(2004; 110 pages)
IV.2.2 Addressing the Problem of Insufficient Research and Manufacturing Capacities in the Pharmaceutical Sector
There are two components that need to be examined in addressing the problem of insufficient manufacturing capacity in developing countries. The first component relates to improving availability and access to medicines from current sources of quality generic medicines through importation. The second component relates to efforts to establish local research and manufacturing capacity in the long-term. The issue of compulsory licensing and its use in the regional context has already been a subject of negotiations at the WTO.
The WTO General Council’s Decision of 30 August 2003 to implement paragraph six of the Doha Declaration provides, among other things, that in implementing the Decision, the domestic market may be defined to cover a regional market. Paragraph 6(i) of the Decision provides that:
"[W]here a developing or least-developed country WTO Member is a party to a regional trade agreement within the meaning of Article XXIV of the GATT 1994 and the Decision of 28 November 1979 on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (L/4903), at least half of the current membership of which is made up of countries presently on the United Nations list of least-developed countries, the obligation of that Member under Article 31(f) of the TRIPS Agreement shall be waived to the extent necessary to enable a pharmaceutical product produced or imported under a compulsory licence in that Member to be exported to the markets of those other developing or least-developed country parties to the regional trade agreement that share the health problem in question. It is understood that this will not prejudice the territorial nature of the patent rights in question."74
74 See WTO document WT/L/540, 2 September 2003. Note, however, that based on the U.N. list of LDCs, only RECs in Africa will be able to take advantage of this provision.
Article 31(f) provides that a compulsory licence shall be issued predominantly for the supply of the domestic market of the member issuing the license. However, this obligation is not applicable where the compulsory licence has been issued to remedy a practice determined by a judicial or administrative process to be anti-competitive.75 Consequently, if the licence issued in the importing country was to remedy anti-competitive practices then the drugs supplied under the system would freely circulate in the region and beyond without the need to take recourse to paragraph 6(i) of the Decision. It is in cases where a licence is issued in the importing country for other reasons that recourse should be taken to the waiver under paragraph 6(i) of the 30 August Decision.
75 See TRIPS article 31(k).
The approach under the Decision could help deal with the problem of many territorial markets in developing countries that are too small to support viable production or importation.76 One barrier to using this regional approach that has been cited by some commentators relates to the fact that patents rights and related exceptions are territorial.77 The Decision provides that the waiver does not prejudice any rights that accrue to patent holders due to the territorial nature of patents. This is by no means an insurmountable problem.
76 See the proposal by Brazil et al., para. 12. WTO document IP/C/W/355, 24 June 2002.
77 See Vandoren and Van Eeckhaute (2003), p. 790.
One possibility, in cases where there are regional patents such as in OAPI, is the grant of a single regional licence since the territory for the patent in this case is the whole regional as opposed to a national patent system where the territory of the patent is limited to the country. Where there are no regional patents an alternative mutual recognition mechanism can be developed in the context of the REC or similar framework. Under this system, members of the REC could grant their own compulsory licences on the basis of a decision(s) of another member(s). This system could be strengthened it terms of transparency, legal security and efficiency by tying it into the ACTRIPS so that the ACTRIPS would advise members when to consider issuing the licences based on the scheme. A system of mutual recognition is preferable in these circumstances as it would not be obligatory, thus avoiding sovereignty issues and challenges by patent holders, while providing a basis for overcoming bureaucratic delays and other problems.
A system of mutual recognition for patent grants is already employed in ARIPO under the Harare protocol and there is no reason why a similar system, with appropriate modifications, cannot be used with respect to compulsory licensing. Since the system is not mandatory and will involve a certain level of national action it would be in conformity with article 4bis of the Paris Convention on independence of patents.78
78 Article 4bis of the Paris Convention is a TRIPS requirement pursuant to the provisions of article 2(1) of the Agreement.
With respect to developing research and manufacturing capacity, regional cooperation offers several advantages and can to help establish a number of the factors necessary for local production including enlarging the size of the relevant economy and addressing some of the other barriers that make local production difficult. Again, here most RECs already have a mandate for both science and technology, for creating single markets and for improving investments. Indeed, regional cooperation in manufacturing is in progress in the ASEAN which can serve as a model, with appropriate adjustments, for other regions and with respect to pharmaceutical production in particular.
The Basic Agreement on the ASEAN Industrial Cooperation (AICO) signed on 27 April 1996 and effective from 1 November 1996 has the objective of promoting joint manufacturing activities of companies operating in the region by establishing large-scale ASEAN industrial plants to meet regional requirements of essential commodities. It was designed to encourage technology-based investments in ASEAN. The AICO arrangement enables participating countries and companies to enter into a cooperative arrangement whereby they engage in some form of resource-sharing such as tech-nology-sharing, market-sharing, or consolidated purchases of raw materials. The arrangement consists of a minimum of two participating countries and one participating company in each participating country.79
79 Article 1(2), Basic Agreement on the ASEAN Industrial Cooperation Scheme.
To be eligible to participate in the AICO Scheme, the companies concerned must: (1) be incorporated in and operating in an ASEAN country; (2) have a minimum of 30 per cent ASEAN equity; and (3) undertake resource sharing, industrial complementation or industrial cooperation activities.80 Once accredited, the participating companies are entitled to various privileges, including: preferential tariff rates of 0-5 per cent on approved AICO products, the actual rate of which shall be determined by each participating country;81 local content accreditation; and non-tariff incentives offered by the respective national authorities.82 The ASEAN member countries may introduce additional tariff and non-tariff incentives under the Basic Agreement.83 The Basic Agreement provides that all products other than those listed as General Exceptions under Article 9 of the ASEAN Free Trade Area-Common Effective Preferential Tariff (AFTA-CEPT) Agreement are eligible for the AICO Scheme.84,85
80 Article 3 (1).
81 It must be noted, however, that the preferential tariff rates cease when the tariff rates of the products concerned reach the final CEPT rate. [Art. 5(1), Basic Agreement on the ASEAN Industrial Cooperation Scheme]
82 See article 5(1)
83 See article 5(2).
84 Article 9 of the AFTA-CEPT Agreement states:
"Nothing in this Agreement shall prevent any Member State from taking action and adopting measures, which it considers necessary for the protection of its national security, the protection of public morals, the protection of human, animal or plant life and health, and the protection of articles of artistic, historic and archaeological value."
85 See article 4(1)
However, by virtue of the conditions imposed, only certain types of products and operations currently benefit from the scheme. Theoretically, the AICO scheme is suitable for companies or products which meet four basic operational conditions in addition to the stipulated AICO criteria. These conditions are: availability of parts and materials; divisibility of labour and processes; principles of economies of scale; and the presence of counterpart companies.86 Any company or product which can satisfy these conditions would thus be a primary candidate for the AICO Scheme. In 2001, ASEAN approved 77 projects under this scheme.87
86 See www.asean.or.jp/invest/archive/speech/02aic.html, last visited on 11 April 2003.
87 See www.mot.gov.vn/Confs/2001/AEM33/En/Vankien/press_asean.htm, last visited on 12 April 2003.
So far, the automobile and automobile parts industries constitute the largest sector participating in the AICO Scheme, although other industries such as the electrical and electronics industries, agricultural machinery industry, and food industry have also been par-ticipating.88 Although further research is required with respect to the viability of pharmaceutical production in different countries and regions of the world, an approach modelled on the AICO scheme with enhanced research focus and a review of how the AICO scheme has worked, can be adopted with respect to the development of the pharmaceutical industry in the countries of the South.89
88 See Mansor and Radam, (2000) p. 9.
89 See discussion in section III.2 above.
Regional schemes modelled on AICO with an enhanced research focus can be critical in helping to prioritize investments in pharmaceutical research and production and in evaluating performance to ensure greater public health impact in developing countries. Such a scheme can also help to facilitate and rationalize technology transfer arrangements from other countries of the South such as Brazil, China and India in the case of pharmaceuticals. The starting point could be agreement on determining the priority regional essential health problems.90 Then, the required essential health solutions need to be defined for the region. This could include matching essential health problems with existing health solutions (which may not be drugs but different types of intervention) and identifying the gaps.
90 Priority problems are usually calculated using a combination of estimates of disease burden (impact on morbidity and mortality), population size affected, economic and social impact on the individual and society.
The essential health research agenda then becomes defined. Where drugs, diagnostics and vaccines are required, the gaps become clear. Based on an analysis of public health problems and matching these with the most appropriate existing medicines, an essential medicines list could then be developed to guide public policy in terms of what should be the focus of research and manufacturing activity in the region. This process can also be useful in identifying, for example, areas where to share information on patents or prices and sources of medicines.
There are a number of steps that can be taken in the regional context to facilitate the enhancement of the pharmaceutical research and manufacturing capacities of developing countries as well as facilitating the implementation of paragraph 6(i) of the WTO 30 August 2003 Decision. These include:
• Undertaking further research with respect to the factors necessary for pharmaceutical production in a disaggregated way, that is, the factors relevant for different types of pharmaceutical production. A research agenda on the lines of the Kaplan et al. paper or another method of identifying gaps could form the basis for further work in this regard.
• Undertaking a review of the AICO and other similar industrial schemes to determine their viability for regional pharmaceutical production and further research on how such schemes could be improved to include a stronger research focus.
• With respect to the 30 August 2003 Decision, developing a system for the issue of regional compulsory licences where there are regional patents such as in OAPI countries and a system of mutual recognition where REC members can issue their own compulsory licences based on the issuance of a licence in another REC member country where there are no regional patents.