Differential pricing of drugs to help people - or corporations?

The current move by the WTO, the EU and certain sections of the pharmaceutical industry to promote differential pricing as a solution to the problem of inaccessibility of medicines by the poor nations raises fears of a hidden agenda: a calculated move to change the TRIPS Agreement to prevent parallel imports and compulsory licensing.

by Chakravarthi Raghavan

DIFFERENTIAL pricing, segmentation of markets, and measures to restrict or prevent ‘leakage’ of products in ordinary trade from low-priced to high-priced segmented markets were some of the ideas the WTO secretariat had flagged for the Norway workshop on differential pricing and financing of essential drugs.

Such differential pricing would need changes to the WTO’s TRIPS Agreement, including an obligation to prevent parallel imports and a weakening of the compulsory-licensing right, two changes pushed in the Uruguay Round negotiations by corporations and the US and EC governments but which did not materialise, trade observers noted.

The differential pricing for medicines - a lower price in the poorer countries and a higher price in the richer nations - being promoted by the WHO and the WTO, and the European Commission’s ideas of a global ‘tiered-pricing’ system, are all responses to the mounting public outcry, led by international non-governmental advocacy groups (such as Medecins Sans Frontieres, Oxfam and, even earlier (specific to AIDS drugs), the AIDS lobby), against the WTO and its TRIPS Agreement over the exorbitant profits of the transnational pharmaceutical industry.

While the high cost of medicines has captured public attention and struck a chord everywhere, the basic problem is the TRIPS Agreement and the international/global statutory monopolies and abuses it creates.

Reading between the lines of the proposals and ideas of the WTO secretariat, the EC and others from the industry, the suspicion emerges of a hidden agenda of sorts - to change the TRIPS rules to prevent parallel imports from one market to another or to preclude the invocation by governments of compulsory-licensing provisions.

A report in the Financial Times, a pro-WTO financial publication, speaks of the ‘differential pricing’ that pharmaceutical companies already use and their ‘offers’ to slash prices of anti-AIDS medicines for the African countries. It says that the WTO-WHO want a more systematic programme so that ‘governments will not need to invoke health safeguards such as compulsory licensing and parallel imports, built into the WTO’s intellectual property accord.’

While presenting it in the context of the TRIPS Agreement - where the monopoly it entails is not a ‘natural monopoly’ but a statutorily created one (by the rules of the WTO and its dispute settlement system ensuring global monopoly) - and presenting it as a ‘win-win’ situation that would be beneficial to consumers in rich and poor countries alike and to the suppliers, the WTO secretariat’s background paper for the Norway workshop raises more troubling questions than it provides answers.

Negotiating TRIPS under duress

The background document has to be seen against the backdrop of the repeatedly iterated WTO secretariat view that the TRIPS Agreement, and more so its provisions on patents, was one of the texts concluded after some very difficult and prolonged negotiations under the Uruguay Round. A WTO fact sheet of March 2001, for example, has a sub-title ‘Philosophy: TRIPS attempts to strike a balance’, and says the agreement is an attempt to strike a balance between social rights and private rights of inventors and creators.

The fact sheets prepared by the WTO secretariat media section ‘to help public understanding’ attempt to show how intellectual property rights, by promoting invention and creativity, provide social and technological benefits, how they encourage new inventions such as drugs, and how social goals are advanced in the way intellectual property is protected.

In seminars and meetings, where WTO officials speak or interact orally in their personal capacities, the view is also advanced that the trade negotiators accepted the compromises put forward by the chair of the negotiating group on TRIPS, and hence the countries concerned should not complain or raise ‘implementation’ issues, etc.

Absent in all the discourse in the WTO literature, however, is the simple fact Đ found even in news reports in the transnational financial media that the WTO follows Đ that the entire negotiations on the TRIPS Agreement were a case of negotiations under duress, as developing-country governments and their trade negotiators negotiated under the threat of US retaliation under its trade law, ‘Special 301’ and ‘Super 301’. ‘Special 301’ vested the US Trade Representative (USTR) with the obligation of monitoring and publishing, and initiating actions for trade retaliation against countries viewed by the US as not providing sufficient protection to the US enterprises depending on intellectual property (for earnings).

The WTO secretariat cannot plead ignorance on this, for the issue figured repeatedly at the General Agreement on Tariffs and Trade (GATT) forum, under which auspices the Uruguay Round negotiations were conducted.

The attempts of the United States and the European Communities to bring intellectual property rights issues into the GATT go back to the Tokyo Round (the negotiating round before the Uruguay Round) in the 1970s. The two were unable at that time to persuade the then GATT Director-General, Olivier Long, to put a draft agreement prepared by the US and EC through a ‘green room’ consultation process to get the agreement of all other participants. Long reportedly saw it as outside the GATT framework and asked the US-EC to sponsor it themselves.

The 1978-79 move must be seen in the context of the UN/WIPO (World Intellectual Property Organisation) conference for the revision of the Paris Union Convention on industrial property, where developing countries had proposals relating to compulsory working and other ideas to enable transfer of technology and attack the restrictive practices of transnational corporations (TNCs).

Following the failure to get a ‘code’ accepted through the Tokyo Round, the issue was brought up again in the preparations for the 1982 GATT Ministerial meeting. In the end, the meeting adopted a decision of the GATT Contracting Parties instructing the GATT Council to examine the question of counterfeit goods with a view to determining the appropriateness of joint action within the GATT framework on the trade aspects of commercial counterfeiting.

Subsequently, in the runup to the Punta del Este meeting where the Uruguay Round was launched, the issue again came up and ended with a two-part mandate in goods negotiations: for clarification of GATT rules to ensure that promoting the effective and adequate protection of intellectual property rights and their enforcement does not become a barrier to legitimate trade; and for developing a multilateral framework to deal with international trade in counterfeit goods. Attempts to use this mandate to define norms and standards met with developing-country resistance, and this was one of the issues that stalemated and collapsed the Montreal Ministerial meeting in 1988.

Even when negotiations on intellectual property rights norms and standards were taken up subsequently, both before the 1990 Ministerial meeting and after, they were conducted among a small group of countries, with the chairman of the negotiating group putting forward compromises that were then pushed through the ‘green room’ processes, where a few objectors were forced to face the phalanx of protagonists and subjected to intense pressures.

And all these were done with the US wielding the big stick of trade and economic threats against those not cooperating with it in the TRIPS negotiations, through its family of ‘S.301’ laws, forged in 1988 as part of the fast-track authority granted by Congress to the US administration in the Omnibus Trade Act.

Right through the Uruguay Round negotiations and afterwards too, the US repeatedly put on its ‘watch list’ and ‘special watch list’ countries that supposedly did not provide the kind of protection the US wanted. The initiation of investigations or retaliatory actions, it was announced, would depend on the extent to which the negotiators of the countries concerned cooperated or obstructed the achievement of US objectives in this area in the multilateral negotiations. And very frequently, the Generalised System of Preferences (GSP) or other preferences were withdrawn, but since it was a preferential benefit that was being withdrawn, the countries affected could not raise it as a dispute in the GATT (though mention used to be made in the GATT Council and in the Trade Negotiations Committee).

The 1988 US trade law changes and the ‘Special 301’ provisions and US initiation of actions Đ either putting countries on the ‘watch list’ and announcing possible exports that could be hit (to generate domestic pressures in the exporting countries) or announcing withdrawal of GSP benefits over failure to provide the desired level of intellectual property rights protection - figured at the GATT Council and the Trade Negotiations Committee for about a dozen times right till the end of the Uruguay Round.

From about 1984, when the processes for launching a new round of multilateral trade negotiations with new issues were underway, and throughout the Uruguay Round, this ‘stick’ (of US trade sanctions) was wielded side by side with the ‘carrot’ of market-access benefits in goods.

It was in such circumstances that the very weakened provisions for international balance in Articles 6 (TRIPS and the WTO’s Dispute Settlement Undertanding not applicable to exhaustion of rights - and the corollary of parallel imports), 7 and 8 (enabling WTO Members to take measures to protect public health and nutrition), and the provisions of Art. 31 on compulsory licensing were put into the TRIPS Agreement.

But as the ‘cost’ exacted by the agreement on consumers everywhere has started to sink in, drawing the attention of public interest health and other organisations as well as advocacy groups - even free-trade ideologues like Prof Jagdish Bhagwati and Prof T N Srinivasan have begun to come out critical of TRIPS and supportive of some of the NGO concerns - the WHO and the WTO have joined to hold consultations.

The above is a truncated version of an article which first appeared in the South-North Development Monitor (SUNS- issue no. 4873), of which Chakravarthi Raghavan is the Chief Editor.