WATCH COUNTRY

South Africa

PhRMA member companies appreciate the good will and statements of the current Government of South Africa that it intends to meet fully its multilateral obligations as spelled out in the WTO TRIPS Agreement. PhRMA understands that the U.S. Trade Representative's removal of South Africa from the 1999 "Special 301" Watch List in December 1999, was made on the basis of South Africa's statements to this effect and belief that South Africa would come into full TRIPS compliance shortly. The Constitutional Court Review of the South African Medicines and Medical Devices Regulatory Authority Act (SAMMDRA) took place in November 1999, and the Government of South Africa pledged to provide revised provisions of the SAMMDRA for parliamentary review in 1999 as well. However, both South Africa's Constitutional Court ruling and its parliamentary review of the relevant legislation both appeared to be delayed for an indeterminate period of time. PhRMA along with other affected parties, awaits revisions of the SAMMDRA that all sides agree are needed to bring it into compliance with South Africa's TRIPS obligations, as well as review of these provisions by the South African Parliament. Until South Africa completes it own judicial and parliamentary internal review and amendment of the Medicines Act, PhRMA requests that South Africa should be included on the 2000 "Special 301" Watch List.

As stated in previous USTR submissions, in 1998 over 40 pharmaceutical companies operating in South Africa, and the South African Pharmaceutical Manufacturers Association (SA PMA) filed a legal challenge to the Medicines Act before the Constitutional Court in South Africa, a new, post-apartheid institution. Both sides have filed briefs before the Court, but the industry has made clear its preference for a negotiated, mutually acceptable solution to the dispute. In June 1999, South Africa held its second free national elections, as a result of which a new Cabinet was appointed. Via the SA PMA, the industry immediately made overtures to the new Government, for the purpose of reaching a mutually acceptable solution to the dispute over the Medicines Act. As a part of the ongoing dialogue between the industry and the Government, both parties to the litigation have agreed to a delay in the schedule of the legal challenge.

Background: On November 23, 1997, the Government of South Africa adopted a new law, the "South African Medicines and Medical Devices Regulatory Authority Act" (SAMMDRA), that, if implemented, would seriously undermine the terms of intellectual property and patent protection for pharmaceuticals in South Africa and violate provisions of the WTO TRIPS Agreement. Specifically, Article 15C of the new law states that:

That the Ministry of Health may notwithstanding anything to the contrary contained in the Patents Act, 1978 (Act No. 57 of 1978), determine that the rights with regard to any medicine under a patent granted in the Republic shall not extend to act in respect of such medicine which has been put onto the market by the owner of the medicine, or with his or her consent;

This clause, 15C(a), appears to allow the revocation of pharmaceutical patents valid in the Republic of South Africa, "notwithstanding anything in the Patents Act," at the discretion of the Minister of Health. This violates both domestic South African law and South Africa's WTO TRIPS obligations. Furthermore, the new law, at 15C(b) allows for the parallel importation, a violation of TRIPS Article 28 which while not actionable through WTO dispute settlement procedures, poses a serious threat to the viability of American pharmaceutical investment in South Africa. It may be worth noting that implementation of a parallel import system would likely violate other TRIPS obligations, including data exclusivity (Article 39.3), and the obligation to provide effective remedies to prevent and deter infringement (Article 41 et seq.).

Damage Estimate

PhRMA is currently studying methodology for estimating the likely damage to U.S. industry from the continuing threat of broad-based compulsory licensing and parallel importation in South Africa. Given the continuing uncertainty in the South African market, South Africa's pharmaceutical industry may already have suffered substantial losses in terms of plant-siting and other decisions made on an ongoing basis by multinational corporations who now view the South African market as less stable for long term investm