Patents a major problem for Third World

By Larry Elliott

LONDON: Let me tell you a story about life, death and profit. It involves some of the poorest countries in the world and some of the richest companies. It goes to the heart of how the modern world is to be run and whether the institutions set up to police the global economy are up to the job.

Eleven million people in poor countries will die from infectious diseases this year. Put a different way, it means that by the time you finish reading this column 100 people will have died. Half of them will be children aged under five. Just over a quarter -- 2.6 million -- will die from HIV/AIDS.

It is easy to work out why the death toll is so high. Poverty breeds ill-health and encourages the spread of infection, and the world is awash with poor countries.

Just as a starving man knows there is food at the Ritz, governments in Africa, Asia and Latin America know there are medicines to treat these illnesses if only they could afford them.

But the bigger developing countries have found a way round this problem by making cheap copies of western drugs. India, for example, makes 70 percent of its own drugs, while Egypt, Thailand, Argentina and Brazil have also taken steps to become more self-reliant in pharmaceuticals. Poorer developing countries also benefit because they can import cheap generic drugs even if they cannot manufacture them.

This should mean our story has a happy ending. It means more people get treated because the health budgets of poor countries go further. It means that developing countries have a chance to move into industries that have a higher technological component. And it means increased competition, putting downward pressure on prices. This final point -- that the freer markets are the better -- is usually the clincher when it comes to the economics of globalization. But not this time.

Enter the two other characters in our story -- the world's largest pharmaceutical companies and the World Trade Organization (WTO). Four companies dominate the pharmaceutical industry -- Merck, Pfizer, Glaxo SmithKline, and Eli Lilly, and they wield enormous financial clout.

The Big Four operate like a cartel, and like all cartels seek to wield monopoly power. It is basic economics that monopolies lead to higher prices, which is why many governments use anti- trust legislation to break them up.

To say that the Big Four do not like the idea of cheap drugs coming onto the market from developing countries is something of an understatement. More competition equals lower share price.

But the financial muscle of the pharmaceutical companies also gives them enormous political leverage. So, during the Uruguay round of trade talks they lobbied hard for tougher rules protecting intellectual property, which provided patent protection for a minimum of 20 years for "new and inventive" products.

Where previously around 50 developing countries and several developed countries had excluded medicines from being patented, the Trade Related Intellectual Property Rights (TRIPS) deal made both pharmaceuticals and biotechnology part of the global regime.

Infringements of the TRIPS agreement are heard by a WTO disputes panel, and unlike in a criminal trial, the burden of proof is on the defendant country.

In itself, the TRIPS -- a protectionist clause in what was supposed a free trade agreement -- roused suspicions about the way in which the rules were being skewed to suit powerful interest groups in rich countries. However, some safeguards were included. Countries could cite a national emergency as a reason to infringe the TRIPS agreement.

Effectively, this provided two loopholes. Countries could either manufacture cheap drugs themselves using what are known as compulsory licenses to override patents, which is what Brazil is trying to do, or they could import a patented drug from wherever it was sold cheapest, the method favored by South Africa.

All quite simple, you might think. If the HIV/AIDS pandemic does not constitute an emergency it is hard to know what would. The developing countries win, the drugs companies admit defeat, more people live happily ever after. If only.

What is happening now is that the United States is using every available means to close the WTO loopholes.

In part this has involved armies of lawyers crawling all over the 73 articles making up the TRIPS agreement, in part it has involved legal action.

But it also involved 21st century gunboat diplomacy. For example, the U.S. offers a special deal to the Dominican Republic for exports of textiles. It is now threatening to withdraw this privilege unless the country scraps plans for compulsory licensing and parallel importing.

Brazil and India have been warned that they could face sanctions under America's bilateral Super 301 legislation.

The dirty work for the drugs' companies is being done by the U.S. government, although there is little doubt who is really behind it all.

But gunboat diplomacy is still a dangerous game, because there is a risk that public opinion will turn against Merck and Glaxo SmithKline in the way that it has turned against Phillip Morris and the other tobacco companies. Becoming an international pariah is not good for the share price either.

The Big Four have a defense. They say patent protection is vital if companies are to plough vast sums into developing new cures for the diseases affecting poor people.

In addition, they argue that the incomes of the world's poor are so low that they would not be able to afford even generic copies of patented drugs, and that the answer is some form of public-private partnership.

Several of the big companies back global initiatives either by donating drugs or by subsidizing drugs provision.

But the arguments of the pharmaceutical industry do not really stack up. For a start, their profit margins were already fat even before the TRIPS deal came into force.

Secondly, research and development costs are dwarfed by money spent on marketing drugs. Thirdly, only 10 percent of R&D costs goes on drugs that account for 90 percent of global disease, with the bulk spent on first-world afflictions such as obesity. Finally, the drugs made available at lower prices are limited in supply and are still more expensive than generic substitutes.

As Brazil has shown it is possible for a relatively poor country to treat HIV/AIDS if it can manufacture the necessary drugs itself.

The price of triple therapy treatment is US$4,000 in Rio, compared with $15,000 in New York. Almost 90,000 Brazilians who are HIV positive receive free treatment, four times as many as would receive the care if the country were paying full patent price.

The United States has started proceedings at the WTO seeking to force Brazil to amend its patent law. Brazil, to its great credit, is standing up to the U.S. bully boys in what is clearly a test case for multilateralism.

Ever since the riots in Seattle, the WTO and the other global institutions have been under relentless scrutiny and attack, the main charge being that they put profit before people.

If the WTO backs the drugs companies, it will be case proved. What should happen is that the WTO should clarify its rules to give developing countries the right to produce or import medicines at affordable prices.

If a country says that it is infringing a patent to cope with a national emergency, the burden of proof should be on the patent holder to prove that the country is wrong.

The WTO is not a law unto itself. Governments should write the rules, not multinational corporations. And if they fail to back Brazil, India and Egypt they will have blood on their hands.

It was once said that all that is needed for evil needs to triumph is for good men to do nothing. And what is happening here is evil.

I have tried to think of another word for it. But there isn't one.

-- Guardian News Service