May 25, 1998

Buenos Aires, 20 May -- It is extremely difficult to generalize the likely implications of the TRIPs Agreement in developing countries or of a group thereof. Such implications will substantially vary depending on the divergence existing between the IPRs laws of a particular country and the standards of the Agreement, the degree of development of different sectors, the per capita income, the structure of the supply (particularly the presence or not of local suppliers in a given field), among other factors.  

Developing countries that are Members to the WTO (or which are in the process of accession) are required to introduce massive reforms in their IPRs systems. Several problems have arisen in the implementation of the TRIPs Agreement, in four different dimensions. 

Normative dimension: Developing countries, by accepting to improve the standards of protection to IPRs under the TRIPs Agreement, assumed a wide range of obligations in almost all areas of intellectual property rights: copyright and "related rights", industrial designs, trademarks, geographical indications, patents, plant varieties protection, integrated circuits and undisclosed information. 

The countries that have initiated the process of adapting their IPRs legislation to the Agreement's minimum standards have advanced to a different degree in this task. Some (e.g. Mexico, Trinidad and Tobago, South Korea) have already enacted legislation that covers all or most areas dealt with by the Agreement. Others (e.g. Argentina, Brazil, Andean Group members) have modified some of the relevant national laws, but many areas have not yet been adapted to comply with the new standards.  

In several of the IPRs areas covered by the Agreement, developing countries had no previous legislation. Most developing countries did not provide for specific protection for geographical indications and plant varieties. Moreover, in the case of integrated circuits and undisclosed information there were no international instruments in force before the TRIPs Agreement.  

Countries that have been able to advance in the reform of IPRs not only face the task of designing and obtaining the parliamentary approval of new legislation, but other daunting problems.  

Even in countries that have introduced amendments to their substantive laws, gaps to be filled often remain with regard to the enforcement of rights. The compliance of the Agreement on this matter, requires the alignment of national laws with the Agreement in various fields, such as civil and criminal procedures in courts, administrative procedures, and intervention of police and custom authorities. They also require increased budgets to face the new tasks.  

The costs of implementing the TRIPs Agreement standards are substantial, as illustrated by the study by Unctad, "The TRIPs Agreement and developing countries", 1996.  

Developing countries and Least Developed Countries (LDCs) were given transitional periods (article 65) to implement the Agreement. The Agreement will become obligatory for the former countries by 1 January 2000. Products that are not patentable at that date need to be protected as from year 2005.  

The provision of such periods was an important element in the delicate balance reached as an outcome of negotiations. They were included to allow developing countries time to elaborate and adopt the required legislation, and to design any other policies necessary to minimize the possible negative effects of new IPRs rules. This was particularly the case with regard to products which were not patentable (such as pharmaceuticals, agrochemicals and food), the protection of which may entail important consequences in terms of prices increases and of the room left for national production, as discussed below.  

The transitional periods granted by the Agreement are automatic, i.e. their application is not subject to any reservation, declaration, notification or permission. However, many developing countries have been under pressure by some developed countries to accelerate the pace f reforms, so as to give immediate application to the TRIPs Agreement standards.  

Thus, the US government and pharmaceutical industry have attempted to obtain a retro-active recognition of protection for already patented pharmaceuticals (the so-called "pipeline" protection). The Andean Court of Justice (established by the Cartagena Agreement) declared in a decision (Process No. 1-AI-96) on 30.10.96, that the "pipeline" formula was inherently contradictory with the novelty requirement under patent law, and thus rejected the retroactive registration of patents in the Subregion.  

The US has continued to "classify" and threaten some developing countries under its Trade Act for reasons related to intellectual property rights. US law determines that a foreign country may be deemed to deny "adequate and effective protection" of IPRs notwithstanding that said country comply with the specific obligations stipulated by the TRIPs Agreement. One country (Argentina) has been sanctioned in 1997 and many other are on the list.  

One of the basic trade-offs for developing countries in the negotiation of the TRIPs Agreement was the exclusion of unilateral retaliatory actions, such as those imposed under section 301 of the US Trade Act.

A basic obligation of all WTO Members is to channel any controversy relating to IPRs through the multilateral procedure under the "Dispute Settlement Understanding". While several complaints have been filed under the TRIPs Agreement, involving alleged infractions by developing and developed countries, only one case has been decided (see below). 

Another aspect to be mentioned is the number of demands made by industrialized countries to developing countries in accession to WTO.

Several cases have been reported in which the latter are pressured not to apply the transitional periods and to confer levels of protection higher than required under the Agreement.  

Developing countries voiced their concerns on the socio-economic implications of a tightened IPRs regime when they entered into negotiations and finally accepted the Agreement. Those concerns have not vanished. They are still particularly strong in two areas: the protection of plant varieties and of pharmaceutical products.  

a) Plant varieties:

Most developing countries are dependent on their agricultural sector.

While 80%-90% of seeds used in those countries are produced by farmers in an "informal seed supply system", the introduction of IPRs on plant varieties may replace better adapted farmers' varieties and reduce diversity and the sustainability of agriculture. 

Article 27.3.b of the Agreement allows to exclude from patentability plants and animals other than microorganisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members "shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof"  

The Agreement further established that this provision shall be reviewed four years after the entry into force of the Agreement Establishing the WTO (i. e. in 1999).  

The exception contained in this article reflected the strong divergences existing at the time of negotiations, even among industrialized countries, on the patenting of plants and animals. Since then the European Union has come closer to the position of the United States and Japan on these issues. Nevertheless, differences still remain particularly in a North-South perspective. Many developing countries that amended their patent laws have provided an exclusion for the patentability of plants and animals. 

One of the most difficult issues in article 27.3.(b) has been, however, the development of a regime for plant varieties. As drafted, the said article left room to follow different options to protect such varieties. Protection may be granted by:

• Patents
• patents combined with a breeders' rights regime
• another modality of a sui generis regime.

Member countries may adopt a UPOV type of regime, even without becoming members to the Union, either following the model of UPOV 1978 or 1991.

They may also become members to the Union. 

However, nothing in the Agreement requires a member to follow the UPOV standards or to abide by the obligations of the UPOV Convention. Many proposals have been made, in fact, to develop sui generis regimes on plant varieties that do not follow the UPOV standards. Such proposals have included: 

• a seal system for plant varieties without requirements of stability and uniformity;
• granting remuneration, but not exclusive rights, to plant breeders;
• combining breeders' rights with the recognition of Farmers' Rights, as defined in the FAO International Undertaking on Plant Genetic Resources;
• extending protection to commercial as well as to farmers' varieties (landraces). 

These issues continue to be the subject of intense debate in different fora, including FAO.

b) Pharmaceuticals

The shift from a situation of relative or total freedom to imitate, to the recognition of an exclusive right on production and commercialization, is likely to lead to changes in the market structure and in the conditions for the access by consumers to certain (protected) goods. The implications of the changes in IPRs legislation resulting from the implementation of the TRIPs Agreement, are illustrated by the case of pharmaceuticals, an area that has attracted the attention of researchers, public institutions and other interested groups. These implications may be examined with regard to several aspects: 

• Prices 

Many studies have been conducted which indicate that the introduction of IPRs will lead to price increases. Based on studies made in Italy, India and Argentina, such increases may reach 100-200% or more for products under patents, depending on the prior pricing level, the elasticity of demand and other factors. Other studies, however, predict a more moderate impact, on the assumption that only a small part of the market will be subject to patent rights. 

• Trade 

The strengthening/introduction of patents, without the obligation to industrially exploit the invention in the country of registration, is likely to generate or expand trade deficits, as a result of an increased volume and eventually higher prices for imported finished products and/or active ingredients.  

• Research and development 

In a field with high economies of scale in R&D, like pharmaceuticals, patents are very unlikely to stimulate R&D by local or foreign companies in developing countries. R&D costs are not affordable to the former, while the latter tend to concentrate R&D in a few locations in industrialized countries. However, opportunities may arise in areas with lower costs of research, such as the application of medicinal plants. 

• Local production  

Production of pharmaceuticals by local firms will be limited to generic drugs. Foreign patent owners will have the choice, in principle, to produce locally or to import the product or active ingredients. In some countries (e.g. Chile, Mexico) a number of formulation plants of foreign firms were closed after the introduction of patent protection.

In Argentina and Brazil, instead, new investments by such firms were reported. It seems, therefore, that the impact of patents on investments and production will depend on the conditions of each market, but most probably the growth prospect of local firms will be modest at best, unless they are able to participate in the most dynamic segments of the market under licensing arrangements. 

• Technology transfer and balance of payments 

The granting of patent protection may have an ambivalent effect on the transfer of technology. On the one hand, it will reinforce the power of the patentee to decide how to exploit its technology and whether to confer or not licenses to other parties. On the other, the existence of such protection may be regarded as a condition for such a transfer to take place. Studies made by the World Bank have indicated a possible important increase in payments due to royalty and profit remittances. 

The situation of the pharmaceutical sector is further complicated by the uncertainty that exists with regard to the concept of the "exclusive marketing rights" to be granted according to article 70.9 of the Agreement. 

In the single decision on IPRs taken under the WTO dispute settlement rules, India was deemed to be in violation of its obligation to provide for a mechanism of deposit of pharmaceutical patent applications, as stipulated in article 70.8. The decision held that India had to adopt positive legislation in order to implement the so- called "mail box" provision, but the panel refused to define the scope of the "exclusive marketing rights" (EMRs), since this was not an issue under dispute.  

For those countries that apply the transitional periods for the recognition of pharmaceutical (or agrochemical) product patents, the interpretation of EMRs remains an ambiguous issue. An important point is whether EMRs would be deemed to have similar effects as a patent, and the extent to which they may be subject to compulsory licenses and other exceptions. Though opinions on these issues widely diverge, it seems logical to think that EMRs may not be equivalent or stronger than patents, since this would nullify in practice the transitional period.  

EMRs may, therefore, be conceived as an exclusive right to obtain a remuneration from those that use the invention, until the patent is granted and a full use is conferred.  

In view of these problems and possible implications, and of the little impact that the introduction of patents may have in developing countries to induce R&D by foreign pharmaceutical firms, Prof. Scherer has concluded that such countries should apply to the full possible extent the transitional periods allowed under the TRIPs Agreement.  

A resolution elaborated by the Executive Board of WHO, that will be under consideration of the World Health Assembly in May 1998, calls for reconsidering the WTO rules as they apply to medicines, particularly to the WHO listed "essential drugs". 

[At the just concluded World Health Assembly, opposition to it from the powerful TNC pharmaceutical lobbies, and the US and other governments backing them, resulted in the resolution being referred back to the Executive Board for further consideration] 

The TRIPs Agreement leaves certain room to establish, at the national level, a number of measures to mitigate eventual negative effects of changes in IPRs rules.  

First, article 8.1 states that "Members may, in formulating or amending their national 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.  

Second, article 27. 2 states that "Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect order public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by domestic law".  

Third, by a strict application of the novelty and inventive step requirements, a member may exclude the patentability of "second uses" of a known product, as well as of formulations of active ingredients that are already known.  

Fourth, under article 30 of the TRIPs Agreement, there is considerable freedom for national legislations to define exceptions to the patentee's exclusive rights. Based on comparative law and on other proposals, the following exceptions may be provided for within the scope of article 30:  

• acts done privately and on a non-commercial scale or for a non-commercial purpose;
• use of the invention for research and experimentation
• use of the invention for teaching purposes;
• preparation of medicines for individual prescriptions;
• prior use (use of the invention by a third party who started -or undertook serious preparatory acts- before the date of application for the patent or of its publication).
• experiments made for the purposes of seeking regulatory approval during the lifetime of a patent, in order to market a product immediately after the expiration of a patent ("Bolar exemption").
• "parallel imports" of a protected product, on the basis of the principle of "international exhaustion" (article 6 of the Agreement).  

Built-in agenda: As mentioned, article 27.3.b) is the only provision in the TRIPs Agreement subject to an early revision. Though it is uncertain whether that revision will take place in 1999, the precarious nature of said provision indicates the need to elaborate a negotiating position that duly takes into account the developments under the Convention on Biological Diversity and the FAO International Undertaking on Plant Genetic Resources.  

It seems unlikely that a consensus be reached in the Council of TRIPs for an amendment of this provision in 1999, in isolation from other negotiations that would start, if launched, after year 2000.  

Another issue to be dealt with by the Council for TRIPs is the treatment of "non-violation" complaints, which were not subject to the settlement of disputes till the end of year 1999. A decision should be taken - by consensus - on whether to extend such period or to determine the disciplines to be applied.  

A positive agenda: At least two proposals have been initiated or supported by developing countries, aiming at a future revision of the TRIPs Agreement.  

On the one hand, within the WTO Committee on Trade and Environment, some delegations have indicated the need to amend the Agreement in order to facilitate the access to and use of environmentally sound technologies. On the other, in the framework of WHO, a group of countries has stressed that public health rather than commercial interests should be recognized as the primary concern in the implementation and eventual revision of the Agreement.  

In any case, if the Agreement were opened for revision, developing countries should be well prepared in terms of the objectives sought, and ensure that their bargaining power is adequately exercised in order to neutralize any attempt to increase the level of protection currently required under the Agreement.  

(*Dr. Carlos Correa is professor at Universidad de Buenos Aires, a former Argentine negotiator on IPRs at GATT and WIPO, and an internationally acknowledged experts on IPRs. The above, based on his presentations at recent seminars for Arab region nations (in Beirut) and the Third World Network seminar for developing countries in Geneva, was written by him for SUNS)