Health GAP
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Brook K. Baker, Health GAP

As the pharmaceutical industry in the United States prepares to celebrate its new victory at the WTO and as 146 WTO members stand on the verge of agreeing to a disastrous Note from the Chairman further eviscerating the historic Doha Declaration on the TRIPS Agreement and Public Health, announced so auspiciously just two years ago, it is crucial to point out just what is being lost in the new agreement.

Vows of Poverty

There is great confusion in the international press and NGO community about the text's good faith requirement which reads: "Members recognize that the system that will be established by the Decision should be used in good faith to protect public health and, without prejudice to paragraph 6 of the Decision, not be an instrument to pursue industrial or commercial policy objectives." Reports in the press have argued that the text is designed to limit drug use in the importing country to public, non-commercial use (Wall St. Journal 8/28/03), that it applies to both locally produced generics and imported ones (Kaiser Daily HIV/AIDS Report 8/28/03), and that developing countries should not take measure to promote a domestic pharmaceutical industry (TWN Info Service on WTO Issues 8/27/03).

A far more plausible interpretation of this requirement in not that it is directed at the importing country, but rather than it is designed to cripple generic exporters by requiring a vow of poverty. In this regard, it is important to remember that the U.S.T.R., Robert Zoellick at a July 30 press conference in Montreal, expressly stated that the U.S. does not was the new post-Doha system to become a loophole for creating a commercial export industry. Zoellick and the proprietary drug industry have consistently charged that the production-for-export system could be "abused" by the generic drug industries in Brazil, China, and most especially India. To limit that alleged abuse, the US/Pharma team have now succeeded in arguing that exporting countries should not grant compulsory licenses for export in furtherance of "any industrial or commercial policy objective." In other words, if such production were to result in expansion of the generic industry, or, God forbid, if any of the generic producers actually made any money, then the exporting nation would be subject to review and sanction within the WTO.

It is amazing that the WTO, which allegedly worships at the altar of free-trade, should require one industry, the generic export industry, to invest in high-volume, no-profit sales of life-saving medicines. The proprietary industry complains bitterly about its need for profits, already the world's highest, but castigates its sister industry for also trying to turn a profit while selling medicines at a substantial discount to the patent industry's lowest discount offers.

It's certainly problematic that the meaning of the Chairman's text is so uncertain that even leading financial reporters can't get it straight, but I'm sure the generic industry in India, China, and Brazil recognize this shot across their bow.

Shrinking Markets

In addition to de-incentivizing generic production by requiring vows of poverty, the U.S., via the Chairman's text, has also succeeded in dramatically reducing the size and purchasing power of countries that might import generic medicines to meet their public health needs. Not only have 23 rich countries, representing 80% of global drug sales opted out of the export/import option, ten countries seeking admission to the E.U. have also restricted their option to import. After limiting import to national "emergencies or other circumstances of extreme urgency," these relatively poor countries in Central and Eastern Europe will renounce all such rights to import upon accession to the E.U.

In addition to these 33 countries, the U.S. has secured agreement from another 11 countries, listed in an earlier draft, which also agree to use the export/import system only in cases of emergency or urgency (Chinese Taipei; Hong Kong, China; Israel, Republic of Dkorea; Kuwait; Macao, China; Mexico, Qatar; Singapore; Turkey; and the United Arab Emirates).

However, the U.S. is not content with eliminating 85% of the potential market, it has also imposed a requirement that countries issuing compulsory license for import must explain their determination that they lack sufficient capacity to manufacture drugs domestically and then subject themselves to WTO review and discipline if their determination is challenged. Accordingly, some other middle-income countries with fledgling pharmaceutical capacity might be deterred from seeking substantially cheaper imported generics because of fear of U.S. retaliation.

One could reasonably ask why the U.S. is so interested in preserving big Pharma's market share in countries that represent such a small portion of global drug sales (Africa 1.2%, poor countries in Asia 2.6%, and Indian subcontinent 1.3%). The cynical answer is that Pfizer and other gigantic drug companies have never seen a penny of profit from a drug sale that they think should not be theirs. A more nuanced explanation is that the U.S., the E.U., and Big Pharma are basically contriving to forestall or prevent entirely the emergence of a dynamic generic drug industry in the global South that can produce and trade essential medicines at a fraction of the cost of monopoly-priced medicines produced in the North. Accordingly, when the TRIPS Agreement becomes totally operation (except in least developed countries) in 2005-06, Pharma's monopoly markets will be secured with respect to all of the newest drugs (including pipeline drugs patented since 1995).

Burdensome Manufacturing

One of the reasons that the Doha Declaration held such promise is that it could engender robust competition among a group of large-scale efficient generic manufacturers who could compete to produce lowest-cost, standard quality medicines. Achieving such cost-efficiencies is strongly dependent on large production runs of standard size, shape, and colored pills and capsules. Rather than allow such cost-efficient production, however, the Chairman's text now imposes onerous manufacturing constraints that require altering pill size, shape, and color so as not to duplicate the appearance of proprietary drugs.

In defense of this costly requirement, the Chairman's text raises the red herring of trade diversion. Let there be no mistake. No generic producer is going to produce medicines in packages and with labeling that would even remotedly infringe trademark and trade dress rights of proprietary manufacturers. These generic producers are already producing generic copies of virtually every medicine produced by Northern patent-holders, but they don't want to get sued, so they already alter labeling, naming, and packaging. Are these generic "copies" being sold on street corners or in pharmacies in Europe and the U.S.? The obvious answer is no. The U.S. and the E.U. prohibit importation and sale of these medicines and have strong border protections to prevent anything but episodic violations.

The product diversion explanation for costly production standards is a sick joke. Once again the U.S. and Pharma want to complicate the production of generic medicines and reduce their cost advantages. They simply aren't content to receive royalties on large-volume sales ? they are intent on reducing the incentive of generic countries to invest and compete on international markets.

Procedural Nightmares

The Chairman's "explanatory" text is bad enough, but it builds on the edifice of a deeply flawed compromise text, the so-called Motta Document from December of 2002. It's weaknesses are well understood and amply described, but perhaps too little emphasis is placed on the deterrent effect of procedural loopholes. In order to import medicines in a country where a drug has been patented, the following steps must be followed: (1) the importing country must seek a voluntary license on commercially reasonable terms for a commercially reasonable period of time; (2) failing that someone must apply for a compulsory license; (3) if the compulsory license is for import, the importing country must assess its generic industry's capacity to produce the medicine locally; (4) if capacity is insufficient, it must notify the WTO of its decision and explain and justify its decision re capacity in detail; (5) the importing country must notify a potential exporter; (6) that exporter must in turn seek a voluntary license on commercially reasonable terms for a commercially reasonable period of time; (7) that exporter must seek a compulsory license from its own government on a single-country basis; (8) compensation by royalty must be set based on standards of reasonableness in the importing country; (9) if a license is granted, the exporter must investigate pill size, shape, coloring, labeling, and packaging of the patent-holder's product in the importing country and different its new product in all respects, regardless of cost; (10) obviously, the generic producer will need to seek product registration and prove bio-equivalence based on a pill of different size and shape. This process must be fulfilled over and over again for each and every drug and for each and every country to whom the drug will be exported. This procedural nightmare may create a cottage industry for lawyers, but it will not expedite the delivery of affordable medicines to people dying of treatable diseases.

Why?

Many activists, in both developing and developed countries, wonder why developing countries are giving up on the splendid victory they won at Doha. The Doha Declaration states in paragraph 4 that "We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, ? 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." Why if you had won the right to access to medicine for all would you accede to the Motta Agreement and the Chairman's Statement when they are both so flawed?

The unfortunate truth is that U.S. threats, delays, and promises work to undermine the unity and commitment of developing countries. From the very beginning the U.S. has tried to divide developing countries into two blocks countries with existing generic industries, especially India and Brazil, and countries which might hope to develop such industries as part of the industrialization policy. Thereafter, the U.S. imposed condition after condition in proposed texts trying to shrink the potential market for generics while holding out the illusory possibly of local production in countries that for the most part lack any reasonable prospect to producing medicines efficiently on their own. Finally, the U.S. used its big-stick trade, aid, and investment diplomacy. It appealed to neo-liberal leadership in developing countries that direct foreign investment was dependent on their restraint in using TRIPS-compliant loopholes to access cheaper medicines. It used promises of future aid dollars, both development dollars and dollars from the new U.S. global AIDS initiative, to destabilize the block of countries that had been united on the medicines issue.

Most recently, in anticipation of the upcoming WTO talks in Cancun, the U.S. has made extremely veiled, and ultimately illusory, references to potential concessions in agricultural trade policy and textiles in this so-called development round. In essence, by linking export trade and health, the U.S. was able to bully developing countries to trade health for temporary gains in export access to lucrative U.S. markets. People's lives are being bartered away to secure Pfizer's multi-billion dollar profits in exchange for selling a little more corn and some teeshirts in Kansas.

Is it too late?

The final question is "Is it too late for developing countries to reverse this disastrous capitulation to U.S. power?" Of course it is not too late. One brave country or an alliance of health-seeking nations could speak truth to power and say "We will not let our people die." Ironically, the SADC countries of Southern Africa announced just on Tuesday their collective will to stand up to the U.S. on the access to medicines issue. This statement was released even as South African negotiators were undermining their shared regional interests.

The "compromise" on the table is all compromise from developing countries and all illusion from the U.S. The U.S.'s persistent, never-ending pursuit of enhanced intellectual property protections at the behest of its pharmaceutical and soft-ware industries will never cease. What it doesn't win at Cancun, it will pursue in its bilateral and regional trade agreements such as those being negotiated in the Americas and in the Southern Africa Custom Union right now. Developing countries should know that whatever promises the U.S. has made to secure agreement with the Chairman's text will not be honored. They should understand that the U.S. will be back for more intellectual property protections at its next meeting with trade ministries. Either you stand up for the human right to health or you engage in the most cynical form of political compromise.