The European Union this week floated a compromise proposal for the World Trade Organization negotiations over rules that would allow countries to arrange the manufacture abroad of generic copies of patented medicines if they are unable to produce them domestically.

The proposal is scheduled to be the subject of discussion at a meeting of senior trade officials from select countries hosted by the EU in Geneva Nov. 5-6. That meeting is designed to prepare for a meeting of some 25 trade ministers in Sydney Nov. 14-16, where the drug patent issue features prominently on the agenda.

The EU paper, approved by member states Oct. 29, addresses the key issues dividing members, including the diseases and products to be covered, the countries that could import or export under new flexible rules, and safeguards against diversion outside the needed markets.

The EU proposal would exclude members of the Organization for Economic Cooperation and Development and countries categorized by the World Bank as High Income Economies from being able to import generic substitutes under the new rules. That would rule out as beneficiaries Hungary, Korea, Singapore and Hong Kong, four of the richer countries that have argued they should be included. Least-developed countries, and World Bank Low Income Economies would automatically qualify as beneficiaries, which would encompass most African nations and India, among the chief demandeurs.

But developing countries above that income threshold, including key demandeurs like Brazil and China and relatively poor countries like Honduras, could only import drugs if they faced a national emergency or extreme urgency.

Countries would also have to demonstrate that they could not manufacture the drugs themselves as “a technical matter or as a matter of available capacity.” This self-assessment by the importing country would be subject to regular WTO review.

Current rules only allow countries to override patents with compulsory licenses if the manufacture is destined predominantly for the domestic market. This inhibits developing countries with insufficient manufacturing capacity from using generic competition as leverage in forcing down the prices of patented drugs set by pharmaceutical companies. Countries face a year-end deadline to agree on an approach to provide flexibility for such cases, but remain deeply divided over key components of a solution (Inside U.S. Trade, Oct. 25, p.1).

The EU paper also limits the new flexibility to grave public health problems, while developing countries the solution should encompass all public health problems, without qualification. In addition, the EU paper argues that diagnostic kits, both for AIDS and other diseases should be covered, even though the U.S. has expressed doubts about including these products. All WTO members, including developed countries, would be able to manufacture and export the drugs requested by a qualifying beneficiary country, in contradiction to the U.S. view that only developing countries should be able to manufacture the generic substitutes.

The EU paper also proposes strict obligations on the exporting country to deliver the entirety of production to the country requesting the drugs and to clearly distinguish the generic drug through labeling, marking, packaging and coloring.

The EU paper proposes the adoption of an amendment to the WTO Agreement on Trade Related Aspects of Intellectual Property Rights by the end of the Doha round. In the interim, a dispute settlement moratorium or a waiver on the same terms as the amendment would take effect. The EU paper also suggests openness to the African Group’s proposal that a solution allow regional trade arrangements to function as the domestic market to which compulsory licenses are confined.