The FTAA, Intellectual Property and Access to AIDS and Other Essential Medicines

What is the Free Trade Agreement of the Americas (FTAA)?

The FTAA is a proposed free trade agreement between the economies of 34 countries in the Western Hemisphere, stretching from Canada to Chile. It is effectively an effort to expand NAFTA, the North American Free Trade Agreement, to include all of North, Central and South America and the Caribbean (except for Cuba).

Negotiations over the FTAA are now underway, with a scheduled completion date of 2003. The negotiating text remains secret, so it is not possible to know exactly what is included in the agreement. But it is clear the agreement will be modeled on NAFTA; and the United States has released a summary of its negotiating objectives for the agreement, which gives a good idea of what it is seeking to achieve in the negotiations.

What is Intellectual Property?

Intellectual property is the right to use certain ideas, expressions of ideas, images or names. Governments grant exclusive intellectual property rights (monopolies) through such familiar concepts as patents, copyright and trademarks. Those who hold patents are given the exclusive right to manufacture or sell a patented product for a set period of time, subject to certain limitations.

Who Sets Intellectual Property Rules?

Each nation is free to set its own rules for intellectual property.

Members of the World Trade Organization (WTO) are obligated to abide by the minimum standards included in the WTO's Trade-Related Aspects of Intellectual Property Agreement (known as TRIPS). TRIPS requires, for example, that all WTO countries provide 20-year patents on inventions. This is a significant change for many developing countries, which did not provide for patents, or had much more lax patent rules, prior to joining the WTO. In particular, many developing countries did not grant patents for pharmaceuticals. (Many European countries also recently refused to provide for pharmaceutical patents, even up through the 1970s.)

Other international agreements, such as NAFTA, may require additional intellectual property protections.

The negotiators of the FTAA are planning to adopt still more intellectual property requirements.
How do Intellectual Property Rules Affect Access to Medicines?

Patents give drug companies a monopoly on medicines for a 20-year period (less time when delays in the patent and drug approval processes are taken into account), and the ability to set prices without direct competition. Competition is the most important factor in limiting pricing, and intellectual property rules largely determine how much competition drug companies will face, and when.

What is Compulsory Licensing?

Compulsory licensing enables any government to instruct a patent holder to license the right to use its patent to a company, government agency, or other party. Costa Rica, for example, could issue a license to a local company for an HIV/AIDS drug manufactured by Bristol-Myers Squibb. The Costa Rican firm would then manufacture the drug for sale in Costa Rica under a generic name, and it would pay a reasonable royalty to Bristol-Myers Squibb on each sale.

Compulsory licensing lowers prices to consumers by creating competition in the market for the patented good. Its impact is similar to the introduction of generic competition at the end of a drug's patent term-prices come tumbling down. Compulsory licensing can lower the price of medicines by as much as 95 percent or more.

Is Compulsory Licensing Legal?

Whether compulsory licensing is permitted in any particular country depends, of course, on that country's laws. But compulsory licensing is permitted under the WTO TRIPS rules. Compulsory licenses are regularly granted in the United States, primarily in connection with antitrust disputes.

How Serious is the HIV/AIDS Crisis in Latin America and the Caribbean?

Although the HIV/AIDS epidemic in Latin America and the Caribbean is nowhere near as serious as it is in Africa, infection rates are still high. UNAIDS estimates that 1.4 million people have HIV/AIDS in Latin America, with 150,000 people newly infected with HIV in ,000 people have HIV/AIDS in the Caribbean, with another 60,000 infected in ,000 have HIV/AIDS in North America, with 45,000 newly infected last year.) Deaths due to HIV/AIDS totaled 32,000 in the Caribbean and 50,000 in Latin America in 2000 (while 20,000 died from HIV/AIDS in North America last year).

How Can Compulsory Licensing Help Latin American Countries Treat HIV/AIDS?

Triple-drug therapies ("drug cocktails") are now enabling many people with HIV/AIDS in the United States and other rich countries to survive. But the patent-protected drug treatments are very expensive -- $10,000 to $15,000 a year, or more.

Providing access to combination therapies at $10,000 or more a year would severely strain or overwhelm the budgets of the developing countries in the Caribbean and Latin America.

If compulsory licensing brought prices down to even $500 a year -- more than the Cipla price -- most Caribbean and Latin American countries could provide pharmaceutical treatments to their HIV/AIDS populations. Although poor, these countries are considerably than African nations; and their HIV/AIDS populations are considerably smaller. Universal access to treatment is certainly within reach in Latin America and the Caribbean.
How has Brazil Provided Treatment to People With HIV/AIDS?

The experience of Brazil shows how generic production and compulsory licensing can drive down prices and enable developing countries to make drug treatments universally available. Brazil manufactures generic HIV/AIDS drugs (which are not patent protected because Brazil has only recently adopted a WTO-style patent system for pharmaceuticals). It guarantees pharmaceutical treatment to every person with HIV/AIDS.

Brazil has shown that developing countries can administer an effective HIV/AIDS treatment program. It has effectively delivered drugs to those with HIV/AIDS and maintained high rates of compliance with treatment regimes. It has proven that generic production drives down prices -- its cost for drug cocktails is far below that of the multinational pharmaceutical firms, and the price continues to decline. And the Brazil experience -- where infection rates are considerably lower than projected -- strongly suggests that treatment is an important component of prevention; healthier people are less likely to spread HIV, and people are more likely to be tested for HIV and then adopt safer practices if they know that those with HIV/AIDS have hope of being treated.

Could the FTAA Limit Countries' Rights to Undertake Compulsory Licensing?

Yes. Because the FTAA negotiating texts remain secret and in any case are not finalized, it is not possible to know exactly what intellectual property rules the FTAA may contain.

But if a recent trade agreement completed between Jordan and the United States foreshadows the FTAA future, there is cause to worry.

In the trade agreement recently concluded with Jordan, the United States restricted the basis for compulsory licensing. Under WTO rules, compulsory licensing is part of the basic schema of the intellectual property system, not a limited "exception." TRIPS permits compulsory licensing generally, so long as certain procedural conditions are met. The U.S.-Jordan Free Trade Agreement severely limits the ability of the United States and Jordan to use compulsory licensing for non-public use.

Might Other Provisions Limit Countries' Rights to Undertake Compulsory Licensing?

Yes. In the summary of its negotiating position, the United States has made clear that it is seeking "TRIPS-plus" provisions -- that is, rules that require countries to provide stronger intellectual property protections than required by the WTO TRIPS.

For example, the U.S. negotiating position includes a goal of providing new mandatory protections for the safety and efficacy ("registration") data that drug companies submit to gain approval to market a drug.

To gain marketing approval -- which they would need to put a compulsory licensed product on the market -- generic companies typically show their product is "bioequivalent" to a patented product, and then rely on the patented product's safety data to earn approval. In many instances, if a generic company cannot use the already-generated
registration data, it will not introduce a generic version of the patented product; the price of generating the data may be too high, or, just as important, take several years to replicate.

Adoption of new protections for registration data are likely to significantly impede efforts at compulsory licensing of pharmaceuticals.
Are There Other Potential FTAA Provisions that Could Interfere with Efforts to Enhance Access to Essential Medicines?

Yes. For example, the U.S. negotiating position calls for an effective extension of the patent term for pharmaceuticals (including patent extensions to offset delays in marketing approval for pharmaceuticals). The result would be to give drug companies longer-term monopolies, enabling them to price gouge over longer periods.

For a more detailed discussion of this and other problems with the U.S. negotiating position, see a letter written by Robert Weissman and James Love, at &lhttp://lists.essential.org/pipermail/pharm-policy/2001-January/000620.html>.

Should Intellectual Property Provisions Be Included in the FTAA?

No. The FTAA negotiating countries are all members of the World Trade Organization and have committed themselves to the TRIPS. TRIPS establishes a comprehensive international standard for intellectual property protection, with a heavy tilt towards the interests of intellectual property holders. The only reason to include intellectual property provisions in the FTAA is to force countries to adopt TRIPS-plus obligations -- many of which are dangerous and injurious to public health.

Even inclusion in the FTAA of rules identical to the WTO would be harmful. That would mean that if positive changes were achieved in the WTO intellectual property rules, the FTAA countries would still be required to adhere to the old, more restrictive rules. By contrast, if harsher rules were adopted at the WTO, the FTAA countries would be required to adhere to them.

This is a lose-lose arrangement. Intellectual property should be kept out of the FTAA.

For more information, contact Robert Weissman of Essential Action at .