[Ip-health] 2005 memo to Christine LAGARDE asking that the EU reverse its "opt-out" of 30 August 2003 WTO decision regarding imports of generic medicines manufactured under a compulsory license

James Love james.love at keionline.org
Mon Mar 30 10:01:54 PDT 2020

This is relevant today, given the pandemic.



To: Christine LAGARDE, Ministre déléguée au Commerce extérieur, France
From: Manon Ress and James Love, CPTech
Re: EU "opt-out" of WTO provision to import generic medicines

Date: 7 November 2005

This memo explains the negative consequences for European consumers that
are associated with the decision to "opt-out" of the WTO provision for the
import of generic medicines that are manufactured under a compulsory

In November 2001, the WTO approved the Doha Declaration on TRIPS and Public
Health, which called upon member countries to implement intellectual
property rules in a manner that promotes access to medicine for all,
including TRIPS flexibilities such as compulsory licensing of patents.

Paragraph 6 of the Doha Declaration on TRIPS called upon the WTO to find a
solution to the problems facing countries that lacked the domestic capacity
to manufacture medicines, and thus benefit from compulsory licensing of
patents. The issue is confusing to many, because the concern is for the
country that needs to obtain imports of generic medicines, but the problem
concerns the WTO rules for exporting medicines. Specifically, under TRIPS,
normally a compulsory license must be used predominately for the domestic
market. This has the practical effect of limiting exports from countries
that have efficient producers of generics to countries that do not.

This deliberate effort to impose inefficiency is seen as a measure that
limits the usefulness for compulsory licenses in general, but the impact is
particularly harsh for countries with small domestic markets, since they
will lack the domestic economies of scale to have efficient manufacture of

Interestingly, this issue was addressed earlier in an often-overlooked WTO
case on the export of medicines using Article 30 of the TRIPS, as a limited
exception. In a case brought against Canada by the European Union, the EU
sought to prevent Canada from exporting small quantities of medicines to
foreign countries to register generic products before the patent expired in
Canada. The EU contested three parts of the Canadian "early working"
exception: (1) Could Canada authorize early working for purposes for the
testing associated with the registration of pharmaceutical products in
Canada, (2) could it use the early working provision to also export
pharmaceutical products in order to register generics in foreign markets,
and (3) could it stockpile commercial quantities for the Canadian market.
Canada won points (1) and (2) and lost the stockpiling issue.

In arguing the highly relevant export issue, which it won, Canada said this:

Very few countries had fully integrated brand name or generic drug
industries within their borders. Even in large countries, generic producers
frequently had to obtain ingredients such as fine chemicals from producers
in other countries. Many countries had no generic industries at all and had
to obtain generic (as well as brand name) products from other countries.
Smaller countries that did have generic industries did not have domestic
markets sufficiently large to enable those industries to operate on an
economic scale. Those industries had to export in order to be able to
manufacture in sufficient quantities to achieve economies of scale, so that
domestic consumers could receive the benefits of cost-effective generic
Products.. . . the market in the United States was large enough for generic
producers to manufacture on an economic scale. Very few countries were in
that position. "Pre-expiration testing" exceptions that had the effect of
confining all activities to a single country were of little use to
countries that, unlike the United States, depended on international trade
to obtain generic products. (WT/DS114/R 17 March 2000 (00-1012)
The Argument by Canada is clearly true in many other cases where exceptions
to patent rights are concerned.

We are concerned today about the issue of compulsory licensing of patents
on medicines. We believe that it is essential that every country that
grants patents has the practical ability to curb abuses of patent rights,
including for example excessive pricing, a failure to supply the market in
reasonable quantities or on reasonable terms, or for many other purposes.

Clearly the French government agrees, because it has a very strong statute
on the compulsory licensing (including the issuance of ex officio licenses)
of medical inventions, which was amended in 2004 to provide broader
measures for patented diagnostic technologies, such as those relating to
breast cancer screening.

Today the European Commission is putting huge pressure on countries in
Africa to once more split with developing countries in Latin America and
Asia on the issue of the implementation of paragraph 6 of the Doha
Declaration on TRIPS and Public Health. Basically, the EC wants Africa to
elevate certain aspects of the chairman's statement that accompanied the 30
August 2003 decision. As you know, the Chairman's statement is an
undisguised effort to narrow, marginalize and stigmatize the 30 August 03
WTO mechanism, so that it will be rarely used. The EC is also seeking to
more formally state that the members of the European Community will never
use the 30 August 03 decision, even in circumstances of national emergency.

Some EC officials have told consumer groups that this will not present a
problem for Europe, because it is a unified market. This is simply not
true. For example, today Europe lacks the capacity to manufacture generic
Tamiflu, and many member countries have inadequate stockpiles of this
medicine, and would suffer in the event of a pandemic.

For purposes of the WTO TRIPS rules, each member of Europe is considered a
separate country. Experts claims the EU rules on parallel trade will not
extend to cases where goods are manufactured under a compulsory license,
since exhaustion is limited to cases where goods are placed on the market

Some members of DG-Trade told CPTech in 2002 that the EC was pushing for
very restrictive rules on the imports of generic medicines in anticipation
of the adoption a community wide patent for Europe. With a community wide
patent, and a community wide compulsory license, Europe would be less
constrained by the small markets of its member countries. They claimed that
the European opt-out would allow European to protect its domestic
industries, by barring imports from non-EU generic producers. Unfortunately
for EU member countries, however, the community wide EU patent may be a
long time in coming.

We are concerned also that some EC officials appear to be dangerously
uninformed about the differences between the economies of scale and
capacity constraints for the manufacturing formulations and the
manufacturing of the active pharmaceutical ingredients (APIs) of products.
Many countries in Europe that can package and formulate medicines rely upon
imports of APIs.

Finally, we are attaching a table that shows the size of domestic markets
for members of the European Union and other countries. Note that Canada, a
country "too small" to support efficient manufacture of APIs for its own
market, has a 2004 GDP of just under one trillion USD. Only 5 members of
Europe are larger than Canada. About 9 members of Europe have only 5 to 10
percent of the Canada GDP. Many of the candidates to join EU also have
small domestic markets.

We don't see how Europe or France benefits by voluntarily opting out of the
30 August 2003 decision as qualifying importers of medicines. Note that
under this decision, no member of Europe would be allowed to import
medicines from France. France could not import medicines from another
member of Europe. No European country could export medicines to the members
of Europe that have lower incomes, small domestic markets or lack capacity
to manufacture medicines. By tying your hands, France could not important
anything, including APIs, from Switzerland, the United States, Canada,
India, China or any WTO member, no matter what the circumstance were that
led to the decision to issue compulsory licenses. This policy can only have
the practical effect of making the patent owners immune from efforts to
addresses abuses of patent rights.

The fact that a decision to put your own consumers at risk is being used to
marginalize and undermining compulsory licensing in developing countries is
not anything to be positive about either. We note the original position on
the permanent amendment to the TRIPS by the Africa Group eliminated the
protectionist opt-out mechanism altogether.

(CPTech takes the position that the opt-out provision has no place in a
"free trade" agreement, because it undermines economic efficient and
enables protectionism.)

We also emphasize our strong conviction that the interests of consumers in
developing countries are strongly linked to the interests of consumers in
higher income countries, in the following sense. As long as governments in
rich countries maintain that compulsory licensing will never be used to
protect consumers in rich countries, there is very strong pressure on
developing countries to also forgo compulsory licensing. Indeed, the use of
compulsory licensing in Brazil, South Africa and elsewhere is often
presented in the press as piracy or theft of property. But when it becomes
transparent that governments in rich countries also use compulsory
licensing to protect consumers or otherwise deal with patent abuses, it is
much easier for developing countries to act. Thus, for example, Cameroon
took note when France and Belgium recently amended their patent laws to
deal with abuses of the BRAC patents on breast cancer genes, and many
developing countries were quick to announce actions on the Tamiflu patents
after members of the US Congress pushed for a compulsory license in the
United States.

Large pharmaceutical companies are asking you to set extremely high or
impossible standards for issuing compulsory licenses in Europe in order to
discourage developing countries from taking even modest steps to protect
their own populations. A recent example of this was the intervention of the
French government to oppose compulsory licensees of Sanofi patents in the
Dominican Republic, a country far poorer than France. This has disastrous
impacts on the poor in those countries. And increasingly this approach puts
the welfare of French citizens at risk, because of the increasingly
aggressive pricing of medicinal inventions in Europe.

Economies of scale are important for consumers everywhere. The greater
economies of scale for AIDS drugs purchased as generics in Brazil led to
lower prices, not only in Brazil, but everywhere, including Africa.
Consumers in Europe and elsewhere have cheaper generic prices in part
because of the low cost APIs that are available from India.

The central policy objective of access for all is universal. The prices
that are excessive in France are of course much higher than the prices that
are excessive in the Dominican Republic or Cameroon, but in every case,
they relate to the same issue -- are the prices consistent with sustainable
universal access to medicine and medical care? In 2000 Roche was asking in
Germany for a compulsory license to Chiron patents on AIDS diagnostic
tests. France and other European countries are fighting high prices for
patented breast cancer screening technologies. Countries in Africa and
elsewhere are trying to get access to less expensive AIDS drugs. More than
a dozen countries are considering compulsory licenses on patents to Tamiflu
in order to prepare for a possible avian flu pandemic. Politically and
economically, consumer rights and interests are linked, north and south.

We look forward to your comments on this topic.

Cc: Michelle Childs, London, Thiru Balasubramaniam, Geneva

2004 GDP, Population and GDP per capita

James Love.  Knowledge Ecology International
U.S. Mobile +1.202.361.3040
U.S. office phone +1.202.332.2670
http://www.keionline.org <http://www.keionline.org/donate.html>

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