SUMMARY

On August 30, 2003, WTO Members reached agreement on an important and overdue Decision (original deadline was December 2002) setting out a system to assure the supply of cheaper drugs to least developed countries and other developing countries in situations of national health emergencies or extreme urgencies.

Since December 2002, the United States has been the lone holdout on reaching a final deal due to concerns of patent infringement arising from illegitimate use of compulsory licensing, among other reasons. Since WTO Members agreed to the Declaration on TRIPS and Public Health at the Doha Ministerial in 2001, they have sought to strike a balance between the interests of patent protection and the health needs of developing countries, especially in sub-Sahara Africa. Paragraph 6 of the Declaration required further guidance on implementation, in particular with respect to countries that have insufficient or no manufacturing capacity.

In addition to the latest Decision, Members agreed on a controversial General Council Chairman’s Statement. The Statement contains several key shared understandings of Members regarding the Decision that was adopted and the way it will be interpreted and implemented. In particular, the Statement provides that Members will take “all reasonable measures ” to prevent diversion of cheaper drugs produced under the new system, and sets forth some of the anti-diversion measures that are likely to be implemented.

Although the TRIPS and Public Health issue is not formally part of the Cancun agenda, a failure to conclude a deal prior to Cancun would have complicated negotiations on other issues.

ANALYSIS

I. Background on TRIPS and Public Health: An Elusive Remedy

On August 30, 2003, at the last General Council meeting before the Cancun Ministerial, WTO Members reached an important agreement on the implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health (“TRIPS and Public Health Declaration”).

HIV, malaria and tuberculosis, among other diseases, pose enormous public health problems for many developing countries. Paragraph 6 of the TRIPS and Public Health Declaration recognized 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(1).” Members instructed the TRIPS Council to find a solution to this problem before the end of 2002. By December 2002, all Members except the United States were prepared to conclude a deal based on a draft Decision by Ambassador Carlos Perez Motta of Mexico, then Chair of the TRIPS Council. The United States resisted the deal due to concerns of patent infringement arising from illegitimate use of compulsory licensing by countries with manufacturing capacity such as India and Brazil, among other reasons

The failure of the Members to find a timely solution to this problem, which is of serious concern to many developing country Members in sub-Sahara Africa and elsewhere, has soured the ongoing trade negotiations, including preparations for the Cancun Ministerial.

II. Decision and Statement on TRIPS and Public Health: Steps Toward a Cure

Members on August 30, 2003 adopted:

• a Decision establishing a system to provide developing countries that lack manufacturing capacity with access to cheaper drugs(2). The Decision draws on a draft text circulated by the former Chairman of the TRIPS Council Carlos Perez Motta to WTO Members on December 16, 2002.
• a Chairman’s Statement that will be accompanying the Decision, which represents several key shared understandings of Members regarding the Decision that was adopted and the way it will be interpreted and implemented(3).

A. The Decision of August 30, 2003

The decision provides, inter alia, for (i) conditions to be met by the compulsory licensee to be issued; (ii) the waiver procedure; (iii) remuneration to the patent owner; (iv) measures to prevent trade diversion; (v) the commitment to not challenge any measures taken in conformity with the provisions of the waivers; and (vi) criteria for the assessment of manufacturing capacities in the pharmaceutical sector. It is worth noting that the decision does not limit the scope of the system to specific diseases.

For the purpose of this Decision, the following terms are applicable:

• Covered products - The Decision defines as a “pharmaceutical product” any patented product, or product manufactured through a patented process, of the pharmaceutical sector needed to address the public health problems as recognized in paragraph 1 of the Declaration (i.e. “especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics”). It is understood that active ingredients necessary for its manufacture and diagnostic kits needed for its use would be included;
• Eligible importing Member - Defined as any least-developed country Member, and any other Member that has made a notification to the Council for TRIPS of its intention to use the system as an importer. A Member may notify at any time that it will use the system in whole or in a limited way, for example only in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. It is noted that some Members will not use the system set out in this Decision as importing Members (e.g. developed, including most OECD countries) and that some other Members (e.g. advanced developing, including Chinese Taipei, Korea and Turkey); have stated that, if they use the system, it would be only in situations of national emergency or other circumstances of extreme urgency; and
• Exporting Member - Defined as a Member (e.g. some developing countries, including India and Brazil) using the system set out in this Decision to produce pharmaceutical products for, and export them to, an eligible importing Member (e.g. least developed countries, including in sub-Sahara Africa).

B. The General Council Chairman’s Statement

During the course of an extraordinary meeting of the TRIPS Council held on August 28, WTO Members discussed a draft Chairman’s statement intended to introduce additional safeguards to the draft Decision - at the insistence of the United States. At first, the draft statement generated a considerable amount of controversy relating to its wording and legal effect, necessitating several meetings held over the course of three days, before the residual difficulties were solved on August 30.

The final Statement is widely perceived by both developed and developing country WTO Members to be balanced, and to provide the assurances sought by the pharmaceutical industry that drugs manufactured under compulsory licenses will not be diverted to markets where they could command a higher price, and for commercial reasons. This issue was an important stumbling block for manufacturers in developed countries, particularly in the United States.

The final Statement contains:

1. “Good faith” - Assurance that the new system will be used in “good faith” and not as an instrument to pursue industrial or commercial policy objectives;
2. Prevention of diversion - Recognition that the new system would be defeated if products are diverted from intended markets;
3. Provision for special packaging - An understanding that special packaging, shapes and coloring for pharmaceuticals supplied through the new system should not have a significant effect on the price of these pharmaceuticals;
4. Best Practices - Guidelines on Best Practices to prevent diversion;
5. Transparency - Provisions promoting transparency and the resolution of issues;
6. Members opting out - List of (e.g. developed and most OECD) WTO Members who have opted out of the system(4);

(vii) Future EU members opting out - List of countries soon to join the European Union who will then opt out of the system and who will only use the system in the interim in situations of national emergency or other circumstances of extreme urgency(5), and lastly,

(viii) Limited use by other Members - List of WTO Members (e.g. advanced developing) who have agreed only to use the system in situations of national emergency or other circumstances of extreme urgency(6).

C. Agreement to Conclude an Amendment to the TRIPS

The final provision of the Decision contains an agreement by Members to initiate by the end of 2003, work on the preparation of an amendment to the TRIPS Agreement with a view to its adoption within six months. This amendment should be based, where appropriate, on the terms of the Decision adopted on August 30. Members also agreed that the Decision, including the waivers granted in it, will terminate for each Member on the date on which the amendment to the TRIPS Agreement replacing its provisions (i.e. Art. 31.f) takes effect for that Member.

Finally, Members agreed that this mandate for further negotiations on this issue should not be part of the single undertaking of the Doha Round of negotiations.

OUTLOOK

Progress on the TRIPS and Public Health issue is of vital importance to many developing countries, particularly those of Sub-Saharan Africa that are gravely affected by HIV, malaria and tuberculosis and that lack the capacity to manufacture sophisticated pharmaceutical products. Due to the previous impasse on this issue, many developing countries had begun to fear that they would gain little from the so-called Doha “Development Round.” In fact, some countries warned that without progress on the TRIPS and Public Health Issue - they might not support moving the agenda forward on other issues at Cancun.

WTO Members’ ability to reach agreement on the Decision and Chairman’s Statement has cleared a potentially serious obstacle at Cancun, and has provided the current round with a much needed boost in the run up to Cancun. The recent agreements also provide the developing world with greater hope to respond to heath crises in the longer term.

(1) Declaration on the TRIPS Agreement and Public Health, Paragraph 6, WT/MIN(01)/DEC/W/2, November 14, 2001. A major limitation in compulsory licensing under Article 31 (f) of the TRIPS Agreement is the requirement that a product made under a compulsory license be supplied predominantly to the licensee's domestic market, unless the license was issued to remedy anti-competitive practices (Art. 31 (k) of the Agreement). This means in practice that a large number of developing and least developed country Members cannot effectively grant such licenses because they lack or have insufficient capacity to manufacture medicines. At the same time, they cannot import generic medicines manufactured under a compulsory license by another Member because Article 31 (f) requires that production must be predominantly for the domestic market.

(2) WT/L/540.

(3) A footnote to the Decision provides that "this Decision was adopted by the General Council in the light of a statement read out by the Chairman, which can be found in JOB (03)/177. This statement will be reproduced in the minutes of the General Council to be issued as WT/GC/M/82."

(4) Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom and United States of America.

(5) Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia.

(6) Hong Kong China, Israel, Korea, Kuwait, Macao China, Mexico, Qatar, Singapore, Chinese Taipei, Turkey, United Arab Emirates.