PARTICIPANTS ACCEPTED that markets for differentially priced drugs need to be tightly segmented to prevent leakage of differentially priced drugs to high-income markets. This is important not only for manufacturers but also for the poor country recipients, since otherwise a differentially priced product would not reach the people for whom it is intended. The role that manufacturers, governments including regulatory authorities and purchasers could play in minimizing leakages out of the intended markets was discussed.

Presentations and discussions considered the following ways of achieving such market segmentation:

• Marketing strategies by manufacturers relating to the use of different trademarks and the presentation of products. The view was expressed that this technique could be helpful in preventing trade diversion and could also make cross-country price comparisons more difficult However, it was also said that it may not always be appropriate to use more than one trademark and that, where price differences are large, repackaging may still be worthwhile.

• Strict supply chain management by purchasing entities. A number of companies indicated the importance they attach to effective supply chain management which could ensure that a differentially priced product is not diverted to persons other than those for which it is intended. The special features of the supply chain for vaccines was mentioned in this connection and it was said that, when it comes to anti-retrovirals, an assessment of the supply chain security has to be made on a case-by-case basis. A presentation was made indicating how, with the use of batch numbers, bar coding and dating methods, the flow of drugs through distribution channels can be effectively tracked and many forms of diversion minimized. It was explained that such arrangements require a sufficient degree of organization and accountability.

• The role of drug regulatory authorities. It was observed that essential drugs produced in developing countries and sold at differential prices, for example under voluntary licensing arrangements, can only be imported into developed country markets if they obtain authorization from the drug regulatory authorities in those countries. This would only be granted if an application was made and the relevant production standards met. It was suggested that a condition of the grant of a voluntary licence could be to undertake not to make such an application.

• Import controls by the customs authorities. The question was raised as to whether high-income countries would need some additional legal authority to prevent the import of products marketed elsewhere at differential prices. There was also some discussion of the special expertise that customs authorities have developed in preventing the import of counterfeit and other illicit products and the suggestion was made that full use should be made of this. However, the point was also made that, even in the wealthiest countries who could devote the most resources to border controls, such controls are frequently less than fully effective. It was said that additional responsibilities to regulate, for example, parallel imports might require a major increase in the resources devoted to border control.

• Export controls. The question of whether export controls implemented by the customs authorities of the countries receiving differentially priced products can be an effective means of preventing diversion was touched upon. Further study is necessary to assess the extent to which this can be a credible mechanism in poor countries given the burdens entailed, the extent to which customs authorities in those countries already have the necessary legal authority and whether there are any international trade rule implications that need attention.

• The use of intellectual properly rights to restrict parallel imports. Some participants said that, in order to provide the right conditions for differential pricing, it was important to have effective means of preventing parallel imports into developed country markets and also into middle-income country markets. There was some discussion of the extent to which patent law already gives the patent owner such rights in developed country markets. It was noted that doing so did not raise problems under the provisions of the TRIPS agreement. The extent to which public authorities such as the drug regulatory authorities and the customs administration can play a role in the enforcement of such restrictions on parallel trade was also discussed. It was said that, at least in some jurisdictions, the powers of the customs authorities to prevent imports of infringing goods did not extend to parallel imports. It was also said that, whereas differential pricing requires restrictions on parallel imports into high-income countries and maybe in intermediate-income countries, poor countries should be left free to engage in parallel importing where this would help secure best-value products.

Many participants appeared to be of the view that the above mechanisms could effectively prevent diversion of differentially priced products, although further study is necessary into the legal and technical issues involved. It differentially priced products, although further study is necessary into the legal and technical issues involved. It was said that, if there is agreement on the principle of preventing diversion, the international community and national governments should be able to work out how this could be done. It was suggested that more than one mechanism would be necessary and that the burden of preventing diversion should be a shared one between the low-income and high-income countries. It was said that, if the same differential prices could be offered in large, contiguous geographical areas, the problem of diversion would be thereby reduced.