TWN Info Service on WTO Issues June 29, 2002 Geneva Dear friends, Re: WTO TRIPS Council Meeting, June 25-27, 2002 The formal session of the TRIPS Council to address the difficulties of countries with insufficient or no manufacturing capacity in making effective use of compulsory licences, ended yesterday, and further discussions will continue in an informal mode. One and a half days have been set aside for these discussions, on July 24-25, 2002. The Chair of TRIPS Council suggested that the WTO Secretariat be requested to prepare a "factual" paper, which would provide a summary of all proposals put forward by Members, on how to address the problem identified in Paragraph 6 of the Doha Declaration. There had been little time for reaction to the various proposals during the meeting - with apparently over 50 interventions made. The Secretariat paper is intended to help focus discussions, and is expected to be ready by July 15, in order to allow Members time to consider it, and to have their responses ready for the July 24-25 informal meetings. WTO Members have agreed to give effect to the extension of the transition period for the Least-Developed Countries until 2016. In addition, they have agreed on a waiver to exempt LDCs from having to provide exclusive marketing rights (EMRs) for new drugs for the same period. It is understood that the waiver recommendation will be submitted for approval to the WTO General Council on July 8, 2002. Attached below is a quick commentary of some of proposals relating to Paragraph 6, put forward at the TRIPS Council. I hope you find it of use. With best wishes, Cecilia Oh Third World Network ------------------------ "THE PROBLEM WITH PARAGRAPH 6" A comment on the proposals for an expeditious solution under Paragraph 6 of Doha Declaration on TRIPS and Public Health, submitted to the TRIPS Council, June 25-27, 2002 Cecilia Oh, Third World Network June 2002 WTO's TRIPS Council, meeting on June 25-27, heard proposals from WTO Members on the possible solutions to the problem identified in paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health. Paragraph 6 of the Doha Declaration is one of the elements of the work programme arising out of the Fourth WTO Ministerial Conference, which directs the Council to seek an "expeditious" solution to the problem faced by countries with insufficient or no manufacturing capacity in making effective use of the compulsory licensing provisions in the TRIPS Agreement. The deadline for achieving the solution is the end of 2002. The commentary below attempts to define the different aspects of the problem as set out in Paragraph 6. It examines the proposals put forward by the WTO Members, and provides a brief analysis of those proposals within the context of the defined problem. Defining the problem Although Paragraph 6 is framed in relatively narrow terms, the overall aim and objective of the Doha Declaration demands that the problem should be considered from all relevant perspectives if a workable, effective and expeditious solution is to be arrived at. Since the Doha Declaration requires the provisions of the TRIPS Agreement to be "interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all", it would only be logical that the problem in Paragraph 6 (and its solution) be approached with this objective in mind. How a problem is defined will influence the solution reached. Perhaps the United Arab Emirates stated it best, in its communication to the TRIPS Council (IP/C/W354, June 24, 2002), as follows: "Paragraph 6 should be read in light of the overall picture designed by Ministers in the Doha Declaration aimed at supporting Members in taking measures to protect public health and facilitating access to medicines for all. It should be understood in light of the spirit of the Doha Declaration and the objectives set therein." It would seem logical that a workable and effective solution for Paragraph 6 should address the demand, as well as the supply side perspectives. Demand side problem: The demand side problem is clear. It is implicit in Paragraph 6 that the source of affordable medicines is generic production of medicines. If a developing country is unable to manufacture and meet the demand for medicines domestically, there is need to source from somewhere else. In such cases, the compulsory licensing provisions in the TRIPS Agreement would only be of use if they were issued for the purpose of enabling the importation of needed medicines. This is where the supply side aspect to the problem comes into play. Supply side problem: Today, several developing countries may have producers that are able to meet the import needs of developing and least-developed countries. These producers may manufacture generic medicines under compulsory licence both for domestic and export consumption. (The requirement for a compulsory would not apply in the case of countries that do not yet have product patent protection.) However, the limitation of Article 31(f) that the exports under compulsory licences must be "predominantly for the supply of the domestic market" raises the problem of whether the exports under compulsory licences will be enough to meet the demand of the importer countries. Come January 2005 (when the TRIPS obligations for both product and process patent protection have to be fully implemented by all developing countries), those developing countries presently able to produce and export will no longer be able to do so, in respect of new and patented medicines. This would also include those medicines covered by the mailbox provision, which will also be patent protected as of 2005. This means therefore, that compulsory licensing will increasingly become a vital tool for ensuring affordable access to new, on-patent medicines in many developing and least-developed countries. Yet, the limitation in Article 31(f) remains an obstacle towards ensuring multiple, sufficient and sustainable sources of supply for countries with limited capacity to manufacture medicines domestically. Manufacturing capacity: Another aspect of the Paragraph 6 problem is that of "manufacturing capacity". The capacity to produce medicines is extremely uneven in the Third World - recent surveys indicate that only a handful of developing countries have innovative capabilities (i.e., ability to come up with new molecules), or even the ability produce active ingredients, in the pharmaceutical sector. Countries may have the capacity to produce relatively simple drugs, or they may have the general capacity to produce active ingredients or formulations but lack the equipment, technology or access to the intermediate chemicals necessary to produce a particular product. More importantly, a country may have the technical capacity to produce but such production may not be economically viable, where the market is too small to achieve economies of scale. In all such cases, these countries should be covered by solution(s) proposed to address the Paragraph 6 problem. What would be an "expeditious" solution? In light of the above, a solution for Paragraph 6 should be one that addresses the problem from both the demand and supply side perspectives, in order to enable public health protection and facilitate access to affordable medicines, consistent with the overall aim of the Doha Declaration. It should also recalled the developing countries, in bringing the public health and patents onto the WTO agenda, were demanding for an authoritative interpretation of TRIPS provisions, so that they would be able to take measures related to protection of public health and ensuring access to medicines, without the risk of a legal challenge. Therefore, a solution must have the assurance that it provides legal security. It must also not be complicated, so that quick action can be taken to supply urgently needed medicines. Therefore, simple and speedy procedures, absent of cumbersome conditionalities, are essential. A legal solution must also be workable in practice. It must enable countries to effectively and quickly source for the medicines needed in the quantities and quality required. The solution must also take account of the longer-term requirements for countries with little or no manufacturing capacity. Clarity of rules will be needed to encourage private sector involvement. For instance, there should be clarity and predictability in the legal provisions on compulsory licensing, as there should be for regulations and procedures on prior negotiation (with patent holder) and compensation, as well as the period of validity of the compulsory licence. There should also be clarity and predictability in terms of producers' ability to export, so that they are able to determine the available markets for their products. The promotion of domestic manufacturing capacity and its long-term sustainability will depend on the assurance of economies of scale and economic viability. At the recent TRIPS Council meeting on June 25-27, various proposed solutions were put forward by the WTO Members. These proposals have focussed mainly on the provisions of Article 30 and Article 31 of the TRIPS Agreement. The proposals from the developing countries, and the EC and US are considered below. Developing countries' proposals for solution In the previous TRIPS Council meeting of March 5-7, the joint statement of the group of 52 developing countries identified two possible solutions based on Articles 31 and 30 of TRIPS. One option was to amend Article 31, by deleting paragraph (f), so that the words "predominantly for the supply of the domestic market" would no longer be an obstacle limiting Members' use of compulsory licences to export pharmaceutical products to countries in need. The second option proposed the development of an authoritative interpretation of Article 30 that would recognize the right of Members to allow the production and export to address public health needs in another country (where that country has issued a compulsory licence to import the said production). At the TRIPS Council meeting on June 25-27, developing countries elaborated on these approaches. The Africa Group proposal At the TRIPS Council on June 25-27, the Africa Group put forward a comprehensive proposal, which called for decisions on Article 31(f), Article 30, as well as on extension of transition periods and a moratorium on disputes related to measures taken for purposes of public health and access to medicines. These "elements of the solution" comprised a package proposal from the Africa Group, and were included an annexed draft decision, which set out the proposal in precise language for adoption. It can be said that there were three main components to the Africa Group proposal, as follows: Article 31: The Africa Group proposal identified three options for addressing the problem; either through deletion of paragraph (f) in Article 31, or through an amendment to exclude its application to public health or access to medicines measures, or through an amendment to expand the definition of "domestic market" to include regional markets, free trade areas or customs unions. The rationale behind this Article 31 proposal lies in the need to create large enough markets to achieve economies of scale for generic medicines (and thus, economic sustainability) produced under compulsory licence. In deleting paragraph (f) in Article 31 or excluding its application to measures taken for public health and access to medicines, there would be no limitation on the quantity of exports of medicines produced compulsory licence. Alternatively, if there was an interpretation of "domestic market" which covered regional markets (or markets within a free trade union or customs union) then Members could give effect to a compulsory licence on a regional level, which would also address the problem of small domestic markets in developing countries. Article 30: In addition, the Africa Group proposed an exception to patent rights under Article 30, so as to enable a country (with present manufacturing capacity) to produce and export to another so as to meet its public health needs. (See the 13-developing country proposal below for more details on the Article 30 approach.) Extension of transition periods, bilateral and regional arrangements, and a moratorium on disputes: The African proposal also called for extension of transition periods developing and least developed countries that have insufficient or no manufacturing capacity, to allow them to develop social economic levels where they can meaningfully and sustainably protect public health on the basis of domestic capacity. The Group also raised the issue of bilateral and regional arrangements, which have incorporated TRIPS-plus conditionalities, and called for respect for the flexibility of the TRIPS Agreement. In addition, the proposal included a moratorium on disputes related to measures adopted to address public health concerns in countries with insufficient or no manufacturing capacity in the pharmaceutical sector. The moratorium would come to an end by a decision of the TRIPS Council, based on a determination by the WHO that certifies that the public health need has been eliminated. The package proposal from the Africa Group envisaged that all of the above elements would be required for a solution to Paragraph 6. The Group stated in its paper that these elements provided the solution to the Paragraph 6 problem, both in the short term as well as in the long term. The Article 30 approach would enable the supply and export of affordable medicines to meet the (urgent) need of countries in the short term, and the option of amending or interpreting Article 31(f) would encourage and facilitate investment in, and development of, local manufacturing capabilities in the medium and long term. In the meanwhile, the proposals on extending the transition period, ending bilateral pressures and establishing moratorium would provide the needed legal security to allow the measures to be taken. The 13-developing country proposal The 13-country proposal from Bolivia, Brazil, Cuba, China, Dominican Republic, Ecuador, India, Indonesia, Pakistan, Peru, Sri Lanka, Thailand and Venezuela asked that solutions for Paragraph 6 should "avoid taking a narrow approach" and should "not be detrimental to the fulfilment of the objective of the TRIPS Agreement of transfer of technology, which is critical to improving manufacturing capacities in the pharmaceutical sector, and therefore to ensuring sustainable access to affordable medicines". The developing country proposal also stressed the point that any WTO Member could face the problem set out in Paragraph 6. In this case, the solution considered by the TRIPS Council should not be limited to a specific category of countries, although it was envisaged that the developing and particularly, the least-developed countries would be the main beneficiaries. The proposal further stated that each Member should have the right to determine whether it was in the situation of insufficient or no manufacturing capacity. In their proposal, the developing countries identified, as the main focus, a solution based on an authoritative interpretation of Article 30 of TRIPS, but also proposed solutions based on Article 31. Article 30: These developing countries proposed an authoritative interpretation of Article 30 of TRIPS which would "recognise the right of Members to make, sell and export patented public health related products without consent of the patent holder to address public health needs in another country". Article 30 of TRIPS allows "limited exceptions" to exclusive patent rights, so long as they do not unreasonably conflict with the normal exploitation of the patent; and do not unreasonably prejudice the legitimate interests of the patent owner, whilst taking into account the legitimate interests of third parties. Whilst TRIPS does not define the nature and extent of these exceptions, it is clear there is a distinction made between exceptions under Article 30 and compulsory licences under Article 31. It is no longer disputed that Article 30 allows for exceptions to exclusive patent rights in the cases of experimental or scientific use, and early working (the Bolar- type exception). These exceptions are drafted in national patent laws as outright or automatic exceptions; that is to say, the exceptions are applicable, without the need for specific authorisation by a court or administrator, in favour of any person that avails himself of the exception. In their paper, the developing countries propose that WTO Members should recognise an exception that would allow generic producers, without consent of the patent holder, to manufacture and export to other countries in need of the said medicine or products. As a solution to the Paragraph 6 problem, the developing countries propose that the interpretation would recognise the right of Members to provide for a specific exception in their national patent laws, to the effect that generic production of a patented medicine for export to meet a public health need in another country would not be deemed as infringing the patent. The approach under Article 30, as an automatic exception would negate the need for a compulsory licence to be issued in the country of export, only in the country of import would a compulsory licence need to be issued (if patent protection was in place there). Article 31: The developing countries also raised the possibility of amending Article 31(f), by deleting paragraph (f) in order to eliminate the limitation on export. In relation to solutions based on Article 31, they further proposed that consideration be given to the use of Article 31(k), which relates to compulsory licences issued to correct anti- competitive practices. In such cases, the limitation on exports in Article 31(f) does not apply. In this context, the developing countries ask that the WTO Secretariat document current use of Article 31(k) by WTO Members. Double compensation: In examining solutions based on Article 31, whether in paragraphs (f) or (k), developing countries pointed out that solutions based on Article 31 would require the issuing of two sets of compulsory licences, in both countries of export and import. It was a point of concern that two sets of compulsory licences had to be issued, which would also mean payment of double remuneration to the patent holder, to address what was essentially the same problem. Not only would this procedure be administratively burdensome but that the patent holder would be paid double remuneration. In the case of double remuneration or compensation, the developing countries stated that the patent holder should not be so entitled. A more reasonable approach would be to determine compensation in the country where the product is consumed. Both the Africa Group and the developing country proposals lay down various options, and are focused on seeking solutions that take into account both the short term (and urgent) need to facilitate access to affordable medicines, as well as the longer term objective of developing capacity to produce medicines. The proposals also underscore the concern that implementation of the TRIPS provisions have and will create fundamental problems. The crucial question would be whether other WTO Members, with whom the developing countries have to negotiate for a solution, perceive the problem and more importantly, the required solution(s), in the same way. The EC proposal - A change of tune? In their previous communication to TRIPS Council in March 2002, the EC and its member states had stated that they considered amendment of Article 31 and the interpretation of Article 30 (to allow production for export) as two possible solutions which merited particular attention. However, in their submission to June 25-27 TRIPS Council, the EC addressed only the Article 31 approach. On other approaches, the EC referred to the waiver or moratorium approach (proposed by the US - see below), as well as the interpretation of Article 30, but stated that both these approaches "fall short of providing the type of sustainable and legally secure solution that the EC is aiming for". The EC proposal, for a solution based on Article 31, is for the introduction of a new paragraph in Article 31; the basic principle of which would act to exclude the application of paragraph (f) to cases where a compulsory licence is granted in one country for the production and export to another country (which has been specifically designated in the grant of the compulsory licence) to address its public health problems. This exclusion would apply when a number of conditions, to be specified within the new paragraph, are fulfilled. The EC proposal states that those Members that would qualify for importing would be the developing countries, but adds the words, "focussing especially on least developed country Members and low income Members, with no or insufficient domestic manufacturing capacity". It is not clear whether this would result in a two-tier system of countries; i.e., those eligible for such exclusion and those that are not. Additional legal obligations to prevent diversion: The conditions proposed by the EC, under which the proposed exception will be triggered and applied, are focussed on prevention of diversion of the products from their intended destination. Thus, the proposal includes legal obligations on both countries of export and import to take steps to prevent such diversion. WTO Members granting the compulsory licence for export will have to take "all necessary regulatory and administrative measures" to ensure that condition against diversion is "effectively respected". The importing Member would have to take "all reasonable and necessary regulatory and/or administrative measures" to effectively ensure that the product is not re-exported. Thus, the EC proposal would place a responsibility on the importing Member to enforce measures such as "border controls, supervision over distribution of the pharmaceuticals concerned and the imposition of the necessary restraints on the distributor(s)". It is questionable whether these additional obligations would only compound the problem and negate the effectiveness of the solution. It would also be interesting to have had some evidence from the EC that such diversion does in fact occur. Procedure: The EC also propose further procedural steps, which requires the exporting and importing Members to "promptly inform of their intention to issue a compulsory licence" and provide the patent holder with the opportunity (within a short-time after notification) to make an offer to supply the products at "strongly reduced prices". Where the offer of the patent holder meets the needs of the Member, "notably in terms of price, safety and sustainability, this would be sufficient reason not to resort to a compulsory licence under the proposed exception". This would appear to be an unnecessary and particularly burdensome condition, and arguably, a TRIPS-plus requirement. It might be noted that the EC has not forgotten to add that it would be up to the importing Member to judge whether the offer by the patent holder of sufficient to meet its needs. Moratorium/waiver: The EC, in preferring a textual addition to Article 31(f), adds that such addition would come under the procedural rules set out by Article X of the Marrakesh Agreement, but cautions that "(A)s for all amendments of international agreements, it is a procedure that takes time". How much time exactly is left unsaid. In the interim, the EC suggests that Members could agree to a temporary arrangement pending the entry into force of the additional paragraph to Article 31, such as a moratorium or possibly a waiver (which it has said does not offer a sustainable and legally secure solution). Perhaps an indication of the length of time it would take for such an amendment can be found in the previous EC communication to the March 5-7 TRIPS Council. The EC had then stated that a solution based on amendment of Article 31 (assuming a consensus on this point is reached in the TRIPS Council) could not be implemented until the Fifth WTO Ministerial because it would require a proposal to the Ministerial Conference for the amendment of TRIPS, as required under Article X of GATT. On the other hand, "for a solution based on Article 30, a three-quarters majority in the General Council would suffice". (See EC Concept Paper, IP/C/W/339, 4 March 2002, paragraph 30). The effect of the provisions of Article X of the Marrakesh Agreement seems to be that an amendment of TRIPS would require a proposal to be submitted to the Ministerial Conference, for which acceptance by two thirds of the WTO membership is required for the amendment to take effect. If the amendment is of a nature that would alter the rights and obligations of the Members, these will take effect only for those Members that have accepted them even if these have been approved by two thirds of the Members (See B.L. Das (1998), An Introduction to the WTO Agreements, pg. 138) In effect, it would appear that the EC proposal is much like the US proposal for a moratorium, pending the acceptance of the amendment. It would also be fortuitous timing for the EC, should the amendment be tabled at the Fifth Ministerial Conference, during which perhaps some trade offs on other issues of interest to the EC could be made in exchange for the amendment. The US moratorium proposal - A sustainable, balanced and workable solution? The US communication to the TRIPS Council meeting encouraged WTO Members to reaffirm Paragraphs 1 and 6 of the Doha Declaration again, in an apparent attempt to define the scope of the problems to be addressed. The US document then goes on to state that the solution should be limited to developing and least-developed countries, for "if the solution were available to producers in the developed world, there might be little opportunity for producers in the developing and least-developed Members to supply pharmaceuticals". The US proposal dismisses the Article 30 approach, stating that the provision is intended to apply only to statutory exceptions that had already been provided for in national laws at the time the TRIPS Agreement was negotiated. But if it were so, would not the provision have made this clear? Preferring a solution based on Article 31, the US proposal suggests and exemption from the provision of Article 31(f), and lays down the conditions to be met by exporting and importing Members, in order for such exemption to operate. Acknowledging that Article 31(f) presents a problem for export, the US suggests that developing country Members seeking to export the needed pharmaceuticals could be exempted from Article 31(f), on condition that the compulsory licence issued under Article 31 complies with each provision of Article 31, save for paragraph (f). In addition, the exporting Member would also ensure that the entirety of the production is exported to the importing country. Members eligible to import would be those that are "afflicted by a public health problem, especially those resulting from HIV/AIDS, malaria, tuberculosis and other epidemics, and has insufficient or no manufacturing capacity in the pharmaceutical sector". However, the US notes that the criterion of capacity was not defined in Paragraph 6, and proposes that a procedure to clarify which developing country Members could be considered eligible (although all LDCs are considered to have insufficient capacity). Again, this would raise the possibility of a group of countries that may not be eligible for the exemption. Importing Members are also required to inform the TRIPS Council of their intention to seek imports. In addition, there is also a requirement for all Members to ensure that means are provided to prevent trade diversion. The exemption from Article 31(f) would be given effect either through a moratorium for dispute settlement or a waiver of the obligation. According to the US, this option should be preferred as agreement on the moratorium or waiver mechanism be reached much more easily and quickly than on an amendment proposal. It is not easy to see how agreement on the moratorium or waiver could be reached quickly, as many questions remain unanswered and many aspects of the proposal have yet to be worked out. For instance, how long would the moratorium operate? Or in the case of a waiver, would it be undertaken on a case-by-case basis? There are many uncertainties, and it may be that one would agree with the EC's assessment that the moratorium or waiver proposal could not offer a sustainable or legally secure solution.
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