[Ip-health] Inside Health Policy: U.S. Details Conditions For WTO Dispute Moratorium Over Drug Patents

[James Love]

Friday, January 17, 2003
InsideHealthPolicy.com Daily Updates

U.S. Details Conditions For WTO Dispute Moratorium Over Drug Patents

The United States has publicly outlined a series of conditions that must
be met in order for it to continue its unilateral moratorium on mounting
legal challenges in the World Trade Organization against countries that
export generic copies of patented drugs to treat serious infectious
epidemics. In a paper likely to draw further criticism from developing
countries, the United States says it would refrain from legal challenges
only if exporting countries fully compensate patent holders for
overriding patents to meet a health crisis, and if importing countries
first give these drug companies a chance to supply drugs before
importing them from a generic manufacturer, among other requirements.


These requirements go beyond what all other WTO members agreed to last
month in a deal that was rejected by the United States. The U.S.
conditions for the moratorium were made public even as developing
countries criticized the U.S. initiative as failing to allow exports of
drugs needed to combat a wide array of diseases, and for failing to
provide legal certainty by agreeing to a multilateral agreement on more
flexible drug patent rules.


U.S. Trade Representative Robert Zoellick outlined the U.S. conditions
for the moratorium on challenges to generic drug exports in a Dec. 27
letter (reprinted  below) to WTO trade ministers. That letter also
sought to enlist fellow WTO members in the U.S. moratorium on dispute
settlement until a multilateral agreement is reached.


Zoellick, while asserting the U.S. openness to a negotiated solution,
also explained that the United States blocked an agreement late last
year to prevent a deal that would undermine WTO patent rules by allowing
the export of generic copies of patented drugs under compulsory license
for a wide array of diseases that went far beyond what was intended at
the Doha ministerial last year.


=93As the negotiations drew to a close, however, it became clear to us
that some WTO members and advocacy organizations sought to expand the
scope of disease beyond that intended at Doha to allow countries to
override drug patents to treat a wide range of public health concerns,
including obesity, asthma, cancer, diabetes, among others -- even
including the use of Viagra,=94 Zoellick wrote. =93We were seriously
concerned that this approach would undermine the WTO rules on patents
that provide incentives for the development of new pharmaceutical products.=
=94


So far, the European Union and Switzerland have joined in the
moratorium, although neither has outlined conditions as restrictive as
the United States. Zoellick also noted in a Jan. 13 press conference in
South Africa that Canada also intended to join in the moratorium.


The conditions for the moratorium outlined by the United States in the
Dec. 27 letter and notified to the WTO Jan. 14 include the terms for the
payment of compensation to drug companies when countries intend to
override patents. Exporting countries must also give drug companies
notice that patents will be overridden, and also holds open the
possibility of a legal challenge if the importing country has enough
capacity to make the drugs themselves. Conditions dealing with this
latter provision go beyond the provisions of the Dec. 16 draft
agreement, to which only the United States objected last month (Inside
U.S. Trade, Jan. 13, p.13).


For example, the U.S. notification requires that importing countries
must first demonstrate =93insufficient technical manufacturing capacities
in the pharmaceutical sector.=94 This condition mimics U.S. negotiating
efforts last year, which sought to define capacity based on countries
technical ability to produce the needed pharmaceutical, irrespective of
the costs involved. By contrast, the Dec. 16 text defines capacity as
=93insufficient for the purposes of meeting its needs,=94 a more open-ended
formulation that allows for consideration of economies of scale.


Zoellick's letter added the United States would maintain a moratorium on
legal challenges if importing countries =93first provide an opportunity to
the right holder to supply the needed product.=94 This requirement is
absent from the Dec. 16 text, and is not required under the TRIPS
agreement in cases of national emergency, which the United States and
other countries recognized in the Doha Declaration on TRIPS and Public
Health as including public health crises from HIV/AIDS and other epidemics.


In other areas, the U.S. notification holds that when a patent on the
drug exists in both importing and exporting countries, a compulsory
license must be issued according to the terms of Article 31 of the
Agreement on Trade Related Aspects of Intellectual Property Rights.
Those terms require =93adequate remuneration=94 of the patent holder, takin=
g
into account the =93economic value=94 of the compulsory license.


But the U.S. notification does not qualify that term. In contrast, the
Dec. 16 text qualified this obligation by defining adequate remuneration
as the economic value to the importing member, which is a lower amount
in small, poor economies that usually receive drugs at discounted
prices. In contrast, the economic value to the patent holder is much
higher. In addition, the Dec. 16 text specifically sought to rule out
double remuneration from both the importing and exporting member.


The U.S. notification also excludes high-income developing countries
like Singapore and Korea as importers, even though none of those
countries agreed last year to demands from the United States and other
developed countries to opt out as importers. In addition, the United
States would require exporters to use special packaging, labeling and
shaping or coloring of the drugs to prevent against diversion to other
markets. The Dec. 16 text allowed cost considerations and feasibility as
a potential escape clause from these obligations.


Finally, the U.S. moratorium is limited to drugs for the treatment of
=93HIV/AIDS, tuberculosis and malaria or other infectious epidemics of
comparable scale and gravity, including those that may arise in the
future.=94 The United States was alone in pushing these limits in the
December negotiations, but in the end was willing to settle for a more
expansive list of 23 diseases, ranging from measles to influenza, that
would be specifically allowed and that would set the standard for the
=93gravity and scale=94 of an infectious epidemics covered by the agreement=
.
Although the Dec. 20 press release announcing the moratorium mentions
some of these diseases, this week's official notification returns to the
use of the three most severe epidemics as setting the standard for how
grave a public health crisis must be to qualify for U.S. restraint in
bringing dispute settlement action.


An African official this week said the U.S. conditional moratorium =93will
not be helpful,=94 especially if it brings in disease limits that other
countries rejected.


By contrast, the EU last week said its moratorium on dispute settlement
would hew to the conditions under the Dec. 16 text, including its
open-ended scope of diseases (Inside U.S. Trade, Jan. 10, p.1).
Switzerland's Dec. 23 announcement of a moratorium said it would cover
=93those countries which will export patented drugs to poor developing
countries in order to fight epidemics.=94


Developing country officials also noted the moratorium was non-binding
and temporary and so fell short of the type of solution they wanted in a
multilateral framework. In addition, because the moratorium does not
allow a change to the TRIPS rules that would be enacted in countries
national legislation, it would have no effect on private legal suits
from pharmaceutical companies. -- Inside U.S. Trade


Text: Zoellick Letter On Moratorium


December 27, 2002


Dear Minister


Through the Doha Declaration on the TRIPS Agreement and Public Health,
the United States joined others in acknowledging the serious public
health crisis -- especially those resulting from HIV/AIDS -- afflicting
Africa and other developing and least-developed countries.


As you know, Paragraph 6 of this 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 in order to address these health
crisis; it also instructed members to find an expeditious solution to
this problem before the end of the year. Throughout the ensuing
negotiations to develop such a solution, the United States has remained
committed to the Doha Declaration and has worked intensively to find a
solution that will provide life-saving drugs to those truly in need. You
have my assurance that we will continue to work with you towards that end.


As the negotiations drew to a close, however, it became clear to us that
some WTO members and advocacy organizations sought to expand the scope
of disease beyond that intended at Doha to allow countries to override
drug patents to treat a wide range of public health concerns, including
obesity, asthma, cancer, diabetes, among others -- even including the
use of Viagra. We were seriously concerned that this approach could
substantially undermine the WTO rules on patents that provide incentives
for the development of new pharmaceutical products.


We will continue to work with other WTO members to try to find a
solution within the WTO. However, in the meantime, because we take
seriously our pledge at Doha and our responsibility to ensure that those
countries most in need have access to medicines to treat infectious
epidemics, we have made an additional commitment, effective immediately;
the United States will not challenge any WTO member that exports such
medicine, produced under compulsory license, to a country in need. Your
government may wish to join in this pledge until such time as a
multilateral solution can be adopted.


We will notify the WTO in early January of the specific terms and
conditions of our moratorium which I have attached for your reference.


The key elements of this moratorium include a commitment not to pursue
dispute settlement against a member that notifies the TRIPS Council of
its intention to issue a compulsory license to permit the production and
export of a patented pharmaceutical product or HIV/AIDS test kit to
eligible importing economies. Eligible importing economies will be those
economies other than those classified by the World Bank as =93High Income
Economies,=94 that: (1) are facing a grave public health crisis associated
with HIV/AIDS, malaria or tuberculosis or other infectious epidemics of
comparable scale and gravity, including those that may arise in the
future; (2) have no or insufficient production capacities in the
pharmaceutical sector; and (3) have so notified the TRIPS Council. The
moratorium will also include measures to guard against product
diversion, including to ensure that the product can be easily identified
and a requirement that all countries, to the extent of their ability,
act to ensure that the drugs are not diverted from countries in need to
wealthier markets.


Once again, thank you for your consideration of what I know is a
difficult issue with important implications. We are prepared to continue
to work on an effort to construct a multilateral solution in the new
year. We hope, in the interim, that this moratorium will assist those
poor countries that Paragraph 6 of the Doha Declaration was supposed to
reassure. If you choose to join us in providing this assurance, it will
assist our common cause.


Sincerely


Robert B. Zoellick

Ambassador

United states Trade Representative





Date: January 17, 2003