decision, which places the determination in the hands of importing-country authorities and provides that

where the Member has some manufacturing capacity in this sector, it has examined this capacity and found that, excluding any capacity owned or controlled by the patent owner, it is currently insufficient for the purposes of meeting its needs. When it is established that such capacity has become sufficient to meet the Member's needs, the system shall no longer apply.

A key aspect of the annex-based determination is that it is addressed to the specific product, and not to the general state of the local industry, which may well be capable of producing some products, but not the ones that are needed. The production of a specific pharmaceutical product often involves unique technologies. The question of capacity is therefore multidimensional and may take into account not only physical infrastructure, but also the state of technical knowledge about specific products.

The chair's statement includes an additional reference to transparency, stating: "To promote transparency and avoid controversy, notifications under paragraph 2(a)(ii) of the Decision would include information on how the Member in question had established, in accordance with the Annex, that it has insufficient or no manufacturing capacities in the pharmaceutical sector." The referenced provision is directed to methodology ("how the Member . . . had established"), not to facts supporting an assessment.133

From the standpoint of developing countries, the outcome on eligible importing and exporting countries must be considered a success. There are no a priori exclusions, except as to those countries that have voluntarily elected to opt out as prospective importers. As a practical matter, it would have been very difficult to prevent voluntary opt-outs. The determination on adequacy of capacity is made by the importing country as to specific products, and excludes the patent holder's capacity.134 This result nicely illustrates the value of formulating and executing a common position, even when particular interests must be suppressed. In this case, developing countries with potentially differentiated interestsas importing and exporting countries put aside those differences in favor of achieving a more important common goal.

Why did the United States and the European Union concede on issues of income level and predetermined criteria of eligibility? From the U.S. standpoint, this approach may have resulted from a tactical error, which was to focus on restricting the scope of diseases as its preferred control mechanism. Perhaps the United States did not appreciate the weakness of its argument for limiting the solution to particular diseases. Through the mechanism of voluntary opt-outs and limitations, the United States and the European Union managed to protect the developed countries from using the Decision as importers. The European Union appears to have been principally concerned to protect prices in developed countries' markets from erosion by low-priced imports, and to be satisfied that the solution would adequately prevent drugs produced under the system from entering Europe or other developed countries' markets. The Decision includes the control mechanisms of Article 31, and requires importing countries to implement proportionate measures against diversion.135 In bilateral discussions with the Philippine minister of trade, USTR Zoellick said that the Philippines would not qualify as an importing country under the system because it had adequate pharmaceutical manufacturing capacity. On the basis of this interpretation, the Philippines continues to express concern about the terms of the Decision.136 The implementing legislation of Canada, Norway, the Netherlands, India, and Switzerland, and the EU Draft Regulation137 all rely on the country requesting exports under the Decision to make a determination regarding whether it has insufficient or no manufacturing capacity for the pharmaceutical product in question.138

One matter that was not given significant attention during the negotiations was the permissibility of exports to countries that are not members of the WTO. When Canada implemented the Decision, NGOs pointed out that limiting exports to WTO members alone would disenfranchise some of the poorest countries in the world, which did not make sense from a public health standpoint.139 In drawing up implementing legislation, Canada found a way to permit importation by nonmembers, and was followed in this regard by Norway, India, and Switzerland.140 The Netherlands allows exports to least-developed non-WTO members.141 Canada, Norway, the Netherlands, and Switzerland effectively require compliance with the elements of the Decision intended to prevent diversion of products.142 The initial EU Draft Regulation, however, does not make provision for exports to countries that are not members of the WTO, but there is indication that this may be changed (at least to allow such exports to least- developed non-WTO members).

The TRIPS article addressed. One of the most difficult issues in the negotiations concerned the article of the TRIPS Agreement that would be addressed by the solution. As seen, the negotiations were predicated on the existence of a limitation in Article 31 (f) of the TRIPS Agreement, but whether that limitation could be overcome through an exception under Article 30 was uncertain.

Article 30 of the TRIPS Agreement allows members to adopt exceptions to patent rights, and conceptually the limitation in Article 31 (f) could be addressed by the grant of an exception under Article 30. However, there was considerable debate about whether Article 30 permits third parties to export products under patent so as to address public health needs. Doubt on this point was raised by the decision of the WTO dispute settlement panel in the Canada- Generic Pharmaceuticals case, which involved the application of Article 30 to both a "regulatory review" and a "stockpiling" exception.143 The regulatory review exception was found to be consistent with Article 30, while the stockpiling exception was rejected. The panel focused on the terms "limited exception" in Article 30 and said that this language implied a "narrow" exception to patent rights.144 The panel also indicated that whether production for commercial sale was allowed during the patent term was important to determining whether an exception was suitably limited.145 These two aspects of the decision, among others, raised concerns about how Article 30 would be interpreted by the Appellate Body. It was recognized that, strictly speaking, this panel decision did not bind WTO members,14b but that by suggesting limitations, it created uncertainty. It was widely considered that if Article 30 was going to form the basis of the solution, a formal interpretation (or, if necessary, an amendment) should be adopted to dispel doubts. Companies that might want to produce and export under an exception would be reluctant to do so in the face of significant legal insecurity.

Using Article 30 as the basis for a solution would not, as both its advocates and its detractors suggested, necessarily lead to a less regulated result or the absence of remuneration. Nothing precluded the adoption of a solution based on Article 30 that would have included controls or provision for remuneration. The principal alternative to interpreting or amending Article 30 was to address the Article 31 (f) problem at its source: that is, to amend, waive, or interpret Article 31(f) to permit compulsory licensing predominantly for export. There was a third option of creating a sui generis solution under the TRIPS Agreement that would not use one of the existing articles as a base.147 This option might have allowed a more nuanced tailoring of the solution, and have helped defuse the ideological struggle between the Articles 30 and 31 camps.

From the standpoint of many developing countries, NGOs, and the WHO, a solution based on Article 30 would have the major advantage of avoiding the need for a compulsory licensing procedure in the country of export.148 If there were a patent in the importing country, compulsory licensing would be needed there, so the patent holder would have its interests respected. It was suggested that if there were no patent in the importing country, the patent holder would have no material interest to protect in the exporting country. The product was not being used there, and its making and export would not unreasonably interfere with the patent right.

From the standpoint of advocates of the Article 30 solution, its advantages were to a large extent defined by the perceived disadvantages of an Article 31 approach. Although Article 31 does not limit the grounds on which a compulsory license may be issued, it prescribes procedures and conditions.149 The incorporation of procedural requirements implies routine bureaucratic impediment. More important, it may open the door to patent holder legal maneuvering intended to delay. If compulsory licensing procedures are required on both the importing and the exporting country sides, the possibilities for legal impediment might present a formidable barrier.

From the standpoint of pharmaceutical patent holders, a solution based on Article 30 would not provide adequate procedural safeguards or respect for patent holder interests.150 The lack of any prescribed procedure in the exporting country151 would leave no means to distinguish between actions taken to meet the legitimate needs of importing countries and actions undertaken to profit at the expense of patent holder research. The absence of a patent in the importing country might prevent the payment of royalties.152 Just as the advocates of an Article 30based solution centered their arguments in large measure on the perceived drawbacks of an Article 31-based solution, so the advocates of an Article 31-based solution focused on the perceived disadvantages of an Article 30-based solution.

From the standpoint of the United States, the European Union, Japan, Switzerland, and other countries where pharmaceutical patent holders are based, a solution based on Article 31 would provide a greater degree of control over third-party activity. European Commission officials have suggested that they opted for an Article 31-based approach because they concluded that the United States would never accept an Article 30-based solution.153 However, this matter was debated within the European Council,154 and that may be only a partial explanation. The conclusion that the European Union in fact supported an Article 31 solution on policy grounds was supported by the terms of its initial Draft Regulation, discussed below.

The African Group in its early position papers proposed that both Articles 30 and 31 be used in the solution so as to provide the most comprehensive approach to solving the problem.155 However, as negotiations proceeded, a choice of approach needed to be made. The African Group spent a great deal of time deliberating this question and ultimately opted in favor of amending or waiving Article 31 (f).156 The African Group may have made a strategic calculation that the United States would not, under any foreseeable circumstances, accept an Article 30 solution. Nevertheless, the members of the group were aware that this stance would put them at odds with many developing countries and with virtually all NGOs.157

The Decision concerns Article 31 of the TRIPS Agreement and specifically provides for a "waiver" with respect to Article 31(f) and (h).158 The waiver forms the basis of negotiations leading to an amendment.159 Use of the Article 31(f) waiver provided for in paragraph 2 is conditioned on the exporting member's compliance with certain obligations under the Decision, including having received certain assurances from the importing member.160 Article 31 (h) ordinarily requires adequate remuneration to the patent holder in the circumstances of the case, and the waiver, provided for in paragraph 3, limits this obligation to the exporting member when remuneration is paid there. A\side from the waivers regarding Article 31(f) and (h), the conditions for granting compulsory licenses under Article 31 of the TRIPS Agreement continue to apply to licenses granted under the Decision.161

Paragraph 9 of the Decision clarifies that it is without prejudice to rights that members may otherwise have under the TRIPS Agreement. Thus, members have not relinquished any rights they may have to use Article 30 as the basis for exports without the consent of the patent holder. These rights may be important, for example, in justifying exports to countries that are not WTO members, where a limited exception to rights of patent holders may need to be invoked. More generally, they may also constitute an alternative to use of the system established by the Decision.162

The Decision does not provide express relief from the possibility that two compulsory licenses will need to be issued for a single supply situation. The process can be facilitated, however, in some important ways, particularly when dealing with a situation such as the supply of ARVs and other medicines to address HIV/AIDS. The "fast track" procedure under Article 31 (b) of the TRIPS Agreement permits waiver of the requirement of prior negotiation (and notification) of the patent holder. Therefore, authorities on both sides of the transaction can issue licenses immediately, and the exporting member may determine remuneration after the license is granted.163

In addition, the TRIPS Agreement does not prevent a member from recognizing and giving effect to a compulsory license granted by another member under the Decision. Article 31 (a) provides that a license shall be considered on its individual merits but does not mean that a government cannot base its determination of the merits of granting a license on another member's decision. Although the patent holder is entitled to administrative or judicial review of the grant under Article 31 (i), this proceeding may take place after the grant has been made.164 In the United States, when the government uses a patent without consent, the only remedy for the patent holder is to seek compensation in a proceeding before the Court of Claims.165

As suggested by the varying views noted above, the developing countries were unable to formulate a common position on the selection of the proper article in which to situate the solution. Might a united developing country position in favor of an Article 30 approach have succeeded? Its acceptance would have required a major retrenchment by the United States.166 Instead, the United States, confronted with an open-ended solution on the scope of diseases and a procedural mechanism it regarded as inadequately protective, might plausibly have allowed the negotiations to collapse. This author considers it doubtful that the United States could have been persuaded under the then-prevailing circumstances to accept an Article 30 approach, absent some other material limitations on the Decision. The alignment of the European Union with the United States in refusing to accept an Article 30 solution caused a large number of developing countries to yield on their Article 30 demand.

Had developing countries as a group managed to agree on a common approach to the mechanism of the solution-whether based on Article 30 or Article 31-they might have been able to exercise additional leverage regarding the conditions associated with its use. In particular, a stronger bargaining position might have allowed for the explicit streamlining of dual licensing procedures, as to which several draft alternatives were formulated.167

The implementing legislation of WTO members approached the Article 31 solution in various ways. The initial proposal of the Canadian government dispensed with the prior negotiation conditions of Article 31 in favor of a "right of first refusal" for patent holders.168 Before a generic producer could obtain a license to export, it would have had to offer any supply contract it had negotiated to the patent holder, which could elect to take it over on the same terms.169 Under the government's proposal, patent holders were not obligated to compensate generic producers for their efforts in securing contracts.170

This initial proposal seemed unlikely to result in exports by generic producers or in lower prices.171 The government was ultimately persuaded that the right of first refusal was a poor idea. After considering various alternative proposals, it settled on the procedure of Article 31(b) of the TRIPS Agreement, requiring that the applicant for a compulsory license first seek a voluntary license from the patent holder.172 The legislation does not make any provision for use of the fast track for emergencies and public noncommercial use, but it does provide that thirty days are an adequate period for seeking a voluntary license. There was some suggestion in the discussion of Canada's implementation that the exporting country could not take advantage of the fast-track procedure because an emergency (or public noncommercial use) would exist in the importing country, but not in Canada.173 The argument that the procedure in the exporting country should be based on its domestic situation turns the object and purpose of the Decision on its head. If Canada is going to export ARVs to Africa, this is not because there is a public health crisis in Canada but, rather, because there is a public health crisis in Africa.

Governments wishing to act expeditiously to address public health problems should not have to depend on the goodwill of patent holders. In United States law, the government may use patents without notice to the patent holder and without the obligation of prior negotiation.174 The patent holder may not obtain an injunction; this U.S. rule is accommodated in the TRIPS Agreement.175

The Norwegian legislation and regulations permit use of the fast- track licensing procedure on both sides of the export-import transaction.176

The explanatory memorandum on the initial EU Draft Regulation acknowledged that prior negotiation with the patent holder is not a prerequisite to making use of the Decision, but state

Source: American Journal of International Law, The

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