On 30 August 2003, just before the negotiating teams at the WTO in Geneva went back to their respective countries to prepare for the Ministerial Meeting at Cancun, the deadlock over intellectual property and public health was finally broken. The TRIPs Council agreed on legal changes that are officially supposed to make it easier for poorer countries to import cheaper generics made under compulsory licensing if they are unable to manufacture the medicines themselves.

The decision settled the one piece of unfinished business on intellectual property and health that remained from the WTO Ministerial Conference in Doha in November 2001, and which had been left hanging for the previous months because of fierce resistance from the US government and the multinational lobby.

The decision was immediately hailed by some and described as a great victory for the developing countries and indeed for the people of the world. ‘This is a historic agreement for the WTO’, said the WTO Director-General Supachai Panitchpakdi. ‘The final piece of the jigsaw has fallen into place, allowing poorer countries to make full use of the flexibilities in the WTO’s intellectual property rules in order to deal with the diseases that ravage their people. It proves once and for all that the organization can handle humanitarian as well as trade concerns.’

However, the actual details of the agreement suggest that such extravagant and fulsome praise may be uncalled for. In fact, many independent analysts, along with the NGOs and civil society groups that had been fighting for an agreement on this issue, feel betrayed by the final character of the resolution, and have argued that it will do little or nothing to improve the situation for people in the developing countries in terms of accessing cheaper life-saving drugs.

Thus, James Love of the Consumer Project on Technology has written that ‘the persons who have negotiated this agreement have given the world a new model for explicitly endorsing protectionism.’ Oxfam and Medecin sans Frontieres, two groups who have closely followed the negotiations, have called the solution ‘unworkable’ saying that the ‘deal was designed to offer comfort to the US and the western pharmaceutical industry’ and that ‘global patent rules will continue to drive up the price of medicines’.

It is even possible to argue that the final form of the resolution is actually a step backward compared to the flexibilities that existed in the original TRIPs agreement, and that the entrenched position of the large international drug monopolies is further legalized by the recent statement. However, to understand this, it is necessary to provide some background on both the international pharmaceuticals industry, and the TRIPs agreement and the controversies that have surrounded it.
Chart 1 >>

The International Pharma Industry
Pharmaceutical markets differ from markets for most other commodities, since drugs are rather special commodities. Private drug markets typically suffer from a number of forms of market failure. These include: (a) informational imbalances—thus, for example, consumers are not in a position to judge the quality and efficacy of drugs, which creates the need for a social monitoring and surveillance system; (b) monopoly and lack of competition created by patent protection, brand loyalty and market segmentation; (c) externalities in the form of social benefits of drug consumption. Drugs play a significant social role in that they are an integral part of the realization of the fundamental human right to health. For these reasons, pharmaceutical products are classified as essential goods, with the understanding that they have to be accessible to all people.

Obviously, access to the latest available technology in this sphere is crucially important for the health and welfare of children, not only in terms of availability to all children but also the access of mothers. There is clear need for some social control over investment in technology relating to drug production, and the subsequent prices and distribution, not only because of the market failures described above, but also since unregulated drug markets tend to create substantial inequity, particularly in terms of access to drugs.

The world market for drugs is a huge one, but it is dominated by only three countries—the United States, Japan and Germany—which account for more than two-thirds of total sales. In fact, only 15 per cent of the world's population accounts for 86 per cent of drug spending, while the remaining 85 per cent get only a 14 per cent share.

The difficulty of ensuring even a minimum degree of democratic access to life-saving drugs is compounded by the high degree of concentration in the international drug industry. Table 1 describes the situation in 1998, when the top ten companies controlled 36 per cent of the market and the top twenty companies controlled 57 per cent of world sales.

Since then there have been more mega-mergers which have made the industry even more concentrated. Glaxo Wellcome merged with SmithKline Beecham, Pfizer merged with Warner Lambert, and the companies Hoechst-Marion, Merrell and Rhone-Poulenc merged to form Aventis. Currently the top ten companies are estimated to control more than half of the world market, and the top twenty companies more than two-thirds of the world market.

Apart from mergers, there is growing evidence that drug companies are using the patent system to establish monopoly control. Often patents are filed for products or chemical substances, or now even genes, whose attributes are not fully known, simply to pre-empt the competition and allow for monopoly rents once further research—possibly by others including public agencies—reveals the uses. As Table 2 shows, the top ten filers of patents include six drug companies and two companies specializing in genetic research.

Such monopoly allows drug companies to charge prices that are as high as they feel the market will bear, without reference to or well in excess of the actual costs of R&D that they may have borne. Thus there is wide variation in prices of the same drug charged not only by different companies but even by the same company in different markets. As Charts 2a, 2b and 2c, show, the prices of branded or patented products are often far higher than the prices of similar medicines produced by alternative or generic sources.
Chart 2a >> Chart 2b >> Chart 2c >>