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Free Trade, Expensive Drugs

Fall 2006

"It is crucial for us to stop the [trade] negotiations, because our lives are at stake. We are fighting against drug patents with our lives. I know I might get arrested or injured in clashes with police, but we are all willing to face that, because we have more to lose if the talks succeed."

Nopparat Sa-ngiemjitr, an AIDS activist in Thailand, expressed the views of over 2,500 people with HIV who had joined a protest march against the proposed U.S.-Thailand Free Trade Agreement (FTA). The turnout was extraordinary, but it is no longer unusual to see people with HIV leading protests against free trade proposals.

Around the world -- from Guatemala to South Africa, from South Korea to Brazil -- people with HIV have learned that the terms of FTAs can be a matter of life and death. And they have hit the streets demanding life.

Unfortunately, they are usually protesting policy demands from the U.S., which typically mirror the demands of the brand-name pharmaceutical industry. Indeed, at times the industry has stated that it effectively drafted U.S. positions in trade negotiations. The office of the U.S. Trade Representative, which negotiates trade treaties on behalf of the United States, views itself as representing the interests of U.S. exporters, so it is very sympathetic to recommendations from the drug industry, a major campaign contributor that employs hundreds of lobbyists.

The drug industry's wish-list in trade agreements covers an array of technical issues, but most of them boil down to rules that would extend their patents and delay generic competitors from entering the market.

The U.S. has negotiated such provisions into FTAs with Australia, Bahrain, Canada, Chile, Colombia, Israel, Jordan, Oman, Mexico, Morocco, Singapore, Peru, Vietnam, and six Central American parties (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua). Negotiations for new agreements are under way with Thailand, Malaysia, South Korea, and Panama, with many others proposed.

Access To Medicines For All?

Patents give brand-name drug makers monopolies that enable them to price drugs far beyond the cost of manufacture. But until 1995, many developing countries did not allow drugs to be patented. That changed with the adoption of the World Trade Organization's (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). This international treaty required every member of the WTO to adopt certain patent rules, such as 20-year patents on all inventions, including pharmaceuticals.

But there are two important exceptions in TRIPS rules. First, developing countries were given a transition period. Some were given until 2000 to come into compliance with the treaty, while others were given until 2005 (a deadline now extended to 2016 for the poorest countries).

Second, TRIPS included some flexibilities and safeguards. The most important of these is known as "compulsory licensing." Compulsory licensing enables a government, without the consent of the patent holder, to issue a license allowing a company to use the patented invention. Kenya, for example, could issue a license to a local company for a drug manufactured by a brand-name company. The Kenyan firm would then manufacture the drug for sale in Kenya under a generic name, and it would pay a royalty to the drug company on each sale. Or the Kenyan firm might import a generic version of the drug, paying royalties on what it sold.

Compulsory licensing works to speed up generic competition -- the most effective way to lower the price of drugs. Generic competition has brought down the price of first-line HIV drugs in developing countries from more than $10,000 a year per person to $132 a year or less -- a decline of more than 98 percent! That price reduction, in turn, has made it possible for international donors to pay for treatment of people with HIV on a vast scale.

Unfortunately, many developing countries do not understand the details of TRIPS, and have been misled about what TRIPS permits. Their concerns over violating WTO rules, and uncertainty about what is permitted under TRIPS, have deterred them from using the tools available to them.

The Doha Declaration

In 2001, however, African countries mobilized and forced a breakthrough, leading to a Declaration on TRIPS and Public Health at a WTO meeting in Doha, Qatar. The Doha Declaration clarified that countries have the right to undertake compulsory licensing in circumstances of their choosing. The declaration affirmed that "the [TRIPS] Agreement can and should be interpreted and implemented in a manner supportive of WTO members' right to protect public health and, in particular, to promote access to medicines for all."

The Doha Declaration had been preceded by other victories in the campaign for access to essential medicines. In May 2000, under pressure from activists, President Clinton had issued an executive order stating that the U.S. would not pressure African countries to provide patent protections for HIV drugs that went beyond the requirements of TRIPS (this was effectively then extended to all drugs in all countries, and was maintained by the Bush administration). In February 2001, the Indian manufacturer Cipla announced it would sell a combination of first-line drugs for $350 a year. And in April of 2001, 39 drug companies that had been suing South Africa over compulsory licensing plans announced they would drop the case.


The U.S. signed the Doha Declaration, but then increased its practice of pushing for bilateral (between the U.S. and one other country) and regional FTAs. These agreements cover huge swaths of national economies -- everything from agriculture to services, from food safety to telecommunications. Many developing countries are eager to enter into FTAs with the U.S. because of the promise of reduced or no tariffs for their exports. The U.S. extracts concessions in return -- and one of the unvarying demands is that countries provide patent and other protections for pharmaceuticals that exceed the requirements of TRIPS (these are known as "TRIPS-plus"). Most of these measures keep the price of drugs high by delaying generic competition.

The U.S. is pushing for a long list of TRIPS-plus demands in bilateral and regional FTAs, including: extending the length of patents; "linking" approval to patent status (making drug safety agencies de facto patent enforcement agencies); restricting drug importation; giving drug companies the right to sue a government if it issues a compulsory license, and, possibly the most important, "data exclusivity."

Who Owns The Data?

All countries require drug sellers to submit data showing their drugs are safe and effective, but generating that data can cost tens of millions of dollars. When seeking approval for their versions of these drugs, generic companies do not usually repeat these studies. Instead, they show their product is "bioequivalent" (meaning it will work the same in the body as the brand-name drug). The generic companies rely on the data submitted for the prior approval of the patented drug to earn approval for their version.

The data exclusivity provisions of FTAs often require countries to maintain a five-year (or longer) prohibition on the right of a generic firm to rely on the clinical data submitted by brand-name drug companies. Since generic firms must reference this data to gain approval, these drugs will effectively be barred from entering the market -- even if the patent has expired or the countries have issued a compulsory license -- until the monopolies on the use of the data expire.

CAFTA and Guatemala

The U.S.-Central America Free Trade Agreement (CAFTA) was signed in December 2003, but controversy and protests delayed its ratification until July 2005. It passed the U.S. House of Representatives by only a single vote. Under CAFTA, data exclusivity could extend as long as 10 years.

Under U.S. pressure, Guatemala had earlier adopted data exclusivity on two occasions. But each time, after health advocates pointed out the dangers, the provisions had been eliminated. As Guatemala was considering ratification of CAFTA in early 2005, John Hamilton, the U.S. ambassador to Guatemala, issued what amounted to an ultimatum: Even though he acknowledged that Guatemala had rescinded data exclusivity rules "out of its concern to protect public health," Guatemala had to change its law to provide data exclusivity as required by CAFTA, or the U.S. wouldn't approve the deal.

Despite intense street protests, including by people with HIV/AIDS, the Guatemalan Congress in March 2005 imposed a data exclusivity regime, and then approved CAFTA.

"In Guatemala today, 78,000 people are infected with HIV," said Berta Chete, who works with the Association Gente Positiva, an organization of people living with HIV/AIDS in Guatemala. "Nearly 13,500 of us are in urgent clinical need of ARV treatment. But only an estimated 3,600 people receive it. Most of them get it from the Social Security system and non-governmental organizations. The Ministry of Health only provides treatment to 350 patients."

The government has the duty to provide treatment, she points out. But, "we doubt that the Government has the capacity to respond to this situation, because, if there is not competition between generic medicines and brand-name drugs to reduce prices, the national budget will never be able to cover the needs of the country in terms of treating AIDS patients."

The group Doctors Without Borders (known by its French acronym, MSF) offers an example of the possible harm to come from data exclusivity. One drug now protected by data exclusivity is Reyataz (atazanavir), a key part of second-line therapy for people with HIV. It is used widely in the U.S., Europe, and Brazil. But there is presently no generic competition for atazanavir, and the price is over $10,000 a year.

"If a more affordable generic version of atazanavir is developed," MSF notes, "it will not be able to enter the Guatemalan market until 2009," thanks to the data exclusivity rules. "This means that Bristol-Myers Squibb will have a monopoly during the entire period of exclusivity. ... It is therefore unlikely that the vast majority of Guatemalans who will need this medicine will be able to access it."

Fighting Back

But protests against TRIPS-plus measures are starting to have an impact. The demonstrations in Thailand forced officials to move their meetings to escape the protesters. The negotiations are now on hold, thanks to a stalemate in Thai politics and a recent military coup.

In Southern Africa, the U.S. efforts to negotiate a trade deal with South Africa, Namibia, Botswana, Lesotho, and Swaziland collapsed earlier this year over unbridgeable differences. One of them was concern from about U.S. demands for TRIPS-plus patent provisions concerning pharmaceuticals.

In South Korea, trade talks have foundered as the U.S. has pressed the government to change its system for reimbursing drug expenditures. The U.S. wants South Korea to pay for more brand-name drugs. Intense pressure from a broad range of public health organizations is preventing the government from acceding to U.S. demands.

Meanwhile, a growing movement in the U.S. is challenging existing trade policy. A very broad coalition -- labor and environmental groups most prominent, but including AIDS activists and public health advocates -- has come together to oppose future trade deals that look like CAFTA. Their efforts nearly defeated CAFTA, but failed thanks to high-pressure tactics from the House Republican leadership.

For the last several years, Congress has considered trade deals according to a special process known as "fast track." Fast track prohibits Congress from amending the legislation that implements trade agreements. It expires next year, and because of the broad public opposition to current trade policy, there is little chance of it being renewed, at least before the 2008 elections. Without fast track, the administration will have a very hard time getting new trade deals through Congress.

For a while, then, developing countries may win a reprieve. But it will be short-lived unless activists in the U.S. and developing countries build their power to stop the campaign to extend the drug industry's monopolies on HIV drugs.

The stakes could hardly be higher. As developing countries expand their HIV/AIDS treatment program, they will need access to second-line therapies, which can now cost 10 times more than first-line drugs. These drugs are more often patented in developing countries, and -- because they are newer drugs -- the patents have later expiration dates. Whether people with HIV in developing countries are able to get these life-saving treatments will depend on whether countries are able to use methods like compulsory licensing to speed up generic competition. Without that, "free trade" may translate to "no hope."

Robert Weissman is director of Essential Action, a Washington, D.C.-based group that campaigns for affordable drugs.

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This article was provided by AIDS Community Research Initiative of America. It is a part of the publication ACRIA Update. Visit ACRIA's website to find out more about their activities, publications and services.