Parallel Imports
Another strategy for lowering drug prices is by parallel imports. Parallel importing involves a government or another importer shopping in the world market for the lowest priced version of a drug rather than accepting the price at which it is sold in their country. In the pharmaceutical market, as has been shown, prices tend to vary dramatically. Since parallel imports involve imports of a product from one country and resale, without authorization of the original seller, in another, thereby allowing the buyer to search for the lowest world price, they can also be a tool to enable developing countries to lower prices for consumers.

Both the promotion and the transfer of technology, as well as public health or nutrition could justify derogation of the patentee's exclusive rights.  Scrutiny of the exceptions existing in much national legislation gives an idea of the different possibilities [Correa, 1999]:

• parallel importation of the protected product;

• acts carried out on a private basis and for non-commercial purposes;

• scientific research and experiments involving the patented invention;

• preparation of drugs by unit and on medical prescription in pharmacy  dispensaries;

• a person being, in good faith, already in possession of the invention covered by the patent;

• tests carried out before the expiry of the patent to establish the bio-equivalence of a generic drug.

In addition to these measures, as pointed by Correa [2000], there is scope within the TRIPs Agreement (under Article 30) for a number of exceptions to exclusive patent rights. Such exceptions must of course meet certain conditions: that is, they must be limited, they should not unreasonably conflict with the normal exploitation of the patent, and exceptions should not unreasonably prejudice the legitimate interests of the patent owner. Given these conditions, there is a wide range of exceptions that can be provided that are within the scope of Article 30, such as:

• acts done privately and/or on a non-commercial scale, or for a non-commercial purpose
• use of the invention for research
• use of the invention for teaching purposes
• experimentation for teaching purposes
• preparation of medicines under individual prescriptions
• experiments made for the purpose of seeking regulatory approval for marketing of a product after the expiry of a patent
• use of the invention by a third party that had used it bona fide before the date of application of the patent.

As can be seen, even though the TRIPs provisions were restrictive, governments that were anxious to ensure drug development for public health purposes could still endeavour to push for more flexible patent regimes, if they were not prevented from doing so by other forces. The problem was, of course, that many developing country governments have found it difficult to implement the more flexible provisions because of other kinds of external pressure.

The US government and other developed country governments, in particular, because of their own large drug lobbies like phaRMa, have been aggressively restricting governments that have or had intellectual property rules such as compulsory licensing and parallel imports, designed to make essential medicines more affordable to their citizens.

The Debate on TRIPS and Public Health in the WTO
This is why developing countries were keen on explicit recognition in the WTO that public health requirements could permit the legal implementation of loopholes that already existed in the TRIPs document. All the subsequent activity has been devoted to nothing more ambitious than a restatement of that basic right.

Developing countries were essentially seeking a declaration recognizing their right to implement certain pro-competitive measures, notably compulsory licences and parallel imports, as needed to enhance access to health care. They were frustrated by the opposition and pressure exerted on some countries by the pharmaceutical industry and governments.

Moreover, some felt that the final proviso in Article 8.1 establishing that any measures adopted, inter alia, to protect public health should be consistent with the provisions of the TRIPs agreement, provided less protection for public health than under the corresponding exceptions of Article XX (b) of GATT and the Sanitary and Phytosanitary Measures and Technical Barriers to Trade agreements.

TRIPs Article 8.1 states: ‘Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.’ The GATT Article XX: ‘Nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures necessary to protect human, animal or plant life or health.’

The Doha declaration on TRIPs and public health was the first step towards the restatement of such rights. It stated that ‘Each Member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted’, and that ‘Each Member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency.’

However, the agreement did not specify conditions for parallel imports, instead providing the now-infamous Paragraph 6, which ran as follows: ‘We recognize that WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPs Agreement.  We instruct the Council for TRIPs to find an expeditious solution to this problem and to report to the General Council before the end of 2002.’

If the WTO establishment had been serious about fulfilling this promise, the most straightforward way would have been for the exporting country to make a limited exception from the patent privilege under Article 30. It is noteworthy that so far the developed countries have succeeded in forcing the discussion in the TRIPs Council away from the possibilities inherent in Article 30 of the TRIPs agreement, which were discussed above. Instead, they have focussed on Article 31, which is much more limited, constraining and cumbersome.

The basic statement, which was finally cleared on 30 August, had actually been formulated in 2001, but was held up by the US government on behalf of its Big PhaRMA lobby (which incidentally had generously funded the Bush and Republican election campaigns). The modified version that is now cleared, has put in many more restrictions which drastically limit the ability of importing countries to access cheaper generic substitutes, and therefore contain the ability of such generic manufacturers to benefit from economies of scale and emerge as real competitors of the large drug companies.

All that the new statement does is waive the obligations of the exporting country under Article 31(f) of the TRIPs agreement with respect to the grant by it of a compulsory licence to a company, which was supposed to be for the domestic market only. Export can be permitted to importing countries that fulfil the following conditions.

First, the eligible importing member can only be a least developed country or a developing country that does not have adequate facilities to produce the drug in question. This importing country has to make a notification to the TRIPs Council that:

• specifies the names and expected quantities of the products needed;
• confirms that the eligible importing Member in question, (other than a least developed country Member) has established that it has insufficient or no manufacturing capacities in the pharmaceutical sector for the products in question in one of various ways are which specified; and
• confirms that, where a pharmaceutical product is patented in its territory, it has granted or intends to grant a compulsory licence in accordance with Article 31 of the TRIPS Agreement and the provisions of this decision.

Importing countries also have to ensure legal administrative means of preventing re-exportation of any such drugs.

Similarly, the compulsory licence issued by the exporting member has to contain the following conditions:

• only the amount necessary to meet the needs of the eligible importing Member(s) may be manufactured under the licence and the entirety of this production shall be exported to the Member(s) which has notified its needs to the Council for TRIPS;
• products produced under the licence shall be clearly identified as being produced under the system set out in this Decision through specific labelling or marking. Suppliers should distinguish such products through special packaging and/or special colouring/shaping of the products themselves, provided that such distinction is feasible and does not have a significant impact on price; and
• before shipment begins, the licensee shall post on a website information relating to the quantities being supplied to each destination and  the distinguishing features of the products;
• (c) the exporting Member has to notify the TRIPS Council of the grant of the licence, including the conditions attached to it. The information provided has to include the name and address of the licensee, the products for which the licence has been granted, the quantities for which it has been granted, the countries to which the products are to be supplied and the duration of the licence, and the address of the relevant website. 

It is amazing that the same developing countries which had been clamouring for a quick and fair resolution of the problem, have agreed to a decision that is so patently imbalanced in favour of large multinational patent holders, so restrictive and so unworkable for exporters and importers of generic drugs. The suspicion must be that this agreement, which had been held up for so long by the developed countries (especially the US) and the multinational drug lobby, has now been hammered down the throats of the unfortunate developing country negotiators, simply in order to show some results before the Cancun Meeting. If this is so, it certainly augurs badly for the outcome of other trade negotiations in Cancun.