[Ip-health] US in Philippines - "large economies of scale are the norm and small production runs tend to raise prices"

[James Love]

One the major problems in the 16 December 2002 Motta text
for a "solution" to paragraph 6 concerns the Annex, which
defines "manufacturing capacity" for purposes of eligibility
to import.  The United States, the EU, and the Swiss
succeeded in extracting an extremely narrow definition of
capacity that does not addresses the economic feasibility of
manufacturing.  Under this text, Brazil, Kenya, South
Africa, Ghana, Nigeria, the Philippines, Malaysia, Indonesia
and indeed most non-LDCs would not qualify for imports.
Contrast this to the discussion in the Canadian Bolar case
where economies of scale and economic feasibility were the
key issues in the Canada Article 30 export provision.
Consider also the statement below from the US Department of
State in a dispute in the Philippines in 1999 involving a
proposal in the Philippines to require broader use of
generic names in prescribing and labeling of medicines.
Read also the two cables below which describe how the US
Department of State coordinates trade pressure against the
use of generic drugs, in this case for drugs off patent.


         "large economies of scale in the
         [pharmaceutical] industry are the norm
         and that small production runs would
         tend to raise prices, not lower them."

         US Department of State, 1999



R 200944Z July 99
FM AMEMASSBY Manila
To SecState Washdc 3380
INFO USDOC Washdc
USMission Geneva

Sensitive

Geneva for USTR
USTR for S.Murphy
USTR also for Office of General Counsel
USDOC for 4430/ITA/MAC/Asia & PAC/Korea & SE Asia
USDOC for 6130/ITA/TD/BI/CHEMS & ALLIED PRODUCTS
STATE  for EAP/PIMBS and EB/IPC
E.O. 12958: N/A
TAGS: ETRD, KIPR, SOCI, WTRO, RP
SUBJECT: Philippines: Brand-Name proposal Amcham meeting

1.      (SBU) The America Chamber's Pharmaceutical
  committee met July 19 to Discuss Strategy on the Draft AO
  Restricting use of pharmaceutical brand names.  Reps from
  Merck; Lilly; Pfizer; Abbott, Novartis; and Schering
  attended, along with [1.5 lines of names deleted] ECONOFF
  attended.

2.      (SBU) ECONOFF briefing the group on the Embassy's
  recent actions on this issue, including Commerce Secretary
  Daley's letters and the Ambassador's recent meeting with
  PARDO. ECONOFF said we see no improvement in the revised
  draft but are awaiting formal comments/views from
  Washington, particularly on whether any WTO obligations are
  compromised. ECONOFF noted that, aside from WTO, there is
  also the GSP angle, although this depends on industry filing
  a petition which then will go through a review process.

U.S. Firms for fighting

3.      (SBU) All the reps from the U.S. Subsidiaries said
  they have clear instructions from their home offices to
  fight the AO, and not to negotiate.  The home offices of the
  European subs have told the local subs it's a problem for
  them (the local reps) to deal with.  The EU delegation is
  basically all back in Europe on vacation.  Novartis will
  contact the Swiss embassy again for help.  Smith-Klein-
  Beecham supports the US Stand, and has been in contact with
  the UK embassy.

PHAP FAVORS NEGOTIATING

4.      (SBU) [name deleted] argued for negotiating wit the
  DOH Secretary Romualdez this week.  [Name delete] said
  PHAP'S legal counsel says the grounds for challenging the AO
  under local law =93seems weak,=94 given the change in focus away
  from IPR elements.  [    ] says Romualdez told him he
  (Romualdez) will sign the AO immediately after the public
  hearing, i.e. as early as this weekend.  One executive said
  he understands the hearing is "just to meet the legal
  obligations" and that the AO is as good as signed.  [    ]
  said it was no or never for negotiations and plans to talk
  to PhRMA in Washington July 20.  [        ] suggested
  possible negotiating points, like limiting the AO to
  essential drugs; adjusting the percent of generics produced
  vs. the brand name drug.  He argued that producing the
  equivalent in generics of a brand-name item could be a
  possible opportunity for building market share.

5.      (SBU) ECONOFF suggested that [       ] sound out
  PhRMA on 1) whether their counsel thinks the AO violates
  WTO; and 2) just how far they are willing to go to fight
  this -- would they file a GSP petition.  ECONOFF explained
  embassy -- and companies here -- need to know this before
  deciding on next steps, including whether to negotiate.
  ECONOFF suggested tat it remains premature to offer to
  negotiate, but that it would be useful to have a fallback
  strategy.  ECONOFF emphasized that Romualdez is a cabinet
  Secretary, and if there is a dispute, it will be Malacanang
  that settles it.  [       ] said that he had asked Romualdez
  if he had raised the AO with Estrada.  According to [
  ] Romualdez said yes and asserted the President said "go for
  it."  (Romualdez made the same assertion to a A/DCM July at
  a dinner hosted by DTI Secretary Pardo.

AHCHAM TO MEET PARDO

6.      [        ] said the Amcham is meeting with DTI
  Secretary Pardo on July 20 to discuss three concerns,
  including the DOH Draft AO.  [      ] will argue that prices
  are not the real problem -- the lack of confidence in
  generics is.  [  ] notes that there are good reasons for
  that lack of confidence and suggest that the government
  seriously address the issue to build confidence in generics.
  The presentation will also stress that this proposal gives
  the RP a bad name as a potential investment site, and that
  it is likely to lead to some local subs to pull out.  [
  ] will also tell Pardo that their home office will file a
  petition to revoke GSP.  ECONOFF explained to the group that
  it would also be useful if the various subsidiaries also
  request separate meeting with Pardo [         ] will be
  alone in attending the Amcham meeting) so he sets the
  message that this is a big deal.  ECONOFF explained that
  Pardo had told Ambassador he wanted to put this issue to the
  EMG for discussion, and said he would make sure Romulaldez
  (or another DOH Rep) participates.

    Hubbard

=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D=3D=3D=3D=3D=3D
July 99

FM AMEMASSBY MANILA
To: Secstate Washdc Priority 3468
info: USDOC Washdc, US Mission Geneva, Am Embassy Pretoria,
AM Embassy New Delhi, US Ambassy Singapore, AM Embassy
Bangkok
Geneva for USTR, USTR for S. Murphy, USTR for General
Counsel
State also for EAP/PIMBS and EB/TBB
DOC for 4430/ITA/MAC/ASIA & PAC/Korea & SE Asia/ASEAN
STATE Pass HHS for Office of the Secretary
STATE Pass HHS/FDA =96 Office of International Affairs

TAGS ETRD, EINV, KIPR, WTRO, USTR, RP

SUBJECT: Phillippines =96 Hearings on Draft Pharmaceutical
Administrative Order
REF A) 7/21 Murphy-Brown Email; B) Manila 10704; C) Manila
10564; D) Manila 10390; E) Manila 10389 and previous

1.      The Bureau of Food and Drug (BFAD) held a hearing
  July 21 on the Department of Health Draft Administrative
  Order (A) to place conditions on the registration and
  renewal of pharmaceuticals.  BFAD's Deputy Director
  reiterated that the objective of the AO is to lower the cost
  of pharmaceuticals in the Philippines and promote local
  manufacturing of pharmaceuticals.   Most of those making
  comments objected to the AO, and sought clarification on the
  meaning of various provisions.  BFAD officials were unable
  to answer most of the questions.  While BFAD's Director
  opened the hearing by saying BFAD was not prepared to revise
  the AO, and would be signing it shortly, in the end he
  accepted requests that BFAD set a period to receive written
  position papers, which will be due August 6 Manila time.
  Separately, we learned that the majority leader in the
  Philippines House of Representatives Introduced last year a
  bill to eliminate tariffs and excise tax on pharmaceuticals.
  The bill remains pending in committee.  END Summary.

    [snip]

4.      GO asserted at various times different =93goals=94 for
  the AO=94 to make drugs more accessible to the poor by
  lowering pharmaceutical prices by 50%; to encourage local
  production (he didn't specific whether these two goals might
  be contradictory) in order to promote =93self reliance=94 in
  pharmaceuticals.  He said =93we must balance profits and
  public health; we must underscore the importance of public
  health.=94  ECONOFF commented that large economies of scale in
  the industry are the norm and that small production runs
  would tend to raise prices, not lower them.

   [snip]

6.      Dr. GO stated the draft AO did not apply to
  products under patent protection or to over-the-counter
  pharmaceuticals. These two categories would be =93exempt from
  the AO,=94 in Dr. GO's worlds.  He said DOH believes that =93if
  you can sell the branded product, you should also sell the
  generic equivalent.=94   . . .

    [snip]