by Azra Talat Sayeed
July 1994
The Uruguay Round of General Agreement on Tariffs
and Trade (GATT) will hinder the Third World from attaining self
sufficiency in pharmaceutical production. Low-income consumers
will be saddled with higher prices when they attempt to buy essential
medicines. They will also discover that many life saving medicines
are simply not available. This will happen because Third World
drug manufacturers will be discouraged from entering production,
or forced out of business altogether, by pharmaceutical transnational
corporations (TNCs).
Negotiators of GATT addressed Trade Related Intellectual
Property Rights (TRIPS) agreements in great detail, but little
attention was paid to the needs of the people of the Third World.
The need for local firms to develop home-based expertise and capital
was ignored. The Uruguay Round also shifted legal protections
further in the favor of TNCs.
Burden of Proof
One of the most potent powers granted to TNCs in
the Uruguay Round is the placing of the burden of proof in patent
disputes on Third World manufacturers. Article 34 states: "...
if the subject matter of a patent is a process for obtaining a
product, the judicial authorities shall have the authority to
order the defendant to prove that the process to obtain an identical
product is different from the patented process." This places
Third World firms at great risk for patent suits by TNCs because
they do not have the resources to defend themselves. The accused
manufacturer must demonstrate that it has not violated process
patents TRIPS.
The TRIPs agreement protects a product patent for
20 years from the date of filing and then extends another 20 years
protection to the manufacturing process if the process is new.
Once a product patent has expired, other manufacturers can also
manufacture a given product. However, if the manufacturing process
is still under protection, the new entrant needs to develop an
alternative production process. The burden of proof is on the
secondary manufacturer to show that their new process is in fact
unique.
Small firms may not be willing to enter the market
for fear of legal action. If such producers stay out of the market,
monopolies already present will become more powerful in the Third
World drug trade. This lack of competition will increase prices
and lower customer service. To make Article 34 fair, the burden
of proof should rest on the accuser and not the accused.
High Prices
The present placement of the burden of proof on the
accused will severely limit the capacity of the indigenous pharmaceutical
industry to compete with TNCs. Already, the pharmaceutical industry
requires huge capital investments and expensive product promotions,
so little place is available for indigenous industries to create
market share for themselves. Pharmaceutical TNCs will be able
to create monopolies resulting in extremely high prices of medicines
in the Third World.
Argentina offers a powerful example. Nearly all pharmaceuticals
marketed by Argentinean drug firms are now sold at a prices ranging
from 15-80 % lower than global corporation prices.1 This is the
opposite of 15 years ago, when the Argentinean industry was just
getting a foothold.2 With local market loyalties and efficient
production, these firms can now provide low cost pharmaceuticals
to the public. In addition, Argentina has a small export market
for pharmaceuticals. The Argentinean pharmaceutical industry built
a strong presence by locally producing and marketing drugs to
the public at prices much lower than those of the TNCs. They were
able to do so by defying and ignoring international patent systems
created and promoted by the European nations and the United States.
This allowed the Argentineans to compete with transnational pharmaceutical
firms and also forced the transnational corporations to provide
their products at competitive prices. Following are some price
differentials in pharmaceutical products between the Argentinean
and US markets3 :
Active Ingredient US Market (US$) Argentinean Market (US$)
Brand Name Foreign or Licences Domestic
Producers
Ciprofloxacin 106.82 14.20 13.15
Ketoconazole 240.05 36.10 26.65
Ranitidine 84.23 21.95 11.76
A similar experience can be seen in the case of India.
India, using its compulsory licensing clause, allowed for the
development of a national pharmaceutical industry. The indigenous
industry has been capable of producing many essential drugs for
its people at affordable prices. This would no longer be possible
under the Uruguay Round. In fact, the independence of the Indian
pharmaceutical industry has already been seriously undermined
through unilateral trade measures taken by the United States4;
a thrust which was largely brought about by the intervention of
the US pharmaceutical industry. India has now changed its patent
laws to conform with most of the US demands. Consequently, Indian
manufacturers will no longer be able to provide affordable drugs
to Indian consumers. Compare what India was able to do for its
people with its domestic patent laws through a price comparison
between products available in the Indian and Pakistani markets5:
Drug India (Indian Rs.) Pakistan (Indian Rs.) US
(Indian Rs)
Ciprofloxacin 51.00 234.63 305.21
Ketoconazole 43.00 221.96 673.67
Ranitidine 29.30 260.40 744.65
The Burden of Costs
The Third World has already paid a price to comply
with U.S. patent protections in many ways. The following problems
need to be addressed.
Non-use of a patent: In many cases, TNCs will apply for a patent in a particular country but will not actually set up manufacturing facilities. This means the drug itself is imported, but not the production process. As a result of the patent protection local firms cannot enter into production. These imported patented products are more expensive and negatively impact the balance of trade of a developing country. Article 27 of the TRIPS agreement will further extend this very leeway to corporate business. The wording of the article is as follows:
". . . patent shall be available and patent
rights enjoyable without discrimination . . . whether products
are imported or locally produced."
It is imperative that the above clause be reevaluated
due to its immense negative impact on the balance of trade of
Third World countries. By producing products within the territories
of a Third World country, the process would not only transfer
technology (the basic premise for awarding patent protection),
it also would provide a job market for the local population.
Licensing and Process Agreements:
When TNCs do license their production processes to Third World
manufacturers, they often do not allow their licensees to export
products to other countries. Such agreements are not considered
"barriers to trade" under GATT, though they certainly
serve to restrict access of pharmaceuticals to many markets. Moreover,
if employees at a Third World plant improve the product to bring
about an innovative product, they usually are required to grant
all patent rights back to the parent company6 so legal benefits
stay in the hands of First World corporate owners. Further, many
process agreements ban the establishment of research and development
facilities by the licensee, charge excessive royalties, or force
the Third World firm to buy inputs from the patent holder.7 Each
of these limits the opportunity to develop indigenous industries
and transfers wealth out of the Third World.
Transfer Pricing: Pharmaceutical
TNCs will sell products (patented and otherwise) to their subsidiaries
at prices that are 87-2,900% higher than found in open markets.8
This allows subsidiaries to show a net loss on their accounts
thereby evading taxes in host countries. At the same time, subsidiaries
will buy ingredients such as sugar from the parent company at
excessive prices. Such manipulation of these prices has a negative
impact on the balance of trade for Third World countries. If patents
were abolished, then indigenous firms would be free to purchase
all products from open markets, and hence not suffer such severe
price manipulation.
Without the patent protection of the TRIPs agreement,
TNCs would be willing to set up joint ventures with indigenous
firms as they want access to markets even at the expense of sharing
profits. This would allow indigenous firms to gain access to more
sophisticated technologies and products which might not be available
otherwise.
In short, it can be seen that patents in general
benefit the TNCs and stifle the growth of industry in the Third
World. Patent protection has never been able to provide the transfer
of technology, especially for the Third World. The GATT agreement
on TRIPs creates a far more stifling arrangement. There is no
reason to believe that it will generate any benefits to the developing
world.
Sources
1 Pablo M. Challu. The consequences of pharmaceutical product patenting. World Competition, December 1991, Vol. 15 No. 2. 2 Daniel Chudnovsky. The challenge by domestic enterprises to the transnational corporations' domination: A case study of the Argentine pharmaceutical industry. World Development, Vol. 7, pp. 45-58, 1979. 3. Pablo M. Challu. The consequences of pharmaceutical product patenting. World Competition, December 1991, Vol. 15 N0. 2., p. 107. 4 The unilateral trade measure is taken through The Omnibus Trade and Competitiveness Act of 1988. The act's Super 301 provisions allow the United States Trade Representative to undertake trade investigations and identify nations that enact trade practices against the US which are 'unreasonable' or 'unjustifiable.' The identified countries are obliged to alter those practices or suffer a loss of trade with the US. 5 B.K. Keayla & Biswajitt Dhar. Indian Pharmaceutical Industry and Patent Regime for Drug Security, in Patent regime in TRIPs. National Working Group on Patent Laws. September 1993, pp. 14-16. 6 Owen T. Adikibi. The multinational corporation and monopoly of patents in Nigeria. World Development. Vol. 16, No. 4, pp. 511-526, 1988. 7Arman S. Kirim. Reconsidering patents and economic development: A case study of the Turkish pharmaceutical industry. World Development Vol. 13, No. 2, pp. 219-236, 1985.
8 Gary Gereffi. The phamaceutical industry and dependency
in the Third World. Princeton University Press, 1983.
For further information please contact:
Azra Talat Sayeed
7-115 HSUF
Graduate Studies in Social and Administrative Pharmacy University of Minnesota
308 Harvard Street S.E.
Minneapolis, MN 55455
Phone No.: (612) 624-1198
Fax No. : (612) 625-9931
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One in a series of info sheets on Intellectual Property
Rights available from the Institute for Agriculture and Trade
Policy. For a complete listing send email to: ipr-info@iatp.org