PhRMA has questioned the validity of these actions and their capacity to provide significant improvements to healthcare in the Philippines. To date, none of the measures have been implemented and the Government has confirmed its intention to abide by its international obligations.

Instead the Government created a Pharmaceutical Affairs Consultative Committee ("PACC") to consider issues relating to pharmaceutical pricing. At first the PACC held promise of providing a forum in which the government, pharmaceutical manufacturers, distributors, doctors, and insurance providers would work cooperatively to seek improvements in health care for the Philippines public. However, subsequent actions by the Government strongly suggest that it intends to use the PACC to re-present measures above.

The October 5th Memorandum of Understanding ("MoU") that established the PACC and was signed by all the stakeholders, gave a broad mandate to "formulate recommendations to serve as inputs in the review and revision of government policies and programs on the pharmaceutical industry." However, at the same time, and without consulting all the signatories to the MoU, the Philippine Government issued an A.O. requiring the PACC to make recommendations on certain specified proposals, including proposals to (1) initially require that all drugs be made available in generic form; (2) require eventual elimination of branded drugs; (3) require compulsory licensing under conditions not consistent with TRIPS; and (4) authorize parallel imports. Since the issuance of this A.O., the Philippine Government has proposed in PACC meetings that the industry reduce by 50 percent the prices of its 50 top-selling products and the institution of a moratorium on any price increases.

Registration of Products in the Philippines: PhRMA understands that the Philippine Bureau of Food and Drugs (BFAD) recently has required the declaration of a suggested retail price ("SRP") by companies seeking product registration in that country. This is now required under Department of Health (DoH) Administrative Order No. 48-C, dated November 21, 1999. We believe that there is no legal basis for either the Department of Health (DoH) or BFAD to require the declaration of the "SRP" of a pharmaceutical as an additional requirement for product registration. There is nothing in the statutes cited in the Administrative Order that requires the disclosure of the SRP. Neither the Philippine Consumer Act nor the Food, Drugs, Devices and Cosmetics Act concerns itself with the suggested retail prices of drugs. In fact the latter statute only pertains to the safety and purity of drugs and does not in any way regulate the commercial or economic aspects of the drug industry.

For its part, the Price Act of the Philippines deals with price manipulation and other predatory practices which affect the general public. Nothing in this law expressly authorizes the DoH or the BFAD to require the disclosure of the SRP of pharmaceutical products.

The Administrative Order also in no way implements any provision of the Price Act. Obviously, any price information necessary to implement the aims of the Price Act must pertain to current information. The SRP, in this regard, would be useless since it refers to the price at the time of registration and bears no relevance to any future price adjustments. In addition, the SRP does not take into consideration price differentials brought about by extrinsic factors such as additional distribution expenses for drugs sold in the provinces, availability of raw materials, and fluctuations in fixed costs. It is not unusual for drugs to be sold at varying prices in different retail outlets.

PhRMA agrees therefore with the legal opinion that has been forwarded to the Government of the Philippines by attorneys representing the companies in that country that the Secretary of Health possesses no legal authority to issue the AO in question. The AO is therefore illegal and is assailable on this basis.

PhRMA also understands that the BFAD has announced a "temporary" suspension in acceptance of applications for initial registration of medicines in the Philippines. PhRMA believes that this suspension violates provisions of the GATT WTO agreements which represent international commitments of the Philippines. The indefinite suspensi

on of registration constitutes a "technical regulation" violation within the meaning of Annex I of the Technical Barriers to Trade Agreement (TBT). The announced suspension violates Art. 2.2 of the TBT, which requires that technical regulations not be prepared with a view to or the effect of creating unnecessary obstacle to international trade. It also requires that technical regulations not be more trade restrictive than necessary to fulfill legitimate objectives.

Specifically, Art. 2.2. of the TBT reads as follows:

2.2 Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive that necessary to fulfill a legitimate objective, taking account of the risks non-fulfillment would create. Such legitimate objectives are, inter alia; national security requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life or health or the environment. In assessing such risks, relevant elements of consideration are, inter alia: available scientific and technical information, related processing technology or intended end-uses of such products

PhRMA considers these measures as presenting a market-access barrier to U.S. products in the Philippines, and believes they are in violation of WTO principles. PhRMA believes that approval of medicines and renewal of registrations should be based on scientific principles. PhRMA is currently unsure as to whether these new measures are being selectively applied to certain categories of foreign medicines, but the new Government measures may not be consistent with the Sanitary and Phyto-Sanitary (SPS) requirements of the WTO.

Intellectual Property Protection

Threat of Parallel Imports: The Government also has threatened to begin parallel importation of medicines from sources outside the Philippines. PhRMA believes that a doctrine of international exhaustion of patent rights that would allow unrestricted parallel trade of pharmaceutical products into the Philippines would likely result in decreased economic welfare for producers‹and consumers. An effective patent system in the Philippines and elsewhere depends on the ability by the patent holder to control the distribution of his or her patented pharmaceuticals‹a system that would be greatly undermined in an environment described by unfettered parallel imports. PhRMA also believes that a doctrine of parallel imports in the Philippines could rise to an actionable TRIPS violation in the absence of effective enforcement of intellectual property rights, and in the absence of strong provisional relief.

Damage Assessment

The market uncertainty arising from the Government's recent actions could have a chilling effect on PhRMA members' marketing activities Implementation of the Government's various proposals would severely undermine PhRMA members' access to the Philippine market.

PhRMA evaluated the various compulsory licensing proposals placed on the table at the end of last year by the Philippines Department of Health. With the current market valued at approximately US$1 billion, PhRMA estimates that the proposed compulsory licensing provisions would have reduced the market by about 8 percent or by $83.3 million in the last 4 months of 1999. Of this reduction, PhRMA member company affiliates would have incurred around 30 percent of the total loss (i.e., comparable to market share in the Philippines), so this would mean that PhRMA member company affiliates were threatened by around $25 million in potential losses from the proposed measures in the last 4 months of 1999 alone. The threat of losses over the period of 12 months, then, would be around US$75 million for PhRMA member company affiliates.