TWN Info Service on WTO Issues  (Aug03/19)

August 27, 2003


Dear friends and colleagues

Re: Latest developments on TRIPS and Health Paragraph 6 and Chair’s statement of understanding and analysis of the text

WTO Members met in an informal TRIPS Council meeting this evening to consider a text of a statement of understanding that would enable all Members to join the consensus on adopting the draft Decision for the implementation of Paragraph 6 of the Doha Declaration (i.e., the December 16 text). The statement of understanding was prepared by the Chair of the TRIPS Council. However, if the statement is agreed to and adopted by WTO Members, it will then become a statement made by the Chairman of the General Council when the General Council meets to adopt the December 16 text.  This is expected to be done on 28 August afternoon.

There had been consultations held by the TRIPS Council Chairman on the possible elements of a statement. The TRIPS Council Chair had been consulting with a small group of countries - the US and four or five developing countries on this point. At least 2 earlier versions of the statement had been floated. The small group consultations had caused some consternation amongst other Members, who had felt that the process was not transparent or inclusive enough. The latest version of the statement dated August 27, was circulated to all Members only earlier today.

Hence, nearly all delegations said they would need time to consult with their capitals before a final decision. However, it is understood that the Ambassadors from the developed countries and from many developing countries had already indicated their support for the statement, although they said they would need to confirm their instructions from capital.

The latest version of the statement is almost identical to the August 21 version, which had been posted onto list-serves, except for the deletion of the list of countries that have agreed they would only use the system (as contained in the December 16 text) as importers in situations of national emergency or other circumstances of extreme urgency.  It is understood that the list was deleted after a number of the countries identified on the list complained that they had not been consulted prior to their being placed on the list. However, this is not expected to be a major point of contention.

The TRIPS Council will meet informally tomorrow (28 August) afternoon (about 4.30pm), after which it may turn into a formal TRIPS Council meeting if the statement of understanding is agreed upon.  After that, the General Council will meet, to adopt the December 16 text and the accompanying statement of understanding, which would by then become a statement of understanding of the General Council Chairman.

TWN has prepared an analysis of the statement of understanding. This is found below.

We hope it is of use.


With best wishes,
Cecilia Oh
Third World Network






27 August 2003



It is widely-known that the statement had been prepared by the Chairman of the TRIPS Council to give voice to the US demands. The US, which has blocked agreement on the December 16 text since December 2002, recently put forward a number of conditions if it is to join consensus on the December 16 text. The US proposed a number of elements for incorporation into an interpretative note of the December 16 text. Several small-group consultations reportedly took place between US and a number of developing countries to discuss the US demands and consider earlier versions of the draft Chairman’s statement.

This version of Chairman’s statement purportedly represents “several key shared understandings of Members” on how the draft Decision, as contained in the December 16 text, will be interpreted and implemented. The statement outlines 4 “understandings”, which will have implications for the interpretation and operation of the draft Decision.

1.   Public health purpose but not industrial or commercial policy, objectives

The first “understanding” states the system (for allowing import and export of generic drugs) established by the draft Decision “should be used in good faith to protect public health” and not as “an instrument to pursue industrial or commercial policy objectives”.  (This is a modification of a previous US proposal that the system would only be used for “humanitarian purposes”, which the developing countries consulted had rejected as unnecessarily limiting the use of the Decision.)

The new formulation is also an attempt to restrict the circumstances in which the system can be used. It is not clear what would constitute “industrial or commercial policy objectives”, which may create more uncertainties instead of clarifying the situation. It is however, clear that the intent of the Members (at least the majority of     them) in formulating the draft Decision was to facilitate the export and import of affordable drugs produced under compulsory licence.

The most effective means of lowering drug prices is to have sufficient competition. Enabling generic manufacturers to produce (under compulsory licence) the patented medicine would increase the number of suppliers of the medicine (hence introducing competition), and allowing them to export to the countries in need, would seem to be the intent of the draft Decision.

The reference to industrial policy objectives would seem to imply that developing countries should not be taking measures to establish or promote the domestic pharmaceutical industry, even where this may be an indirect consequence of measures taken to promote access to medicines and protect public health. But, it is precisely because most developing countries have insufficient manufacturing or no capacity that the Paragraph 6 problem has taken centre stage. The reference to commercial policy objectives would also imply that there is a requirement that the import and export of medicines under the system should be for a not-for-profit purpose. If this were the case, it would again severely limit the effectiveness of the draft Decision.

2.   Shapes, colours and special packages or labels

The second “understanding” relates to measures to prevent trade diversion, stating that “the purpose of the decision would be defeated of products supplied under the Decision were diverted from markets for which they were intended”.  There are 2 elements in the Chairman’s statement.

First, in order to prevent trade diversion, the Members “understand” that the requirement for special packaging and/or special colouring or shaping will not have a significant impact on the price of pharmaceuticals. Second, the requirement for special packaging and/or colours or shapes shall be applicable both to active ingredients as well as to finished pharmaceutical products. In this regard, a list of “best practices guidelines”, comprising pharmaceutical MNCs’ efforts to prevent diversion of products has also been attached to the statement, to provide an illustration on how such practices can be used to prevent diversion.

Paragraph 2(b)(ii) of the December 16 text provides that the generic manufacturer when producing under a compulsory licence may be required to make special arrangements in manufacturing processes for the markings or special colouring of the product, or packaging and labeling. However, the present language of Paragraph 2(b)(ii) provides that generic manufacturers should distinguish their products provided that “such distinction is feasible and does not have significant impact on price”.  This suggests that the requirement need not be satisfied where the proviso applied.

The proposed understanding would make this requirement mandatory, and remove the flexibility of the proviso in Paragraph 2(b)(ii). This clearly amounts to a re-writing of the December 16 text, through the Chairman’s statement. In this case, it may mean that the generic manufacturer would have to make special arrangements (in manufacturing processes for the markings or special colouring of the product, or packaging and labeling) to produce each batch of drugs. It may not be economically feasible to do so, unless the manufacturer can be assured of large enough orders. Equally important, it extends the requirement for special packaging, shapes or colours to cover not only the final products but also the active ingredients. This may have implications for those countries that are producing generic medicines and may make it increasingly difficult for generic manufacturers to get the raw materials for their manufacturing. In effect, it would adversely affect the exporters (and those countries wishing to establish and promote a pharmaceutical industry). Then who would supply the importing countries?

It is unfortunate that there is so much attention on trade diversion. Such concern is disproportionate to the potential problem of diversion of generic pharmaceutical products. It must be pointed out that there has not been an actual case of generic drugs (produced under compulsory licence) being diverted. (A recent reported case in the Netherlands is often quoted as an incident of diversion, but it should be pointed out that this was a case of attempted (but unsuccessful) diversion of discounted-price patented medicines, and not of generic medicines.)  Yet, so much focus is placed on trade diversion and the imposition of onerous conditions on generic manufacturers. It seems that the efforts are aimed at preventing generic manufacturers from producing at all.

3.   Right of challenge

The third “understanding” appears to establish a right (and the mechanism) for Members to challenge the validity of another Member’s use of the system in the draft decision. This comprises an obligation for importing Members’ to justify their eligibility to use the system, as well as the right of other Members to challenge another Member’s interpretation and implementation/use of the system.

The current December 16 text requires Members wishing to use the system to make a self-determination that it has insufficient or no manufacturing capacity, in accordance to a test set out in the Annex (to the December 16 text). The Chairman’s statement now appears to require Members to justify their decision, by requiring that they provide “information” to the TRIPS Council on how they actually established their lack or absence of manufacturing capacity.

The suggestion therefore is that the means by which a Member established lack or absence of manufacturing capacity is open to challenge, as is their right to use the system in the draft Decision. This implication is reinforced by the Chairman’s statement that provides that Members may bring “any matter related to the interpretation or implementation of the decision, including issues related to diversion, to the TRIPS Council for expeditious review, with a view to taking appropriate action”. 

(It should be noted that footnote 2 of the December 16 text states that a notification by a Member of its intention to use the system does not need the approval of a WTO body. However, it is not clear whether or not the Chair’s understanding would over-ride footnote 2.)

In addition, Members may also “utilise the good offices of the Director-General or the Chair of the TRIPS Council” to find a mutually acceptable solution when there are “concerns that the terms of the Decision has not been fully complied with”. The references to “with a view to taking appropriate action” and “mutually acceptable solution” would indicate that Members can expect certain consequences for non-compliance of the terms set out in the draft Decision. What these consequences are is not clarified in the Chairman’s statement.  

4.   Opt-out clause

The fourth “understanding” re-states Paragraph 1(b) of the December 16 text with regard to the notification of Members, which have opted not to use the system or to use it in cases of emergencies. It refers to footnote 3 to Paragraph 1(b) which lists those 23 developed countries that have opted-out of using the system as importers.

What is new is a listing of those countries that have agreed to use the system only in cases of national emergencies or situations of extreme urgency. In an earlier version of the statement, there was a listing of 11 countries - Chinese Taipei; Hong Kong, China; Israel; Republic of Korea; Kuwait; Macao, China; Mexico; Qatar; Singapore; Turkey and United Arab Emirates. This listing has been deleted from the latest draft, after a number of countries on this list had apparently complained that they had not first been consulted. However, their agreement to being on the list is not expected to be a contentious issue.

In addition, there is the group of EU acceding countries that agree they will only use the system as importers in national emergencies or situations of extreme urgency until their accession, after which they will not use the system as importers.


The Chairman’s statement of understandings appears to be an attempt to limit the effectiveness of the system, as contained in the December 16 text. The first understanding, intended to be a statement of purpose, serves to raise further questions and uncertainties, instead of clarifying the situation. Indeed, the key objective of developing countries pushing for the Doha Declaration on TRIPS and public health was to clarify the rights and flexibility available to them to protect public health. This understanding does not help.

In the case of measures to prevent trade diversion, the understanding is essentially a re-writing of the December 16 text by mandatorily requiring the use of special packaging, shapes or colours. This requirement would effectively hinder the production, export and import of generic drugs. In fact, it would seriously affect the sustainability of the generics industry.

Finally, the right of Members to challenge the interpretation and implementation of the December 16 text may have the effect of discouraging both governments and generic manufacturers from using the system.