The right fix?
1 Sept 2003
The Economist
Global Agenda

India and Brazil are good at making cheap copies of life-saving drugs. Now they are allowed to export them too.


Patented or generic, they all taste the same.

SINCE 1996, Brazil has cut the number of people dying of AIDS in half, by providing patented anti-retroviral drugs to 150,000 people free of charge. It can do so because it either makes cheap, generic versions of the drugs itself or it gets the drugs cheap from the patent-holder by threatening to make them itself. Brazil's patent-busting has withstood the grumbles of big western drug companies and American trade representatives at the World Trade Organisation (WTO). At the Doha trade talks in November 2001, ministers confirmed that patents could be broken in cases of national emergency and that public health crises, such as AIDS or tuberculosis epidemics, counted as just such an emergency. Intellectual property rights, the Doha declaration said, should not stymie efforts to "promote access to medicines for all."

Unfortunately, not every poor country can emulate Brazil's success, because not every country that needs anti-AIDS drugs can make them itself. The Doha declaration affirms a country's right to copy these drugs, but it does not give countries the right to export them. As they stand, the WTO's rules leave the vast majority of poor, disease-ridden countries in a pickle. They cannot afford to buy the patented versions of essential drugs; they do not have the resources to make cheaper generic versions; and they cannot import generics, because the countries that make them are not allowed to export them. Tucked away in paragraph six of one of its annexes, the Doha declaration briefly acknowledges this problem and resolves to find an "expeditious solutions". Twenty one months later, and with less than two weeks to go before trade ministers meet again in Cancun, Mexico, the "paragraph six problem" has a solution.

On Saturday August 30th, the WTO's 146 member states finally approved a deal on access to cheap drugs struck a few days earlier by America and four much poorer countries (India, Brazil, South Africa and Kenya). The deal attempts to square the aspirations of potential exporters of generics (such as India and Brazil), the needs of importers (many of them in Africa) and the commercial interests of the patent-holders themselves, principally American pharmaceutical companies. The Americans do not want to be accused of blocking poor countries' access to essential drugs, but they are keen to set limits on which drugs are seen as essential, and which countries can count themselves poor. They walked away from a deal last December arguing that paragraph-six exceptions should apply only to a short list of the most infectious diseases. Saturday's agreement does not do that. But it does list a number of rich countries that will refrain from importing generics and a second list of less-rich countries that will import them only in a national emergency or "circumstances of extreme urgency".

Even if richer countries do not import generics directly, the pharmaceutical industry fears that generic drugs ostensibly exported to poor countries will find their way back into richer markets. To discourage this, the agreement requires that generic drugs be labelled, packaged, shaped or embossed differently from the patented original. The big pharmaceutical companies also worry that patent waivers granted for life-saving drugs, such as efavirenz (an AIDS treatment), will be abused to make lifestyle drugs, such as Viagra (no introduction needed).

The generic threat is not entirely idle. India's pharmaceutical industry, in particular, is a wonder of the third world, making high-quality, low-cost copies of the latest drug innovations. Thus far, the industry has catered mainly to the domestic market, taking advantage of longstanding holes in India's patent laws. When those holes are plugged in 2005, Indian companies plan to move aggressively into the American and European markets, selling cheap versions of drugs whose patents have expired and challenging patents that haven't.

Saturday's agreement exhorts countries to use paragraph six only "in good faith to protect public health" and not in order to "pursue industrial or commercial-policy objectives". The agreement will be monitored by the WTO to ensure it is not abused. But is it necessarily bad faith to mix private commerce and public health? As Medecins Sans Frontieres, a humanitarian group, points out, the quickest route to cheap drugs is not charity but competition. Boehringer Ingelheim, a large pharmaceutical company, offers its anti-AIDS drug, nevirapine, at the discounted price of $438 per person per year. The market price of the generic version is only $166. This shouldn't surprise anyone. Patents are crucial to the pharmaceutical industry precisely because drugs are dauntingly expensive to invent and to test, but delightfully cheap to make.

The agreement tries valiantly to balance the commercial interests of the large pharmaceutical companies with the public-health needs of the world's poor. But is such a balance possible? A generic-drugs industry small and narrow enough for the comfort of the patent-holders may not be big and broad enough for the enormous task of tackling the world's epidemics. Without some relatively lucrative markets in places like South Korea or Mexico, the industry may never achieve the economies of scale necessary to make its drugs affordable to countries like Uganda or Tanzania. The industry may also be reluctant to enter export markets in a big way if its patent waivers are constantly under review by the agreement's monitoring body.

Some think the safeguards proposed in the agreement are not safe enough; others think them too onerous. India's pharmaceutical companies complained that paragraph six was "practically inoperative" even before the latest safeguards were introduced. The American drug companies, however, think even the new safeguards are far from perfect. They are set out, not in the formal text itself, but in a chairman's statement accompanying the text -- a kind of gentleman's agreement in a cut-throat, ungentlemanly world. One industry source, cited last month by Inside US Trade, suggested that the American trade representative, Robert Zoellick, wanted to be seen to be fighting their corner, but wasn't really.

There is no doubt that Mr Zoellick was under considerable pressure to come to a deal. Without agreement on paragraph six, the WTO's poorer members might have walked away from the entire Cancun trade summit, jeopardising its vast agenda on agriculture, services and investment. Indeed, the long tussle over generic drugs shows that a united front of developing countries can hold its own against Big Pharma. If they can only do the same against Big Farmers, Cancun might be a success after all.