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How to break the TRIPS impasse

Arvind Panagariya

The Doha negotiations are at an impasse partially due to a disagreement between the United States and other WTO members on how to effectively extend the compulsory-licensing provision of the TRIPS Agreement to countries that lack manufacturing capacity in medicines. The impasse can be broken

The Trade-related Aspects of Intellectual Property Rights Agreement gives all WTO members the right to issue a compulsory licence on a patented product to a third party without prior authorisation of the patent holder in the case of health emergencies or other circumstances of extreme urgency. The Doha Declaration on the TRIPS Agreement and Public Health reaffirms this right: "Each Member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency."

For the WTO members such as India and Brazil who have manufacturing capacity in pharmaceuticals, this provision ensures access to patented medicines at low costs in health emergencies. But many of the poorest countries lack this capacity. The only potential course available to them is to issue the compulsory license to a manufacturer in a third country. But the current rules rule out this option.

During negotiations for the Doha Declaration on the TRIPS Agreement and Public Health, developing countries had insisted on finding a solution that would allow the WTO members with insufficient or no manufacturing capacity to take advantage of the compulsory licensing provisions. But no agreement could be reached so that the Declaration instructed the WTO Council on TRIPS to "find an expeditious solution to this problem" and to report to the General Council before the end of 2002. Due to disagreements between the US and other members, the TRIPS Council missed the deadline. The last two attempts to break the impasse by mini-ministerial conferences at Sydney and Tokyo respectively ended in failure.

The WTO members must resolve three issues to bring the negotiations on this subject to a close: which countries would have the right to issue compulsory licences to manufacturers in third countries, which countries would qualify as third countries for the issuance of such licences, and for which diseases?

The resolution of the first question is most critical to breaking the current impasse. In principle, it may be argued that all WTO members must have the right to issue a compulsory license to manufacturers in third countries. Otherwise, we create a dual regime in which some countries are able to take advantage of the compulsory licensing provision while others are not even though it was intended for all of them. An exclusionary list means that countries such as Singapore and Norway, which lack a domestic pharmaceutical industry, could be effectively denied the right to issue the compulsory license in emergency while larger countries such as Canada and Germany, which have a pharmaceutical industry, will be able to take advantage of it.

The fear expressed by the US pharmaceutical industry is that leaving all WTO members free to issue compulsory licences to third countries can potentially move a significant proportion of the production and sales of patented drugs outside the purview of the patent holder. It also contends that the mandate in the Doha Declaration on the TRIPS Agreement and Public Health for devising ways to give effective access to compulsory licensing to countries without manufacturing capacity was intended for the poor countries even though it is worded more generally.

Regardless of which view is right, progress can be made only through a compromise. The best course for developing countries would be to insist on a per-capita income or other similar criterion. For example, all countries that qualify as Low or Lower Middle Income Countries according to the World Bank definition could be conferred the right to issue a compulsory license to a manufacturer in a third country. A more generous criterion would confer the right on all developing countries other than those in the OECD.

This approach has several advantages. First, it offers an objective criterion, which has a precedent in the WTO as, for example, in the case of export-subsidy exemption in the Agreement on Subsidies and Countervailing Measures. Second, it eliminates the need for an outside institution such as the WHO or WTO to determine which countries do or do not have "sufficient" domestic manufacturing capacity. Third, it allows countries to acquire manufacturing capacity in a subset of patented medicines without the threat of being eliminated from the eligibility list. Finally, it maximises the potential benefits to the poor. Even countries such as India and Brazil, which have manufacturing capacity, may find it necessary to go to third countries in certain emergencies.

As regards who qualifies as a third country, no restrictions other than the WTO membership should be imposed. To maximise benefits to the importing country, which would be faced with a health emergency, that country should be free to choose the manufacturer from an unrestricted set. A compromise position, likely to be more acceptable to the US pharmaceutical industry, would be to restrict the list to developing country members of the WTO. Potential exporters such as India will evidently benefit from such a restriction on potential competitors.

On the third and last question, there have been demands from the US pharmaceutical industry to limit the diseases for which compulsory license can be issued. This is an unjustifiable demand. The limitations on the countries with manufacturing capacity have already been defined in the TRIPS Agreement and Doha Declaration on the TRIPS Agreement and Public Health. There is no rationale for subjecting the countries without domestic manufacturing capacity to additional or different limitations.

April 3, 2003

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