Dying for Drugs: How CAFTA Will Undermine Access to Essential Medicines

If adopted, the proposed U.S.-Central America Free Trade Agreement (CAFTA) will cost lives.

The intellectual property, and to a lesser extent the investment, provisions of the draft agreement throw up a number of road blocks to the introduction of generic medicines.
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By Robert Weissman
Essential Action

March 5, 2004

If adopted, the proposed U.S.-Central America Free Trade Agreement (CAFTA) will cost lives.

The intellectual property, and to a lesser extent the investment, provisions of the draft agreement throw up a number of road blocks to the introduction of generic medicines.

As elaborated below, these include provisions to establish a system of monopoly protections for pharmaceuticals that runs parallel to the patent system – so that even government efforts to authorize generic production while products are on patent (compulsory licensing) will be thwarted – and provisions to extend patent terms.

The most extreme of the CAFTA provisions appears to establish an effective bar to compulsory licensing of pharmaceuticals in Central American countries.

If CAFTA is adopted, these measures will have a major, harmful impact on healthcare in Central America, and perhaps even in the United States.

This analysis proceeds by briefly discussing the following topics:

• The benefits of generic competition and compulsory licensing;
• How CAFTA’s data exclusivity protections can work as back-door barriers to compulsory licensing;
• A draconian CAFTA data exclusivity provision that may function as a de facto prohibition of compulsory licensing;
• CAFTA provisions requiring patent extensions;
• CAFTA provisions requiring overprotection of patents; and
• A conclusion that CAFTA runs afoul of the Doha Declaration on the TRIPS Agreement and Public Health, and should be rejected.

1. The Benefits of Generic Competition and Compulsory Licensing

It is beyond dispute that the introduction of generic competition lowers price dramatically and enables broadened access to needed medicine. The purpose of patent monopolies is to enable patent holders to collect supracompetitive profits. There is an extensive literature on the price reductions that follow from generic competition in the United States and industrialized countries. And, now several years into the international campaign for access to essential medicines, generic competition has brought down the price of lifesaving antiretrovirals used to treat people with HIV/AIDS by more than 98 percent.

Under the rules of the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), countries are required to provide 20-year patent protections for all products, including pharmaceuticals. This global standard has forced many developing countries that previously did not offer patent protection for pharmaceuticals, or offered only limited protection, to adopt U.S.-style patent rules covering medicines.

Although it imposed on countries the requirement to adopt 20-year patents for drugs, the TRIPS Agreement also contained certain safeguards. Most important among them is the right to undertake compulsory licensing.

Compulsory licensing enables a government to authorize a third party — whether a company, government agency or other party — to use a patent held by another. Honduras, for example, could issue a license to generic company Z for an HIV/AIDS drug manufactured by brand-name company X. Generic firm Z would then manufacture or import the drug for sale in Honduras under a generic name, and pay a reasonable royalty to brand-name company X on each sale.

Compulsory licensing can lower prices to consumers by creating competition in the market for the patented good. The key benefit of compulsory licensing is that it creates competition for a pharmaceutical product while it is still covered by patent. Just as the prices of drugs may decline dramatically when patent protection runs out, compulsory licensing can introduce these price reductions while a drug remains on patent. And, even when compulsory licenses are not issued, the mere prospect that they might be issued may lead patent holders to lower prices to avert the possibility of a compulsory license.

Trade agreement rules that delay in the introduction of generic competition delay the attainment of these gains in lowered prices and expanded access — with deadly effect in the case of life-saving medicines such as antiretrovirals, and diminished quality of life for other medicines with useful if not life-saving effects.

2. Data Exclusivity Protections: Back-Door Barriers to Compulsory Licensing

The most worrisome measures in the U.S.-Central America Free Trade Agreement (FTA) involve requirements that countries establish special monopoly protections for pharmaceutical regulatory data. The impact of these measures will be, at least, to greatly delay countries from undertaking compulsory licensing. The impact will be harshest in the Central American parties to the agreement, but effects may be felt in the United States as well, including during times of gravest national emergency.

As a condition of selling pharmaceuticals, countries require pharmaceutical sellers to submit data showing their drugs are safe and effective. This data is commonly referred to as registration data, or marketing approval data.

Generating the data, based on animal and human testing can be relatively expensive, costing in some cases tens of millions of dollars.

To gain regulatory approval to sell generic versions of drugs already approved for market, generic companies generally do not repeat these studies, which are very time consuming and, from the perspective of the relatively low-capitalized generic industry, costly. Instead, they typically show their product is chemically equivalent and bioequivalent (meaning it will work the same in the body as the brand-name drug). Then the generic companies simply rely on the drug regulatory agency’s approval of the patented product to earn approval for the generic version of the product.

If the generics are not able to rely on approvals granted based on the brand-name data, in many cases they simply will not enter the market. This is especially true in smaller size markets, as in Central America, where prospective revenues are limited. Yet CAFTA includes a number of provisions providing an array of special monopoly protections for regulatory data.

The meaning of these provisions is that generics will effectively be barred from entering the market — even if patent terms have expired, and even if countries have issued compulsory licenses that would otherwise them to sell on the market while a product is on patent — until the monopolies on use of the data expire.

These CAFTA provisions go far, far beyond the requirements of TRIPS.

Under the TRIPS Agreement, countries must protect “undisclosed” pharmaceutical test data from “unfair commercial use” (TRIPS Article 39.3). The meaning of this vague language is uncertain and subject to debate. There is a strong argument that this TRIPS provision is intended only to cover the misappropriation of test data — along the lines of literal theft of the data from files kept by drug regulatory agencies. Whatever else it means, the extremely vague language of the TRIPS provision makes clear that:

1. Countries have considerable discretion in determining what is “unfair.”

2. Multiple approaches to provide reasonable protection will satisfy the provision’s mandate.

3. There is no requirement that countries exclude other parties from using the data or relying on approvals based on the data, and no requirement that any exclusivities granted extend for a particular period of time.

4. Protections for pharmaceutical test data need only be granted for new chemical entities.

These flexibilities in the TRIPS Agreement would be completely overridden by the CAFTA provisions.

Under CAFTA:

• Countries would be required to provide five years of data protection from the moment a product was given regulatory approval in their country. (Article 15.10.1(a).) This amounts to an effective five-year bar on compulsory licensing from the time of marketing approval.

• CAFTA members must grant five years data exclusivity protections to brand-name companies if their product has received marketing approval anywhere in the world – even if the brand-name company has not introduced the product in their country! (Article 15.10.1(b).) In other words, if Pfizer puts a new product on the market in the United States, but does not introduce it in Honduras, Honduras is effectively denied the right to authorize generic versions of the product for five years.

• Pharmaceutical companies could maneuver in this system to extend the period of monopoly control over the data to 10 years. Under CAFTA, countries must grant a fresh period of five years data protection from the moment a product receives marketing approval in their country — even if they have already granted up to five years protection while the product had been approved elsewhere but not put on the market in their country. (Article 15.10.1(b).) Thus, if Pfizer waits five years after introducing its new product in the United States before introducing it in Honduras, Honduras must provide for data exclusivity both during the five year period when the product was not on sale in the country, and for the five-year period after Honduras has granted marketing approval. This outcome would be required even as the United States, which benefited from the initial product introduction, is only required to grant five years of data protection.

• Regulatory data monopolies must be granted for the marketing approval data submitted for all “new pharmaceutical products.” (Article 15.10.1(a).) Under TRIPS, the requirement of data protection applies only to data submitted for new chemical entities. Under CAFTA, data protection must be granted for any new product containing a chemical entity not previously approved in the country – even if it is not actually new. ((Article 15.10.1(c).)

3. A De Facto Prohibition of Compulsory Licensing

CAFTA’s farthest reaching data monopoly protection would have an even more devastating impact. It would effectively make compulsory licensing impossible in Central American countries.

Notwithstanding the provisions discussed in section two above, CAFTA’s Article 15.10.3, appears to prohibit any generic firm from relying on the data submitted by a patent holder at any point during the term of the patent unless the generic firm has the permission of the patent holder.

The actual text of the provision reads:

Where a Party permits, as a condition of the marketing of a pharmaceutical product, persons, other than the person originally submitting safety or efficacy information, to rely on evidence or information concerning the safety and efficacy of a product that was previously approved, such as evidence of prior marketing approval in the Party or in another territory, that Party:

(a) shall implement measures in its marketing approval process to prevent such other persons from marketing a product covered by a patent claiming the product or its approved use during the term of that patent, unless by consent or acquiescence of the patent owner; and

(b) if the Party permits a third person to request marketing approval of a product during the term of a patent identified as claiming the product or its approved use, it shall provide that the patent owner be informed of such request and the identity of any such other person.

If in fact this language means what it says, then generic firms cannot rely on marketing approval data for a product for the entire term of the product’s patent, even if a compulsory license is issued. Because of the cost, and the small size of the markets in Central America, generic firms will probably never be able or willing to re-perform safety and efficacy tests to obtain marketing approval in Central American countries. Thus, even if they were issued a compulsory license, they could not enter the market. In other words, this provision appears to be an effective bar to compulsory licensing.

Because this provision appears so draconian, Essential Action has asked the U.S. Trade Representative to clarify if the language should properly be interpreted to mean something other than what it appears. In an informal meeting, a USTR representative agreed that the Essential Action interpretation of the language appeared to be correct, but promised to contact us later with clarification.

This devastating data monopoly protection might also have severe effects in the United States.

In 2001, amidst the anthrax scare, the Department of Health and Human Services (HHS) considered issuing a compulsory license on ciprofloxacin, used to treat anthrax. (The U.S. government maintains very aggressive authority to undertake compulsory licensing for its own use.) The government ultimately did not issue the compulsory license, but the threat helped encourage the patent holder, Bayer, to lower its price.

Suppose the scenario were repeated, and HHS decided that it did want to issue a compulsory license, either because Bayer would not lower its prices sufficiently, or because it could not make an adequate supply available fast enough. If the CAFTA provision were in effect, a generic licensee would not be able to rely on Bayer’s safety and efficacy data, or the fact that it had received regulatory approval. The generic firm would have to repeat the already completed test. Given the size of the likely purchase from HHS, this would probably be a worthwhile investment. But redoing the tests would likely take years – far too long a delay in the case of urgent circumstance.

Perhaps in such a circumstance the U.S. government would simply ignore its obligations under international trade agreements – but surely that is no rationale for entering into such provisions in the first place.

4. Extending the Life of a Patent

TRIPS obligates member countries to grant 20-year patents. Patent terms seek to create a balance between providing incentives for inventors and the public interest in maintaining and promoting competition. The 20-year term manifested such a balance taking into account the known delays in the process of getting a drug to market.

Adding additional time to the patent term after a balance has been struck improperly and dangerously tips the patent system in the direction of patent holders. It discriminates against generic entry, and requires consumers for a longer period of time to buy the patented product from the patent owner, or not at all.

Two key provisions in CAFTA would require countries to extend the life of a patent.

• Patent extensions must be provided to offset delays in the grant of a patent (Article 15.9.6). Whatever the reason for delays in granting a patent, it is clear that consumers are not responsible for them — yet it is consumers who pay the price under this provision.

• Patent extensions must be provided to offset delays in marketing approval for pharmaceuticals (Article 15.10.2). Thus, if regulatory complications result in a delay in the grant of marketing approval, the patent monopoly must be extended. Again, whatever the reason for delays in marketing approval, it is clear that consumers are an innocent party — yet are the ones stuck with the bill under this provision.

5. Overprotection of patents

Other provisions of CAFTA’s intellectual property and investment chapters will unjustifiably deepen monopoly protections for patents.

• The agreement creates an incentive for brand-name drug companies to submit bad patent applications. Article 15.9.8 requires countries to permit patent applicants to amend their patent application. This gives patent applicants an incentive to submit inadequate applications– providing inadequate disclosure of how to make and use the subject invention — or overly broad patents. With this rule, if a patent officer concludes that a patent application is inadequate, the applicant can simply amend it by providing the information initially withheld.

• The agreement biases the judicial system by mandating a presumption in courts that challenged patents are valid. Such a rule obviously makes challenged patents more likely to be upheld, and provides a disincentive for generic firms or others to challenge bad patents. Even in the United States, with a massive bureaucracy devoted to patent examination, federal government agencies acknowledge that bad patents are routinely granted. In many poorer countries, there is little or no serious patent examination — making the mandatory presumption in favor of patent validity all the more misguided.

• CAFTA investment rules will inhibit compulsory licensing. The investment chapter specifies that compulsory licensing done in compliance with TRIPS and/or CAFTA’s intellectual property rules does not violate the investment chapter’s limitation on expropriation (Article 10.7.5) or performance requirements (Article 10.9.3). However, even with these savings provisions, the agreement’s investment chapter rules are so severe that they are likely to chill countries’ willingness to undertake compulsory licensing. The investment agreements are enforced through special rules that investors sue national governments directly, often for huge sums of compensation. If a CAFTA country were to issue a compulsory license, but do so in a manner that was not compatible with the TRIPS Agreement or CAFTA’s intellectual property rules, it would be subject to suit under CAFTA’s investment rules. Even the fear of such a suit, which could require a government to pay heavy compensation to a patent holder, will work to deter countries from issuing compulsory licenses.

6. Conclusion: Reject CAFTA

By design, intellectual property rules in trade agreements are highly technical and confusing.

But the rules embodied in such agreements determine the shape of markets for medicines: which players will be able to compete, when, and on what terms.

Because of the critical importance of medicines in saving lives and maintaining quality of life, these market-determining decisions have life-and-death consequences.

CAFTA contains an array of provisions designed to entrench the power of brand-name pharmaceutical companies, and to delay the entry of generic competition. It will deprive governments of key tools they need to lower prices. It will effectively strip them of the ability to issue compulsory licenses for many years, and quite possibly at all. It will deny them the bargaining power they maintain by virtue of their ability to threaten to issue compulsory licenses.

CAFTA therefore runs afoul of the historic 2001 Doha Declaration on the TRIPS Agreement and Public Health, in which all WTO members “affirm[ed] 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” and “in this connection … reaffirm[ed] the right of WTO members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.” It runs afoul of the Doha Declaration because it denies countries the right to use the flexibilities intended to promote the goals of protecting public health and promoting access to medicines for all.

The Doha Declaration was the product of the international community at its best, recognizing an overriding commitment to healthcare that cannot be subordinated to commercial considerations.

CAFTA, by contrast, uniformly favors the interests of multinational drug companies over those of patients. It must be rejected.

Fact Sheet: How Fast Track May Interfere with Poor Countries’ Access to Essential Medicines

The fast-track bill (HR 3005) passed last year by the House of Representatives and likely coming up for consideration soon in the Senate may threaten countries’ ability to gain access to essential medicines, and may undermine the historic public health victory achieved at the World Trade Organization’s Doha, Qatar Ministerial meeting last November.
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The fast-track bill (HR 3005) passed last year by the House of Representatives and likely coming up for consideration soon in the Senate may threaten countries’ ability to gain access to essential medicines, and may undermine the historic public health victory achieved at the World Trade Organization’s Doha, Qatar Ministerial meeting last November.

The HIV/AIDS pandemic has highlighted the issue of access to essential medicines in poor countries, and how intellectual property rules may impede such access. Existing treatments can enable those with HIV/AIDS to survive. Costs of drug treatments exceed $10,000 a year per person in the United States, and were at similar levels in Africa just a few years ago — a level which populations with per capita income marked in the hundreds of dollars obviously cannot afford. Antiretroviral drugs are expensive not because of the cost of manufacture, but because of the patent monopolies that enable drug companies to set whatever price they choose. Indian generic companies can now provide three-drug antiretroviral cocktails for less than $300 a year per person.

The fundamental immorality of excessive prices for medicines amidst the most serious pandemic since the Black Plague has, belatedly, evoked a response from governments worldwide. At the Doha meeting, WTO members adopted a “Declaration on the TRIPS Agreement and Public Health.” (TRIPS — Trade-Related Aspects of Intellectual Property — is the WTO’s agreement on intellectual property.) The Doha Declaration “recognize[d] 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.”

In its summary of crucial principle, the Doha Declaration states,

We agree that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we 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.

In this connection, we reaffirm the right of WTO members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.

The Declaration explains that these flexibilities include, crucially, the right of countries to use compulsory licensing — a policy tool designed to enable generic competition for drugs (or other products) that remain on-patent.

Against this backdrop, language in the fast track bill would contravene the commitments made by the United States in the Doha Declaration.

The “negotiating objectives” of the fast-track bill — the instructions Congress gives the Executive on how to conduct trade negotiations — is replete with calls for “strong protection” for and “strong enforcement” of intellectual property. It specifically directs the President to negotiate trade agreements that require all parties to maintain intellectual property rules as strong as those in the United States.

In the area of patents, however, U.S. law is in many dimensions considerably stronger than the standard contained in the WTO TRIPS Agreement. And requiring countries to adopt U.S.-style patent rules would eliminate many of the very flexibilities that are available in the TRIPS Agreement — flexibilities the Doha Declaration specifically sought to protect.

These are not abstract issues. The United States is proposing to negotiate, or is currently negotiating, a number of new trade agreements, including the Free Trade Area of the Americas, and is seeking to push for intellectual property rules that would eliminate many of the WTO’s flexibilities. For an elaboration, see Free Trade and Medicines in the Americas, Robert Weissman, Free Trade and Medicines in the Americas, by Robert Weissman; and for a technical assessment, see written comments from Essential Action filed with the Office of the U.S. Trade Representative.

The stakes in Senate consideration of the fast-track bill are therefore extremely high. Adopting the present fast-track language into law would be a setback to the effort to provide treatment to people with HIV/AIDS in Africa and other poor countries, as well as the broader campaign to assure access to medicines for people in the developing world.

Statement of Robert Weissman on the CAFTA Negotiations and Access to Medicines

The United States Trade Representative has forced down the throats of Central American countries enhanced patent protections. If the Bush administration succeeds in ramming the agreement through the U.S. Congress, the result will be that people die.
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The United States Trade Representative has forced down the throats of Central American countries enhanced patent protections. If the Bush administration succeeds in ramming the agreement through the U.S. Congress, the result will be that people die.

USTR should today be ashamed, rather than crowing.

By prioritizing the super-profit demands of Big Pharma over public health imperatives, USTR has ignited an additional group of opponents of CAFTA in Congress.

The actual CAFTA text remains secret — secret only from the public; negotiators and business know what has been agreed on — but all indications are that USTR has achieved the Big Pharma agenda of demanding a range of provisions that will delay the entry of price-lowering generic competition for medicines. These provisions include:

-Monopolistic protections for safety and efficacy test data needed to obtain marketing approval for pharmaceuticals.

-Patent-term extensions.

-Requirements that marketing approval be linked to patent status, turning drug regulatory agencies into patent enforcement bodies.

-Limitations on the grounds under which compulsory licenses may be issued (conflicting reports have emerged as to whether the U.S. is demanding such provisions — as it is in the Free Trade Area of the Americas — in CAFTA).

-Investment protections, based on NAFTA’s notorious Chapter 11, that would deter compulsory licensing and generic competition.

There is no defensible reason to include intellectual property rules in CAFTA. All negotiating countries are members of the WTO, and bound by its intellectual property rules. All agreed to the Doha Declaration on the TRIPS Agreement and the Public Health, requiring countries to implement the WTO agreement in a fashion that would “protect public health and, in particular, … promote access to medicines for all.” Inclusion of IP in CAFTA can only mean countries will be more protective of Big Pharma’s interest, at the expense of expedited introduction of price-lowering generic competition, and at the expense of their obligations under the Doha Declaration.

Essential Action is a Washington, D.C. corporate accountability group. It focuses on intellectual property and global health issues.

NGOs to Dept of State: Support Health Over Commerce at WHO

Mr. McGlinchey:
We are writing to express our appreciation for your participation at the Washington, DC meeting on Intellectual Property Rights, Health Care and Trade Agreements, and also to emphasize our concerns about U.S. policy.
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May 12, 1998

James McGlinchey
Office of Intellectual Property and Competition
United States Department of State
Washington, DC 20520

via fax 1.202.647.0892

Mr. McGlinchey:

We are writing to express our appreciation for your participation at the Washington, DC meeting on Intellectual Property Rights, Health Care and Trade Agreements, and also to emphasize our concerns about U.S. policy.

This week the World Health Assembly (WHA) will meet in Geneva. One of the resolutions before the WHA asks member states “to ensure that public health rather than commercial interests have primacy in pharmaceutical and health polices and to review their options under the Agreement on Trade Related Aspects of Intellectual Property Rights to safeguard access to essential drugs.”

There was a consensus among public health and consumer groups that it is important for governments and international bodies to be clear that in health care sectors, public health considerations indeed have primacy over commercial considerations. This is not to say that intellectual property rights are not important or useful in achieving public health goals. Rather, it speaks to the framework under which competing policy objectives are evaluated and resolved.

For example, at the conference there was discussion of several disputes concerning the use of generic drugs, including government efforts to encourage generic substitution, the mandatory use of the generic name on the label of the drug, and so-called “Bolar” disputes, regarding the non-commercial testing of drugs prior to patent expiration. Public health officials strongly support government efforts to promote generic drug competition, and we ask that trademark and patent disputes be evaluated in the context of the impact of the policy on public health.

Likewise, we ask that disputes concerning the public health regulation of the marketing of infant formula, tobacco or other products be judged on the basis of public health concerns. Thus, for example, we would not expect poor countries to be threatened with trade sanctions for efforts to implement World Health Organization guidelines on infant formula marketing, as recently occurred in Guatemala, nor should Canada or other countries be threatened with NAFTA and GATT sanctions for plain paper packaging of cigarettes.

There are a number of disputes over the appropriate level of intellectual property protection for patents on pharmaceuticals and biotechnology, health registration data, orphan drug market exclusivity and related topics. As you know, intellectual property regulation is a complex topic, and one cannot rely upon simple minded “more is better” rules. It is inappropriate to always choose the policies which lessen competition and raise drug prices the most, or to evaluate such disputes solely in terms of how the disputes benefit U.S pharmaceutical and biotechnology firms. Government sponsored monopolies and regulatory entry barriers to competition lead to higher prices, and should be justified only when the policies are necessary to promote public health objectives. Overbroad protections should be avoided, and governments should be encouraged to adopt policies which enhance universal access to health care technologies. Countries with low incomes face different problems in providing universal access to health care than do developed countries, so “one size fits all” approaches may be inappropriate.

At the workshop there was much discussion about policies to encourage and provide access to “Essential Health Research.” As you know, in the United States the government spends more than $14 billion for research at the National Institutes of Health, which it plans to double, and it also funds health care research in other Public Health Service agencies, the Department of Energy, the Department of Defense and elsewhere. Many participants expressed concerns that government policies to transfer taxpayer funded research on drugs for cancer, AIDS, malaria and others severe illnesses to the private sector were designed to benefit commercial interests more than consumers. In some cases these disputes are matters of foreign policy, such as the many international disputes over the introduction of generic versions of Taxol, a cancer drug invented by NIH scientists, but marketed by Bristol-Myers Squibb. The U.S. government recently placed South Africa on its Sec. 301 Watch list for not providing “unfair competition” protection for health registration data for Taxol, even though in the United States, the Taxol registration data expired in December 1997. The grounds for the 301 Watch list were that “some” countries still provide longer protection than does the U.S. Here again, it would be appropriate for the U.S. government to consider public health concerns, and seek to justify why a government funded invention such as Taxol (all clinical trials in question were sponsored by the NIH, not Bristol-Myers Squibb) should not be available in generic form in South Africa, a country with many poor consumers.

There was also much concern about the adequacy of funding for research on tropical diseases such as Malaria, whether or not the consumer interest was protected in the commercialization of inventions developed at Walter Reed Army Institute of Research, and the lack of incentives for research on adverse drug effects, appropriate technologies and other important areas of research which do not produce marketable products.

Some conference participants further suggested that countries use innovative “reinvestment” approaches to promote essential health research. These approaches have been considered by the U.S. government in several contexts beginning in 1983, and also in the UK. Some say the PhRMA companies will claim that such requirements will be in violation of the TRIPS and the proposed multinational agreement on investments (MAI). The U.S. should evaluate the public interest in increasing the level of essential health care research before it takes action against such measures.

There are also many other disputes. Poor countries want to permit parallel imports of patented drugs, as do the UK and other developed countries, in order to obtain competitive world prices. This is very important for countries with small internal markets. Compulsory licensing is also important. Disputes about compulsory licensing of essential drugs are expected to reach the World Trade Organization. There is also much concern by medical researchers that compulsory licensing will be important in new gene therapies and other complex technologies. In evaluating the reasonableness or appropriateness of compulsory licensing programs, the U.S. government should indeed begin by considering the impact of the program on public health.

There was also much discussion about the need for developing countries to receive better legal assistance in evaluating or negotiating new treaties. Many participants expressed gratitude to the World Heath Organization for publishing monographs and reports on health aspects of TRIPS and other IPR issues, and we encourage the U.S. to support such efforts. This is particularly important given the immense resources that PhRMA and other industry groups spend lobbying various governments on these policies. Independent information restores some measure of balance in debates, and prevents future misunderstandings.

Again, thank you so much for taking the time to meet with public health and consumer groups to discuss these important and complex topics. We look forward to a broader dialog with U.S. officials on the development of trade policies which promote public health objectives.

Sincerely:

James Love
Director
Consumer Project on Technology

Bas van der Heide, International Coordinator – Europe
Dr. K. Balasubramaniam, International Coordinator – Asia South Pacific
Dr. Roberto Lopez, International Coordinator – Latin America
Health Action International

Dr. Amir Attaran
Malaria Project
Center for Study of Responsive Law
Washington, DC

Robert Weissman
Co-Director
Essential Action
Washington, DC

Dr Patrick Bond
Senior Lecturer, Economic Policy
University of the Witwatersrand Graduate School of Public and Development Management, Johannesburg, South Africa

Niyada Kiatying-Angsulee
Chairperson of Drug Study Group
Drug Study Group (Thailand)

Sumlee Jaidee
Chairperson
Health & Development Foundation
Thailand

Richard Laing, MD, MBChB, MSc
Associate Professor
Department of International Health
School of Public Health
Boston University

Llew J. Gibbons, Fellow
Franklin Pierce Law Center

Jerome Dumoulin
Institut de Recherche Economique sur la Production et le Developpement Universite Pierre Mendes France

Celine Gounder
Project Manager
Princeton Project 55 Tuberculosis Initiative

NAFTA Issues in the Context of Canadian Implementation of the Paragraph 6 Agreement

As the Canadian government prepares to adopt legislation to implement the WTO Paragraph 6 Agreement, government officials have expressed concern that their efforts may run into NAFTA problems. This brief note concludes that Canada does not face a NAFTA problem.
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Summary:

As the Canadian government prepares to adopt legislation to implement the WTO Paragraph 6 Agreement, government officials have expressed concern that their efforts may run into NAFTA problems. This brief note concludes that Canada does not face a NAFTA problem.

This note first reviews the WTO Paragraph 6 Agreement.

A second section considers whether there is a problem under NAFTA’s intellectual property chapter for Canada in implementing the Paragraph 6 Agreement. It concludes there is not. Good-faith negotiators could not reasonably have intended to reach agreement in the WTO forum and then effectively rescind the agreement in the NAFTA forum, based on NAFTA language that is almost identical to the WTO TRIPS provision that the Paragraph 6 Agreement was intended to address. Even if the United States were to insist that the Paragraph 6 Agreement does not cover NAFTA — an argument that would be difficult to sell before a trade tribunal — Canada could defend its Paragraph 6 Agreement implementation under NAFTA’s general exceptions language for intellectual property. It is very hard to see how Canada could lose with this argument.

A final section of the note considers NAFTA’s investment chapter. It notes that the investment chapter specifically states that its relevant provisions do not apply to permissible compulsory licensing of intellectual property. Thus there is no concern that the investment chapter provides an independent basis for challenging Canadian action to implement the Paragraph 6 Agreement.

I. The Paragraph 6 Agreement

In November 2001, WTO member countries adopted the Doha Declaration on the TRIPS Agreement and Public Health. The Doha Declaration reiterated countries’ right to use the flexibilities, including compulsory licensing, contained in the TRIPS Agreement.

The text of the Declaration is at: http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm

Paragraph 6 of the Declaration focused on a particular problem in the TRIPS Agreement, contained in Article 31(f). This provision stipulates that compulsory licenses must be issued predominantly for supply of the domestic market, meaning 50 percent or more of sales of compulsorily licensed products must be in the domestic market.

This poses a problem for countries desiring to import. They have complete rights to issue a compulsory license for import, and can import the totality of the product to be put on the market pursuant to the compulsory license. But if the product is on patent in the potential exporter, a double problem arises. First, a compulsory license must be issued in the exporting country; and second, most of what is produced under the compulsory license in the exporting country must be for domestic consumption. But what if the potential exporter does not want to issue a license for the domestic market? Of what if domestic sales of the potential exporter aren’t large enough to enable significant exports (since under Article 31(f) exports cannot exceed domestic sales)?

In Paragraph 6 of the Doha Declaration, countries committed themselves to reaching a solution to this problem by the end of 2002. Prolonged negotiations ensued, and an agreement was finally reached in August 2003. Subject to certain conditions, the Paragraph 6 Agreement permits countries to issue compulsory licenses exclusively for export.

Implementing this agreement in exporting countries requires the adoption of national legislation.

A news release from the WTO summarized the problem and solution as follows: “Article 31(f) of the TRIPS Agreement says products made under compulsory licensing must be ‘predominantly for the supply of the domestic market.’ This applies directly to countries that can manufacture drugs — it limits the amount they can export when the drug is made under compulsory licence. And it has an indirect impact on countries unable to make medicines and therefore wanting to import generics. They would find it difficult to find countries that can supply them with drugs made under compulsory licensing. … This 30 August 2003 agreement allows any member country to export pharmaceutical products made under compulsory licences within the terms set out in the decision. All WTO member countries are eligible to import under this decision, but 23 developed countries are listed in the decision as announcing voluntarily that they will not use the system to import.”

The text of the agreement, and a TRIPS General Council Chairperson’s accompanying statement are at: http://www.wto.org/english/tratop_e/trips_e/implem_para6_e.htm
http://www.wto.org/english/news_e/news03_e/trips_stat_28aug03_e.htm

Many public health and advocacy groups strongly criticized the agreement, as overly complicated and bureaucratic. A statement criticizing the deal is at: http://www.cptech.org/ip/wto/p6/ngos09102003.html

Many public health and advocacy groups had urged a much simpler solution, based not on Article 31 of TRIPS, but Article 30, a general exceptions provision. This approach, which was adopted by the European Parliament, would have clarified an exception to patent rights in an exporting country, when a firm is exporting a medicine to a country where a compulsory license has been issued or where no patent is in effect. The idea was for the patent holder’s rights to be realized in the importing country.

The public health groups’ proposed approach is at: http://www.cptech.org/ip/health/art30exports.html

The European Parliament legislation is at: http://www3.europarl.eu.int/omk/omnsapir.so/calendar?APP=PDF&TYPE=PV2&FILE=p0021023EN.pdf&LANGUE=EN
(Then go to Amendment 196; ARTICLE 1, POINT 7; Article 10, paragraph 4, subparagraph 1 a (new) (Directive 2001/83/EC))

II. Canada Seeks to Implement the Paragraph 6 Agreement – NAFTA Intellectual Property Issues

Following resolution of the Paragraph 6 negotiations, UN Special Envoy for HIV/AIDS in Africa Stephen Lewis and others issued calls for Canada to adopt legislation to implement the Paragraph 6 Agreement. The government subsequently said it would affirmatively respond to these requests, and is now drafting implementing legislation.

In the course of preparing the legislation, Canadian officials have raised concerns about whether their efforts will be compatible with Canadian obligations under the North American Free Trade Agreement (NAFTA).

NAFTA contains an intellectual property agreement that is very similar to the WTO’s TRIPS Agreement.

While the Paragraph 6 Agreement purports to solve the problem posed by Article 31(f), the same problem is posed by NAFTA Article 1709 (10)(f), which similarly requires that “any such use [compulsory licensing] shall be authorized predominantly for the supply of the Party’s domestic market.”

Thus, the United States (or Mexico), as party to NAFTA, could argue that, while it is permissible in WTO terms for Canada to adopt a licensing system for exports under the Paragraph 6 Agreement, such a system would violate Canada’s NAFTA obligations.

Politically, it is very hard to imagine the United States filing such a NAFTA complaint. The U.S. would certainly face an enormous backlash, following the prolonged and difficult Paragraph 6 negotiations, and the worldwide recognition that the negotiations were designed to address a real and serious problem in the global trading system.

But Canada might reasonably be concerned with meeting its legal obligations under NAFTA, even if they were not likely to be subject to challenge.

Canadian officials should not worry. There are overwhelming legal arguments that Canada can proceed to implement the Paragraph 6 Agreement while respecting its NAFTA obligations.

Canada’s first argument should be that the Paragraph 6 Agreement extends to NAFTA. All parties to NAFTA are parties to the WTO. The WTO engaged in extensive and high-profile negotiations over the Paragraph 6 issue. The source of the Paragraph 6 problem — TRIPS Article 31(f) — is almost exactly replicated in the NAFTA agreement. Good-faith negotiators could not reasonably have intended to reach agreement in the WTO forum and then effectively rescind the agreement in the NAFTA forum, relying on almost exactly the same legal conundrum that the Paragraph 6 Agreement was intended to resolve. The Paragraph 6 Agreement is intended to address pressing health problems and to give force to the WTO rights of importing countries, and restrictive maneuvers in potential exporting countries would effectively sabotage the Paragraph 6 Agreement.

If the United States pressed the issue, and argued that the plain terms of the Paragraph 6 Agreement do not apply to NAFTA, it would have a difficult time explaining why the NAFTA parties’ agreement to the Paragraph 6 solution should not be interpreted as an agreement to apply the same terms to NAFTA.

If for some reason Canada did not prevail on this issue, it could rely on an even stronger second line of defense. NAFTA Article 1706 contains a general exceptions provision similar to that contained in TRIPS Article 30.

Canada could argue that its system to implement the WTO Paragraph 6 system was authorized under NAFTA Article 1706. This would have been a strong argument even in the absence of the Paragraph 6 Agreement — this was the position urged by public health groups — but is extremely strong given the existence of the agreement. The Paragraph 6 Agreement is an international agreement to design a system specifically intended to address the problem Canada is trying to address and specifically intended to authorize the implementation approach Canada is seeking to employ. Given this context, Canada could argue that, if the general exceptions clause of NAFTA is to mean anything, it must be broad enough to authorize Canada’s Paragraph 6 implementation legislation. It is very hard to see how Canada could lose with this argument.

Canada would be especially well positioned to make such arguments, because it has previously argued before WTO dispute settlement panels for broad interpretations of TRIPS Article 30 in relation to pharmaceutical production. Canada has specifically made the argument in relationship to the importance of exports and economies of scale in pharmaceutical manufacturing — the very issues underlying the Paragraph 6 conundrum. (See Canada – Patent Protection of Pharmaceutical Products – Complaint by the European Communities and their member States Report of the Panel, World Trade Organization, WT/DS114/R, 17 March 2000. For the key excerpt, see section 4.38.)

III. The Investment Issue

NAFTA contains another section that might hypothetically pose difficulties for Canadian implementation of the Paragraph 6 Agreement. Chapter 11 of NAFTA protects investments. Its most notable feature is that it permits investors directly to bring suit against, and seek compensation from, countries that have injured them. Other provisions of NAFTA and most trade agreements enable only countries on behalf of their firms to bring challenges against other countries. The investor-to-state element of the investment chapter (as opposed to the state-to-state framework for most trade agreement provisions) removes some of the political checks on filing challenges.

NAFTA Article 1110 prohibits “expropriation” of a foreign investors’ property, except upon payment of compensation equivalent to fair market value for the expropriated property. Under NAFTA, compulsory licensing probably qualifies as a form of “expropriation,” and the compensation owed under the investment agreement probably exceeds what would be owed for compulsory licensing under the intellectual property agreement.

However, NAFTA specifically provides that investment suits may not be brought against compulsory licensing efforts. Article 1110 (7) states:

“This Article does not apply to the issuance of compulsory licenses granted in relation to intellectual property rights, or the revocation, limitation or creation of intellectual property rights to the extent that such issuance, revocation, limitation or creation is consistent with Chapter Seventeen (Intellectual Property).”

Thus, if Canada is compliant with the intellectual property provisions of NAFTA, there is no basis for an investment challenge.

NGO Statement on TRIPS and Public Health Deal at WTO

The August 30 WTO deal on exports of generic medicines is being presented as a gift to the poor. However, it is a “gift” bound tightly in red tape. As a measure of trade policy, it contradicts the basic principles of the WTO and free trade.
———-

The August 30 WTO deal on exports of generic medicines is being presented as a gift to the poor. However, it is a “gift” bound tightly in red tape. As a measure of trade policy, it contradicts the basic principles of the WTO and free trade.(1)

The good news is that the developing countries resisted pressure from the United States, the European Union, Japan and other developed economies to limit the agreement to only a few diseases or for only extraordinary circumstances.

For a WTO “deal” to be more than a public relations exercise for a new round of trade rules, it should actually work in practice. The WTO took a 52-word mechanism(2) that was endorsed by the European Parliament in 2002 and created a 3,200-word maze of red tape that was plainly designed to frustrate and undermine the objective of protecting public health and promoting access to medicine for all.

These are the main problems with the rules:

1. The WTO is requiring the issuance of two compulsory licenses when the new mechanism is used.

2. The WTO has added many constraints on the business practices of the generic companies.

3. The WTO deal introduced an extra layer of uncertainty by stating that the system should not be an instrument to pursue industrial or commercial policy objectives, creating uncertainty over the role that will be played by the businesses that manufacture and sell generic drugs.

4. The decision leaves unclear whether or not economic efficiency is a grounds for determining a lack of manufacturing capacity in the importing country. The lack of clarity on this issue has been defended as a matter of “creative ambiguity”, but already the US is telling the Philippines and other countries that they will oppose “economic efficiency” as grounds for allowing a country to import generics.

5. The deal gives the WTO itself new authority to second guess and interfere in the granting of individual compulsory licenses to generic companies.

6. The United States and other Developed Economies now have greater opportunities to pressure and stop developing countries from issuing compulsory licenses.

The current decision is only a temporary waiver, and a permanent amendment to the TRIPS is scheduled for 2004. We call upon the WTO member countries to draft an amendment to the TRIPS that simplifies and clarifies the procedures and removes unnecessary obstacles to the export of medicines to address public health problems.

We also call upon every country that does not have access to medicines for all to begin to use the TRIPS flexibilities, and the August 30, 2003 decision, to provide affordable medicines to the poor. We urge counties to resist implementation of TRIPS plus obligations in regional or bilateral trade agreements. If the framework imposed on countries by the WTO cannot be used effectively to promote public health and access to medicines for all, then poor countries should not be obligated to issue patents on medicines.

ACT Up Paris
Consumer Project on Technology
Consumers International
Essential Action
European AIDS Treatment Group
Health Action International
Health GAP
International People’s Health Council
Medecins sans Frontieres
OXFAM International
People’s Health Movement
SEATINI
Third World Network
Women in Development

Contacts in Cancun:
ActUp Paris: Gaelle Krikorian, (33) 609-177-055
CPTech: James Love, (1) 202-361-3040
HAI: Spring Gombe, (52) 998-8971-814
HealthGAP: Asia Russell, (1) 267-476-2645
MSF: Ellen t’Hoen, (52) 998-120-9420 or Kris Torgeson, (1) 917-913-0183
Oxfam: Michael Bailey, (52) 998-107-6335
TWN Cecilia Oh (41) 76 523 12 33

_______________________________
Footnotes

1 First, the new “deal” explicitly accepts a protectionist framework, where rich countries can export to poor countries, but 23 rich countries were allowed to bar imports from developing countries. Second, the long list of new regulatory requirements does not apply to compulsory licenses in countries with capacity for manufacturing. Finally, the entire framework of export restrictions is designed to limit rather than promote economic efficiency, the putative rationale for free trade agreements.

2 Amendment 196 to the European Directive on Medicines for Human Use: “Manufacturing shall be allowed if the medicinal product is intended for export to a third country that has issued a compulsory licensing for that product, or where a patent is not in force and if there is a request of the competent public health authorities of that third country.”`

Letter from Eight NGOs to President Bush Asking for the Exclusion of Intellectual Property from the South African Customs Union FTA

Dear President Bush:
Your pending trip to Africa is intended to highlight the administration’s commitment to addressing the HIV/AIDS pandemic on the continent. However, your administration has just commenced trade negotiations with the Southern African Customs Union (SACU) that may severely limit countries’ ability to take appropriate measures to address HIV/AIDS and other serious health problems.
———-

July 2, 2003

President George W. Bush
The White House
1600 Pennsylvania Avenue, NW
Washington DC

Re: Excluding Intellectual Property from negotiations over a U.S.- Southern African Customs Union (SACU) Free Trade Agreement

Dear President Bush:

Your pending trip to Africa is intended to highlight the administration’s commitment to addressing the HIV/AIDS pandemic on the continent. However, your administration has just commenced trade negotiations with the Southern African Customs Union (SACU) that may severely limit countries’ ability to take appropriate measures to address HIV/AIDS and other serious health problems.

Without taking a position on the idea of a U.S.-Southern Africa Free Trade Agreement, we are writing to urge you in the strongest terms to exclude intellectual property from negotiations over any such agreement.

All of the member countries of SACU, as well as the United States, are members of the World Trade Organization. The WTO’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) sets a minimum standard for intellectual property protection.

The TRIPS also includes certain flexibilities, however. In the 2001 Doha Declaration on the TRIPS Agreement and Public Health, countries “affirm[ed] 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.” The Declaration emphasized the flexibilities inherent in TRIPS and countries’ right to use them to the fullest extent possible. “We reaffirm the right of WTO members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose,” the declaration states.

The only purpose of including intellectual property in a U.S.-Southern Africa Free Trade Agreement is to require countries to provide patent and other intellectual property protections that go beyond the requirements of the TRIPS (known as “TRIPS-plus.”). That is, the agreement will seek to limit the very flexibilities that the Doha Declaration, of which the U.S. is a signatory, affirmed.

The Trade Act of 2002 specifically enacts respect for the Doha Declaration as a principal negotiating objective of the United States in trade negotiations with other nations.

Yet in formally notifying Congressional leaders of the Administration’s intent to initiate negotiations for a free trade agreement with the nations of the South African Customs Union, U.S. Trade Representative Robert Zoellick confirmed the U.S. intention to negotiate TRIPS-plus measures. The United States, he stated, would “seek to establish standards that reflect a standard of protection similar to that found in U.S. law and that build on the foundations established in the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPs Agreement) and other international intellectual property agreements, such as the World Intellectual Property Organization Copyright Treaty and Performances and Phonograms Treaty, and the Patent Cooperation Treaty.”

If other U.S. free trade agreements are an indication, among the limitations likely to be included in a U.S.-Southern Africa Free Trade Agreement are:

-Restrictions on the grounds for compulsory licensing: TRIPS provides countries with complete freedom to determine the grounds for granting a compulsory license (authorizing price-lowering generic competition while a product is still on patent). Several U.S. free trade agreements have limited compulsory licensing to a very restricted set of cases, making it almost impossible to undertake compulsory licensing in the private sector.

-Marketing Approval Data Exclusivity: TRIPS imposes an obligation for countries to protect marketing approval data submitted for new chemical entities, but the scope of the required protection is limited. Several U.S. free trade agreements require much more extensive protections, typically five years of exclusivity for all data submitted to show pharmaceutical safety and efficacy, and not just for new chemical entities. Such provisions are likely to keep generics off the market during the period of exclusivity, providing a back-up form of patent protection to block compulsory licensing efforts.

-Linking Marketing Approval to Patent Status: Although the TRIPS agreement is totally silent on the matter, with no such requirements, some U.S. free trade agreements link a party’s ability to get regulatory approval to market a drug to the patent status of the drug. In the United States, this kind of linkage has been subject to frequent abuse, effectively leading to unjustified patent term extensions. Both your administration and Congress have taken recent steps to remedy some of these problems – but our trade policy is seeking to export them to other nations.

These examples are illustrative but not comprehensive. There are many other provisions, commonly urged by the U.S. in free trade agreement negotiations, which also inhibit countries’ TRIPS flexibilities.

For one of the SACU member countries, the stakes are higher still. Lesotho is a least-developed country. Paragraph Seven of the Doha Declaration stipulated that least-developed countries do not need to enforce pharmaceutical patent protections until 2016. To require Lesotho to forfeit this right as part of a Southern African Free Trade Agreement would be a major betrayal of the promise of Doha.

The Southern African region suffers from the highest rates of HIV infection in the world. “National adult HIV prevalence has risen higher than thought possible, exceeding 30 percent” in much of the region, notes UNAIDS. HIV prevalence rates are 38.8 percent in Botswana, 31 percent in Lesotho, and 33.4 percent in Swaziland. South Africa has the world’s largest population of people with HIV/AIDS.

Your AIDS initiative recognizes the imperative of treatment for people with HIV/AIDS. Treatment is expensive, but massive savings are available through use of generic medicines and reaping the benefits of generic competition. Indeed, it will not be practicable for poor countries to provide treatment, or for donors to support treatment efforts, unless lower-priced medicines — only obtainable through generic competition — are used.

Yet the intellectual property measures likely included in a U.S.-Southern Africa Free Trade Agreement will work to delay the entry of generics, and defer the day when consumers and procurement agencies can reap the benefits of generic competition.

This threatens to impede dramatically the effort to provide treatment to people with HIV/AIDS, with devastating consequence for millions. Even if exemptions were included for antiretrovirals, other drugs needed for AIDS-related conditions will remain covered by monopoly-granting patents.

And even if drugs in any way related to AIDS treatment were excluded, the hugely stressed economies of Southern Africa cannot afford to sacrifice the benefits of generic competition for other medicines.

For the majority of the region’s population, higher prices induced by TRIPS-plus provisions in a U.S.-Southern Africa free trade agreement will simply mean they go without essential medications. This is exactly what the Doha Declaration promised would not occur. And it is exactly the opposite of what the United States should be seeking in the region.

Fortunately, there is a simple way to avoid this problem: From the start, exclude intellectual property from negotiations over a U.S.-Southern Africa Customs Union free trade agreement.

We look forward to your response. Please direct your reply to Robert Weissman, co-director, Essential Action, P.O. Box 19405, Washington, DC 20036, 202-387-8030, [email protected]

Sincerely,

Essential Action
Africa Action
Doctor Without Borders/Medicins Sans Frontieres
Health GAP
Consumer Project on Technology
Global AIDS Alliance
Oxfam
ACT-UP Paris

Cc: U.S. Trade Representative Robert Zoellick

Essential Action Comments on Proposed Text of the Free Trade Area of the Americas

To the Office of the U.S. Trade Representative:

Essential Action, a Washington, D.C.-based corporate accountability group with a long-time interest in international trade issues, is pleased to respond to your December 27, 2002 request for comments on the Free Trade Area of the Americas (FTAA), now under negotiation. Our comments here are limited to intellectual property, investment and access to medicines issues.
———-

Robert Weissman
Essential Action
P.O. Box 19405
Washington, D.C. 20036
Tel: 202-387-8030
Fax: 202-234-5176
E-mail: [email protected]
www.essentialaction.org

February 28, 2003

Office of the USTR
Washington, DC 20508

Re: Second Draft FTAA Texts: Written Comments

To the Office of the U.S. Trade Representative:

Essential Action, a Washington, D.C.-based corporate accountability group with a long-time interest in international trade issues, is pleased to respond to your December 27, 2002 request for comments on the Free Trade Area of the Americas (FTAA), now under negotiation. Our comments here are limited to intellectual property, investment and access to medicines issues.

Our comments are based on the draft FTAA text made available following the ministerial meeting in Quito. Any analysis of the new draft must begin with the caveat that, because the text is so heavily bracketed and because country supporters of varying provisions remain secret, it is hard to state anything about the new draft with certainty. There are many directly contradictory provisions in the current text, and no way to know which version will end up in the final text, assuming a final version is ultimately negotiated. The FTAA negotiators must include the footnotes indicating which countries support which provisions for more informed public scrutiny to occur; excluding this information serves only to hide from citizens their countries’ negotiating posture — all of the other negotiators know which countries introduced and support which provisions.

With that caveat, we are deeply concerned about the draft FTAA’s provisions on intellectual property and their implications for people in the hemisphere obtaining access to essential medicines. These provisions would delay the introduction of generic competition, which in a market economy is the most important means to drive down the price of medicines, with the potential exception of price controls.

Essential Action submitted detailed comments on the intellectual property provisions of the first draft text and their impact on access to medicines. (Those comments are on the web at: http://lists.essential.org/pipermail/ip-health/2001-August/001761.html.) Unfortunately, some version of all of the provisions from the first draft that would, if enacted, hinder access to medicines, remain in the second text.

Key problem provisions in the current text would:

1. Limit compulsory licensing to the public sector and for emergencies (Article 5.1 (a) and (b) on page 9.31). The exclusion of private sector entities from receiving compulsory licensing is a major, and dangerous, exclusion. In many developing countries, the public sector is too impoverished to provide full access to healthcare. Private sector involvement is typically a vital supplement — not a substitute — for the public sector. For a variety of reasons, private sector healthcare insurers or providers, or private pharmaceutical companies, may be able to reach patients that the public sector cannot. Moreover, there is strong market and political pressure on many developing countries to privatize healthcare, or shift greater public health responsibilities to the private sector. If current trends continue, the private sector will have greater and greater responsibility for providing healthcare to citizens. Where compulsory licensing is important to facilitate access to medicines, a limit to the public sector will likely mean that many people are denied access to medicines.

2. Prohibit the export of compulsorily licensed goods (Article 5.1(c) on page 9.31). Exports can be important for efficient and effective compulsory licensing both in the exporting and importing countries, so that sufficient economies of scale are obtained. This prohibition would interfere with such efficiencies, and in many cases prevent compulsory licensing from being viable. Paragraph 6 of the Doha Declaration on TRIPS and Public Health specifically acknowledged the problem posed by the TRIPS requirement that compulsory licensed goods be produced predominantly for the domestic market: “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.” A bar on exports would seriously exacerbate the problem by preventing any exports at all.

3. Bar the use of compulsory licensing until four years after a patent was granted (Article 5.3 on page 9.31). Delays in issuing a compulsory license delay the benefits of competition and lower prices to consumers.

4. Prohibit sublicensing of compulsory licenses (Article 5.3 on page 9.31). Many potential compulsory license applicants do not have manufacturing capacity. These potential applicants include nongovernmental healthcare providers, insurance companies, and private hospitals. If these potential applicants are not able to authorize manufacturers to make the product — for sale to the compulsory licensee only, not generally for the market — they may have no way to access supply.

5. Link approval to market pharmaceuticals to patent status, effectively making FDA-type agencies into patent enforcement agencies (Article 1.5 on page 9.41). If generic companies cannot gain regulatory approval to put a drug on the market, they will have less economic incentive to challenge the validity of claimed patents. They will have to wait until a patent challenge — which may take many years — is resolved by the courts before putting their product on the market. In many cases, the costs of legal representation plus delay will simply be too high, and they will wait for all patents claimed on a product to expire before entering the market. This may delay the entrance of generics by years.

6. Require all countries to grant five years of exclusivity protections to marketing approval data, imposing an important bar to timely compulsory licensing (Articles 1.2 and 1.4 on page 9.41). If generics firms are not able to rely on the safety and efficacy date submitted by brand-name companies, in many cases they simply will not enter the market until they are permitted to rely on the data. Re-doing the tests conducted by the brand-name companies is not only wasteful, it is frequently too time consuming and expensive for the generic firms. The impact of this provision is likely to be to bar compulsory licensing for the term of the data protection.

7. Extend the patent term, to offset regulatory delays (Article 8.2 on page 9.33) and to match extended terms in other countries (Article 1.5 on page 9.41). The 20-year patent term required by the TRIPS Agreement was set with an awareness of potential regulatory delays. Requiring offsets simply hands a unreciprocated gift to patent holders, upsetting the balance between private incentives and public access inherent in the patent system and delaying the introduction of price-lowering generic competition.

8. Require judicial review of all matters related to intellectual property (Article 1.6) on page 9.44); in contrast, the WTO TRIPS agreement permits administrative review of compulsory licensing decisions. The requirement of judicial review adds expense and time delays, in the best scenario, to compulsory licensing cases. A worse, and perhaps more likely, scenario is that the possibility of being tied up in court will deter potential compulsory license applicants from ever submitting applications.

There are other potential problems for ensuring broad access to medicines and use of compulsory licensing in the investment chapter of the FTAA. Intellectual property is specifically included as a kind of investment covered by the investment chapter.

These include the same problems as from the previous draft:

-Performance Requirements that would potentially prohibit compulsory licensing. Even if exclusions for compulsory licensing are included, the coverage of all performance requirements not compatible with specified exclusions will dramatically chill countries’ willingness to undertake compulsory licensing.

-Expropriation provisions that would make compulsory licensing not feasible, by setting compensation arrangements that would undermine compulsory licensing’s competition-inducing and price reduction benefits.

-Investor standing to sue governments to enforce investment protections. With patent holders given rights to sue governments directly over intellectual property disputes, the “flexibility” that the United States says characterizes its present approach to intellectual property and public health matters would be largely meaningless. Even where the U.S. government chose to exercise its discretion not to challenge another country’s law, regulation, or rule, a patent holder could proceed to do so.

It is possible to imagine intellectual property-related agreements that promoted information sharing, research on neglected diseases, enhanced consumer protections from invalid patents and other pro-public domain and pro-consumer measures, but there is no evidence that the United States has considered such provisions, or that they have ever been seriously raised in the FTAA negotiations.

Absent such measures, we believe there should be no intellectual property provisions in the FTAA. Every FTAA-negotiating country is a member of the WTO, and already obligated to adhere to TRIPS. Intellectual property protections can therefore only add to the level of protection already required, inhibiting access to medicines. Even identical provisions in the FTAA will mean that potential pro-consumer reforms at the WTO will have no impact in the hemisphere, because countries will still be obligated to meet the pre-reform standards in the FTAA.

Sincerely,

Robert Weissman,
Co-director, Essential Action

Essential Action Preliminary Assessment of New Draft FTAA provision on Intellectual Property and their Implications for Access to Medicines

This analysis is based on the draft Free Trade Area of the Americas text made available following the ministerial meeting in Quito. It is on the web at http://www.ftaa-alca.org. Like the first draft of the agreement made public, the current text is almost entirely in brackets, indicating that provisions are still under negotiation. Also like the first draft, the current text is stripped of footnotes indicating which countries support which provisions, making it very hard to anticipate which proposals are most likely to be included in the final draft.
———-

NOVEMBER 6, 2002

This analysis is based on the draft Free Trade Area of the Americas text made available following the ministerial meeting in Quito. It is on the web at http://www.ftaa-alca.org. Like the first draft of the agreement made public, the current text is almost entirely in brackets, indicating that provisions are still under negotiation. Also like the first draft, the current text is stripped of footnotes indicating which countries support which provisions, making it very hard to anticipate which proposals are most likely to be included in the final draft. The FTAA negotiators must include this information for more informed public scrutiny to occur; excluding this information serves only to hide from citizens their countries’ negotiating posture — all of the other negotiators know which countries introduced and support which provisions.

Essential Action prepared a detailed analysis of the intellectual property provisions of the first draft text and their impact on access to medicines, in the form of comments submitted to the Office of the U.S. Trade Representative. Those comments are on the web at: http://lists.essential.org/pipermail/ip-health/2001-August/001761.html. They describe the importance of the damaging provisions that are highlighted in this short memo. Essential Action prepared a shorter, more narrative version of its analysis for the Foreign Policy in Focus series. That is on the web at: http://www.fpif.org/briefs/vol6/v6n13meds_body.html.

Any analysis of the new draft must begin with the caveat that, because the text is so heavily bracketed and because country supporters of varying provisions remain secret, it is hard to state anything about the new draft with certainty. There are many directly contradictory provisions in the current text, and no way to know which version will end up in the final text, assuming a final version is ultimately negotiated.

What can be said is this: Some version of all of the provisions from the first draft that would, if enacted, hinder access to medicines, remain in the second text.

Key problem provisions in the current text would:

1. Limit compulsory licensing to the public sector and for emergencies (Article 5.1 (a) and (b) on page 9.31).

2. Prohibit the export of compulsorily licensed goods (Article 5.1(c) on page 9.31).

3. Bar the use of compulsory licensing until four years after a patent was granted (Article 5.3 on page 9.31).

4. Prohibit sublicensing of compulsory licenses (Article 5.3 on page 9.31).

5. Link approval to market pharmaceuticals to patent status, effectively making FDA-type agencies into patent enforcement agencies (Article 1.5 on page 9.41)

6. Require all countries to grant five years of exclusivity protections to marketing approval data, imposing an important bar to timely compulsory licensing (Articles 1.2 and 1.4 on page 9.41).

7. Extend the patent term, to offset regulatory delays (Article 8.2 on page 9.33) and to match extended terms in other countries (Article 1.5 on page 9.41)

8. Require judicial review of all matters related to intellectual property (Article 1.6) on page 9.44); in contrast, the WTO TRIPS agreement permits administrative review of compulsory licensing decisions.

9. Require harsh penalties, including criminal enforcement, for intellectual property violations — although, importantly, criminal enforcement would not be required for patent violations (Article 4, page 9.47).

There are other potential problems for ensuring broad access to medicines and use of compulsory licensing in the investment chapter of the new FTAA text.

These include the same problems as from the previous draft:

-Performance Requirements that would potentially prohibit compulsory licensing;

-Expropriation provisions that would make compulsory licensing not feasible, by setting compensation arrangements that would undermine compulsory licensing’s competition-inducing and price reduction benefits.

-Investor standing to sue governments to enforce investment protections.

Intellectual property is specifically included as a kind of investment covered by the investment chapter. There are various provisions that would exempt compulsory licensing, but these, of course, are bracketed and may be removed. They are also insufficient; even if the compulsory licensing exclusion is maintained, a wrongly issued compulsory license would be subject to the investment provisions and its compensation scheme, and that prospect alone would deter issuance of compulsory licenses.

Robert Weissman
[email protected]

Essential Action
P.O. Box 19405
Washington, DC 20036
Tel: 202-387-8030
Fax: 202-234-5176

NGO Letter on the TRIPS and Public Health Issue

Open letter to Trade Ministers:
We ask trade ministers to reject the efforts of the United States and the European Commission to force a limited and narrow solution to the issues raised in paragraph 6 of the Doha Declaration on TRIPS and public health. The solution to paragraph 6 should allow every country to deal effectively with abuses of patent rights for any health care product. The model for a solution on paragraph 6 is not the restrictive one sought by the EU and US trade negotiators, who are seeking to protect their export pharma industries, but rather the solution recently endorsed by the European Parliament.
———-

November 12, 2002

Open letter to Trade Ministers:

We ask trade ministers to reject the efforts of the United States and the European Commission to force a limited and narrow solution to the issues raised in paragraph 6 of the Doha Declaration on TRIPS and public health. The solution to paragraph 6 should allow every country to deal effectively with abuses of patent rights for any health care product. The model for a solution on paragraph 6 is not the restrictive one sought by the EU and US trade negotiators, who are seeking to protect their export pharma industries, but rather the solution recently endorsed by the European Parliament.

On October 23, 2002, the European Parliament adopted, by 504 to 30, the report by Mrs Françoise Grossetete (EPP-ED, F) together with Amendment 196, offered by Ms Dorrette Corbey (Dutch Labour), which aims to update an EU code (Directive 2001/83/EC) relating to medicinal products for human use. Amendment 196 states:

Manufacturing shall be allowed if the medicinal product is intended for export to a third country that has issued a compulsory license for that product, or where a patent is not in force and if there is a request to that effect of the competent public health authorities of that country.

The approach in Amendment 196 sets out the basic framework for a solution to the paragraph 6 problem. It would allow generic manufactures in any country to supply consumers in any country, so long as the sale of that product was legal and appropriate in the country where it was to be used by patients (when the legitimate rights, if any, of the patent owners, are protected in the country where the product was consumed).

There is no evidence that the use of compulsory licenses has been abused by any country, for any product. The approach taken by the European Parliament would insure that compulsory licensing will continue to be an effective tool to address abuses of patent rights (including cases where a creditable threat to issue a compulsory license can address abusive pricing) after developing counties comply with WTO TRIPS obligations.

Sincerely,

Pia Valota
Association of European Consumers

Cecile Oh
Third World Network
Malaysia

James Love
Consumer Project on Technology
USA

Celine Charveriat
Oxfam International

Benedicte Federspiel
The Danish Consumer Council
Denmark

Ellen ‘t Hoen
Medecins Sans Frontieres
France

Robert Zulu
Africa alive!
Zambia

Kenneth V. Georgetti
Canadian Labor Congress

Andrew Goldberg
Consumers Union
USA

Machiel van der Velde
Consumentenbond
(Dutch Consumer Organisation)

Mark Silbergeld
Consumer Federation of America
USA

Asia Russell
Health Gap
USA

Allan Asher
Consumers’ Association
UK

Rod Leonard
Community Nutrition Institute
USA

Sanjay Basu
United Trauma Relief
Cambridge, MA USA

Chela Vazquez
Institute for Agriculture and Trade Policy
Minnesota, USA

Robert Weissman
Essential Action USA

Consumer Unity & Trust Society,
Jaipur, India.

Richard Elliot
Canadian HIV/AIDS Legal Network

Dr K Balasubramaniam
Health Action International Asia – Pacific

Dr Gopal Dabade,
BUKO Pharma-Kampagne
Bielefeld, Germany

Alastair Fraser
ACTSA – Action for Southern Africa
London

Steve Watrous
Wisconsin Fair Trade Campaign
Milwaukee, WI USA

Rosemary Forbes
Interagency Coalition on AIDS and Development (ICAD)
Ottawa,Ontario Canada

Kathleen McNeely
Maryknoll Office for Global Concerns
Washington DC

Gracie Fong
Development Alternatives with Women for a New Era (DAWN)
Suva, Fiji Islands