Article originally published on Medium.com: https://medium.com/@edwardwong_61578/trips-doesnt-promote-the-right-to-health-security-for-developing-countries-by-restricting-bab689dd0ca0
Written by EDWARD WONG
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international legal agreement between all the member nations of the World Trade Organization (WTO). TRIPS has the potential to fulfil the WHO and UNDHR’s ‘right to life’ by promoting accessibility to affordable medicines. However, since its inception in 1994, its effectiveness as a multilateral trade instrument to promote health security in the developing world has sparked controversial debate (Love, 2007). This paper will explore how TRIPS doesn’t promote health security through its restriction of knowledge transfer in favour of promoting an oligopolistic, multinational pharmaceutical industry in both developed and developing countries (Archibugi, D. & Filippetti, A. ,2010). Comparative cost advantage theory can explain why developed countries utilised the TRIPS to restrict knowledge transfer to developing countries. By referring to India’s success as a manufacturer of generic ARVs (Antiretroviral drugs are medications for the treatment of infection by retroviruses, primarily HIV), this paper analyses why tacit knowledge imitation is essential for developing countries to promote health security. Finally, it will explore why knowledge transfer is a more effective long-term solution to address health security than TRIPS flexibilities on compulsory licencing.
Developed countries used the TRIPS to preserve their monopoly over the global IPR by restricting knowledge transfer to developing countries
The preliminary ideas on intellectual property protection introduced in the Berne and Paris treaties and codified in the World Intellectual Property Organisation (WIPO), imposed few constraints on its signatory countries. This provides a significant contrast to the binding nature of the common ‘minimum standards’ later imposed by TRIPS (Coriat, Orsi & d’Almeida, 2006). Prior to the formation of the TRIPS, more than 50 countries, including developed countries like Portugal and Spain, did not confer patent protection on pharmaceuticals (Sharfaraj, 2013). Pharmaceutical patent protection only emerged in Switzerland in 1977 and allowed the country to build up its pharmaceutical industry which was largely founded on reverse engineering and the copying of existing molecules. Furthermore, the extent of Switzerland’s patent protection was limited to ‘processes’ and not ‘products’ (Perry G, 2007). By only patenting ‘processes’, innovative methods for the efficient manufacturing of generic drugs could still be encouraged and kept prices of medicines affordable via leveraging off economies of scale. Switzerland could then exploit the economic benefits of intense reciprocal reverse engineering, copying and “inventing around” patented molecules to build its enormous technological capabilities (Coriat, Orsi & d’Almeida, 2006). Similarly, given the difficult barriers of entry in the pharmaceutical industry, patents were only introduced in the US in the 1960’s to allow for tacit knowledge imitation through generic manufacturers that maintained affordable prices to medicines (Coriat, Orsi & d’Almeida, 2006). After the US and European countries had benefitted enough from prior tacit knowledge imitation-friendly policies to develop their comparative advantages in generating pharmaceutical patents. It was then in their best interests to maintain their monopoly over collecting royalty rents from the Global South (Shanker, 2005).
In response to threats to its technological world hegemony and its trade deficit, which peaked at a record US$153 billion in 1987, US corporations sought to supplement a of lack of competitiveness in their manufacturing industries. This was done by enhancing the protection of their intellectual property markets abroad by insisting that intellectual property rights (IPR) would be a major topic of discussion during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) discussions (Stavinoha, 2016). The US even threatened to not support the formation of the WTO if IPR wasn’t included in the negotiations. During the late 1980’s, roughly 70 percent of pharmaceutical patents were owned by Western multinational corporations and only 29 percent of research and development (R&D) costs were funded by the government in the US (Chang, 2001). Given the strong technological infrastructures possessed by the private pharmaceutical companies of developed countries to conduct R&D, the TRIPS agreement would allow the Global North to maintain their market share by relying on monopoly positions acquired through previous innovations. The US pharmaceutical industry lobbied for greater IPR protections under the TRIPS and argued that pharmaceuticals were susceptible to trade distortions associated with an inconsistent IPR framework. The US contended that the absence of a uniform multilateral trade agreement on IPR like the TRIPS would see increasing “free-riding” by Southern states and wouldn’t incentivise innovation due to prohibitive R&D costs (Shanker, 2005). The Indian patent system which was accused of such “free-riding” was quoted as “the most direct motivation for US efforts in the Uruguay Round negotiations relating to patents” (Horner, 2014).
Prior to the inception of TRIPS, Brazil and India were worried that an overly protected IPR would impede the transfer of knowledge. This transfer had enabled them to emerge as successful manufacturers of generic drugs and undermine their national sovereignty to dictate their health security issues in favour of strengthening the already monopolistic, heavily concentrated pharmaceutical firms in developed countries. The Global South was also worried that the TRIPS minimum standards of implementing 20-year patent periods over molecules would further exacerbate the already very asymmetric relationship in patent ownership between developed and developing countries (Shanker, 2005). However, the US and its allies succeeded in eliminating the Global South’s resistance to TRIPS by threatening to impose strategic bilateral sanctions under s301 of the US 1974 Trade Act with the notion that such resistance constitutes an act of foreign governments to violate an international trade agreement that restricts US commerce (Chang, 2001).
By coercing developing countries with little-to-no domestic intellectual property frameworks to conform with TRIPS, the Global South became net importers of expensive pharmaceutical products of the Global North which undermined their ability to access essential medicines due to their restricted ability to rely on tacit knowledge imitation and an overreliance on monopolistic prices of drugs set by developed countries’ pharmaceutical companies (Coriat, Barnett et al, 2003).
Developing countries rely on tacit knowledge imitation to develop a sophisticated pharmaceutical industry
Information is a costly good to produce and can be cheaply transferred conveniently, regardless of whether it is produced in developed or developing countries. IPRs can only protect codified knowledge but not tacit knowledge which requires proper learning (Archibugi, D. & Filippetti, A. ,2010). Interestingly, most of the now-developed countries underwent a combination of protectionist policies and tacit knowledge imitation that then enabled them to develop their current comprehensive domestic intellectual property frameworks during the latter half of the 19th century (Love, 2007). Despite not having any patent law protection from 1850 to 1907, Switzerland did not fall noticeably behind other European nations in industrial development as it had ample freedom to imitate the tacit knowledge production processes of its German, French and British competitors. Similarly, Germany and the US benefited through tacit knowledge imitation of production processes developed by the United Kingdom. This brief historical comparison demonstrates how the now-developed countries are hypocritical to use TRIPS to condemn the Global South’s active learning imitation policies as ‘trade distortionary’ when they too once relied on such tacit knowledge imitation to innovate their economies.
The lack of knowledge in India prior to 1970 posed as much of a barrier to the development of India’s pharmaceutical industry as the product patents embedded in the 1911 Patents Act (Horner, 2014). The protectionist patent regime introduced in the 1970 Indian Patents Act enabled India to develop her capacity as a strong domestic pharmaceutical industry generic manufacturer that only patented “processes” of manufacturing pharmaceutical drugs (Shanker, 2005). This enabled India to fully exploit tacit knowledge imitation policies that saw innovative reverse engineering methods in the production of medicines, as it was legally possible for Indian scientists to take advantage of codified sources of knowledge they could access from abroad (Horner, 2014). The relaxation of India’s patent protection on “products” discouraged formal technology transfer through licensing as many foreign pharmaceutical companies couldn’t justify investing foreign direct investment into conducting R&D initiatives that would subsequently be reproduced within three years or less of their first introduction (Horner, 2014). However, the informal transfer of tech did not impede Cipla (one of the largest Indian pharmaceutical companies) to produce a year’s supply of ARVs at a significantly lower cost of $350 as opposed to its American counterpart of $10,000 and a comprehensive study found that by the late 1970s, Indian pharmaceutical companies had the necessary technology to become a major generic manufacturer of affordable drugs (Albutt, 2013). Similarly, technology transfer has prospered in countries like South Korea, Taiwan and Brazil in absence of strong IPR laws during the pre-TRIPS regime. In contrast, Uganda has received very little technology transfer despite having TRIPS-compliant domestic laws that emulate the IP legislative framework of developed countries and this has severely undermined its ability to promote affordable medicines (Sundaram, 2015).
Given that India’s pharmaceutical industry has arguably “caught up” with that of developed countries due to its successful tacit knowledge imitation policies, its compliance with the TRIPS runs the risk of creating an oligopolistic structure that doesn’t promote further knowledge transfer but favours a few Indian firms with sufficient R&D capacity to serve high-income markets. Contrary to widespread fears that the Indian pharmaceutical industry would suffer post-TRIPS, it has continued to grow at between 9–19% per annum from 2005 to 2010 (Department of Pharmaceuticals 2012). However, growth in the Indian pharmaceutical industry doesn’t account for the degree of genuine innovation and knowledge transfer during this period, nor does it account for the ease of access to essential medicines by Indian consumers, many of which are still living under the poverty line. Post-TRIPs favours larger Indian pharmaceutical firms who now have the capability to conduct their own research and has seen 37 major Indian firms on average increase their R&D expenditure as a percentage of sales from 1.39% in 1992–93 to 7.04% in 2007–8 (Horner, 2014). Large Indian firms have now achieved the technological capacity of developed countries’ pharmaceutical sectors and have placed a greater emphasis on licensing and building partnerships for further development of their research capabilities with similarly sized large firms. Compliance with TRIPS abolishes a dual market system which enables both patented and generic drugs to coexist whilst forcing a business environment that encourages more formal technological transfers. These transfers favour an oligopolistic structure for a few large Indian firms. TRIPS will also impede the ability of smaller Indian firms to access more technological knowledge via informal means, given their substantial reverse engineering capabilities and place upward pressure on the affordability of medicines (A, 2017).
TRIPS flexibilities on compulsory licencing impede knowledge transfer
Despite the Doha modifications on Article 31 of TRIPS with regards to compulsory licencing requirements, its structural flaws impose several restrictions which impede knowledge transfer and, at best, serve as a temporary solution to address health security. Following the December 2005 amendment of Article 31(f), compulsory licencing could be given to exporting developed countries firms if importing developing countries did not possess the capacity to manufacture generic drugs so long as the importing countries satisfied certain prerequisites (Love, 2007). Some of the requirements for importing countries include notifying the exporting country of the exact number of drugs required and notifying the WTO of their intention to grant a compulsory licence. However, many LDCs do not have TRIPS-compliant legislative framework and these prerequisites could only entrench the monopolised position of developed country exporters due to poor anti-competitive legislative frameworks established by LDCs (Love ,2007). In practice, multinational pharmaceutical corporations are less likely to take advantage of compulsory licencing on the basis that the tedious process of compliance with TRIPS flexibilities doesn’t justify their entry into a market whose population cannot afford their products. This tedious process and reluctance of developed country firms to take advantage of compulsory licencing is exemplified through Rwanda’s compulsory licencing agreement with Canada’s Apotex.
Global Charity Mdicins Sans Frontières (MSF) found the cumbersome nature of the Article 31(f) provisions dissuaded many large firms from adopting a compulsory licence and could only persuade Apotex to produce a fixed-dose combination for AIDS to export to Rwanda (Nicol & Owoeye, 2013). However, the delays in the issuance of compulsory licenses allowed Apotex less time to recover their start-up costs and allowed ample time for certain viruses to mutate which diminished the efficacy of the exported drugs. This posed further detrimental consequences for the future of Rwanda’s ability to access essential medicines as the use of compulsory licencing discouraged further foreign direct investment (FDI) by other advanced country pharmaceutical firms which further delays the process of knowledge transfer through tacit knowledge imitation (Lybecker & Fowler, 2009). The process for Apotex to ensure that its domestic legislation was TRIPS-compliant took three years, and since the December 2005 Article 31(f) agreement, neither Apotex nor any other Canadian company have expressed interest in obtaining a compulsory licence to export medicines to developing countries with no generic drug manufacturing capabilities (Lybecker & Fowler, 2009).
Whilst Canada’s experience with compulsory licencing highlights the cumbersome inefficiencies of Article 31, Thailand’s Government Pharmaceutical Operation (GPO) demonstrates how it can be abused. Thailand used to grant universal access to ARVs in 2003 but constant changes in government and military coups have made it hard for any consistent policy on healthcare to be maintained. A compulsory licence for Efavirenzes was granted to GPO in 2006, but it has abused its position by entrenching its monopoly position in the pharmaceutical market whilst producing poor quality drugs. Despite considering itself an NFP, the GPO earned a profit of 1 billion baht in 2005 (Lybecker & Fowler, 2009) (US$30.5 million). The Global Fund to Fight AIDS initially granted the GPO US$133 million in 2003 to upgrade its drug manufacturing capabilities but withdrew funding in 2006, citing the GPO’s failure to meet WHO standards through its production of substandard drugs (Lybecker & Fowler, 2009). This inaccessibility to funds will only delay knowledge transfer and further cripple the ability of Thailand’s R&D sector to efficiently produce affordable medicines. A 2005 investigation by Mahidol University revealed that 1 in 5 people reliant on GPO’s ARVs to combat AIDS had developed resistance to the poor-quality ARV. Despite the inexpensive ARV produced by GPO at $24 per patient per month, its poor efficacy prompted patients to seek second line therapies which costed them $249 per patient per month (Lybecker & Fowler, 2009). The process of knowledge transfer from developed countries to developing countries must be expeditious for tacit knowledge imitation to flourish. Both the Canadian and Thai case studies demonstrate how TRIPS flexibilities on compulsory licencing hinder knowledge transfer and do not improve the capabilities of developing countries to develop self-sufficient pharmaceutical industries.
Knowledge transfer via tacit imitation has benefited the growth of the pharmaceutical industry in both developing and developed countries. In its current state, the TRIPS advocates an oligopolistic model of IPR global governance that favours a few large pharmaceutical firms with a comparative cost advantage in R&D capabilities. Its ‘one size fits’ all solution doesn’t account for the need of developing countries to rely on knowledge transfer via tacit knowledge imitation to build self-sufficient pharmaceutical industries, but rather encourages policies which conform to entrenching the already asymmetric monopoly positions of larger firms. Finally, TRIPS flexibilities on compulsory licencing only serve as temporary solutions to improve accessibility to essential medicines.
ARV – Antiretroviral drugs
FDI – Foreign Direct Investment
GATT – General Agreement of Tariffs and Trade
GPO – Government Pharmaceutical Operation
HIV – Human Immunodeficiency Virus
IP – Intellectual Property
IPR – Intellectual Property Rights
LDCs – Least Developed Countries
MSF – Mdicins Sans Frontières
NFP – Not For Profit
R&D – Research and Development
TRIPS – the trade agreement concerning Trade-Related Aspects of Intellectual Property Rights
UNDHR – United Nation’s Declaration of Human Rights
WHO – World Health Organization
WIPO – World Intellectual Property Organisation
WTO – World Trade Organization