US Pressures Thailand on Pharmaceutical Issue

Aileen Kwa
Focus on the Global South
July 2001
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‘Dying for Free Trade: U.S. Or Us’, read the banner held high by Thai NGOs and AIDS activists on the 28th of June outside the US Embassy in Bangkok. They were supporting the January resolution passed by the Thai Food and Drug Administration (FDA) to allow the production of generic drugs within a shorter time lag after the release of the branded versions. They were also protesting the resultant pressures Washington has been using against Bangkok.

Indeed, the bilateral arm-twisting has intensified in the last few months, even as international pressures shamed the pharmaceutical companies into dropping the lawsuit against the South African government in April this year, and the US into dropping the case against Brazil at the WTO. Yet because there has not been adequate publicity revealing the pressures US is exerting on the Thai administration, Washington continues to intimidate Bangkok through a variety of trade threats.

For 8 years, since 1993, Washington was able to limit Thai production of generic drugs because of a bilateral programme between the two countries, which provided medicines not patented in Thailand, what amounted to exclusive marketing rights for 5-6 years.
The January resolution reduces this period of marketing exclusivity to three to four years. Furious, Washington has been on the heels of the Thai government.

US STRONG-ARMS THAILAND INTO STRINGENT PATENT PROTECTION
According to a high level Thai government official,Washington has already sent three envoys to Bangkok since January to exert trade pressure. Pressure has also been put on the Thai delegation to the WTO in Geneva. The political leverage of the US over
Thailand is very significant. 60% of the Thai economy depends on exports. Of this, 25% of exports go to the US. That is, 15 per cent of the entire Thai economy depends on Thai exports to the US.

The history of US pressure over the Thai
Administration on giving stringent patent rights to US pharmaceuticals goes back a long way. In 1986, USTR pressured Bangkok to amend the Thai Patent Act, which
until then included only process patents (ie, it allowed for the production of generic versions through alternative processes). According to a disgruntled Thai government official, ‘this is the trick that they used. They applied bilateral pressure on countries to change their patent laws so that these countries would then support the TRIPS in the Uruguay Round negotiations’. As a result, Bangkok amended the Thai Patent Act to include product patents in 1992 (well ahead of the conclusion of the TRIPS agreement). They also extended the length of their patent protection
from 15 years to 20 years.

However, the US was still not satisfied with the new 1992 Thai Patent Act. Products, which had been given patents in the US prior to 1992, would not have patent protection in Thailand upon their release as drugs. USTR therefore continued the bilateral pressure on Bangkok. Finally, the Thai government submitted. In
1993, the ‘Safety Monitoring Program’ (SMP) was implemented whereby any new drug that has been patented abroad between 1986 and 1991 and sold in Thailand will have to be in the SMP for a minimum of two years. While the drug is on the SMP list, no other
manufacturer is allowed to register a generic version, or conduct bio-equivalence tests on it. The SMP effectively gave companies an exclusive market. Often
times, this period of exclusivity was extended from 2 years, to 3-4 years. In addition, to produce a generic version, a bio-equivalence study would take at least 1
year, and the registration of the generic product would take up to 5-6 months. Practically, that period of exclusivity would therefore be 5-6 years before the
generic drug could be sold on the Thai market. The rationale for this time period is supposedly to allow the manufacturer to monitor the drug for any adverse effects.

THAILAND’S AIDS CRISIS: EXACERBATED BY STRONG PATENT PROTECTION ON MEDICINES

Thailand currently has an HIV/AIDS problem of crisis proportions. With 750,000 people living with HIV, it is in fact one of the countries worse hit by the epidemic. 350,000 people have already died. Less than 5 per cent of the population have access to antiretroviral medicines due to the high costs. HIV is in fact fast becoming the leading cause of death in the country, particularly amongst young people. In fact, death rates by 1999 had jumped by 16 per cent due to AIDS.

The government’s health budget is unable to cover the cost of treating the large numbers infected by HIV. It had been estimated that the cost of treatment would be
as high has US$9 billion in health expenses a year. The Thai government’s budget for 2001 of US$7.24 million remains only a fraction of the money required.World Bank estimates that this will provide treatment to only 2,100 sufferers.

The strong patent protection as well as the SMP programme, has led to an escalation of medical expenditure, and also to the decline of the local pharmaceutical industry.

According to an ASEAN workshop on TRIPS and pharmaceuticals held in May 2000, between 1979 and 1992, when only process patents were granted in Thailand, a generic version would be on the market 1 or 2 years after the product was released on the
market. Currently, it takes about 5 to 15 years after the introduction of a patented product before a generic version is available, and 5-6 years for products (without a Thai patent) under the SMP. As a result of the lack of competition, prices of original drugs are high. This has reduced access, and also increased government expenditure.

Experts at this workshop estimated that after five years of SMP-market exclusivity in Thailand, medical expenditure increased by 2,000 million Baht (US$50 million) for the top 25 products under the programme.They projected that this figure would increase 10-fold once the full impact of product patents are felt (by 2000).

This level of stringent patent protection has also negatively affected the local generic drug industry.When before, imported drugs made up only 30 per cent of the Thai pharmaceutical market, with 70 per cent of the market met by local production, today, 50 per cent of drugs are imported. The local industry has therefore significantly contracted.

THAI GOVERNMENT ADDRESSES AIDS CRISIS: CHANGES TO THE SMP

In response to the AIDS crisis on their hands, and the high costs of treatment, an official from the Ministry of Health, in a private interview, said that the Ministry would like to see as many drugs produced generically as possible. This includes anti-retrovirals as well as other medicines needed for diseases, which often accompany AIDS and the loss of immunity, eg. meningitis, pneumonia, fungal infections. The Thai experience with generic products has been that once they are out on the market, prices of the branded versions fall drastically, sometimes even to levels comparable to the generic ones.

Many of the new anti-retrovirals that are currently appearing on the market, would fall under the SMP category. That is, they would have obtained patents from abroad between 1986-1991, but not in Thailand, as this was before the Thai Patent Act came into effect.

In the interest of providing more people with access to medicines, the Thai FDA amended the SMP in January. The resolution included the following elements:

1) Bangkok requested that pharmaceutical companies provide the Thai FDA, within 180 days, with names of products still in the pipeline, but which they intend to register under the SMP in order to enjoy market exclusivity. Only those products which have been notified, will be provided market exclusivity.

2) Thai companies will be able to start bio-equivalence studies (development and tests) before the expiry of the Safety Monitoring Programme for that product. This is so that the generic version can be released the moment the SMP expires.

In practical terms, it means reducing market exclusivity from 5-6 years to 3-4 years.

3) The FDA also took a decision to exclude medicines under the SMP from being listed on the National List of Essential Medicines (NLED). (All hospitals and clinics administered by the Ministry of Health are supposed to use no less than 80 per cent of their budget for medicines to buy drugs on the National List, though in practice, the percentage is 30-40 per cent. )

MINOR CHANGES FROM THAILAND DRAW MAJOR OPPOSITION FROM US

Minor Changes from Thailand The January resolution in fact only changes the SMP in
minor ways. The programme, as promised in the 1993 bilateral agreement, is still being maintained. In fact, in comparison to the intensity of the health crisis, these changes can even be viewed to be rather timid.

Information on Pipeline Products According to Thai government officials, they have only requested notification of the names of products still in the pipeline, and the country where a patent was first registered. They have not asked for confidential
information that would in any way compromise pharmaceutical companies’ trade secrets.

Conducting Bio-equivalence Studies During SMP Allowing for the development and testing of generic products by non-patent holders, and without the permission of the patent holder, before the expiry of the patent, would in fact be in accordance to the
TRIPS agreement. This is usually known as the Bolar Provision. Such a law was first incorporated in the US in 1984 and has since been more widely used in other countries. According to the WTO Secretariat, it is allowed in Article 8 of TRIPS. In a case which concluded in April 2000, filed by the EU against Canada’s Bolar Provisions, (case title: Canada – Patent Protection for Pharmaceutical Products), the
WTO’s Dispute Settlement Body ruled that Canada was TRIPS-compliant.

From the perspective of Thailand, this small change in the SMP should not be problematic since the SMP is already a TRIPS-plus concession which Thailand is
offering the US (since it gives ‘protection’ to products patented before the Thai Patent Act and before TRIPS came about). Furthermore, it is also unreasonable for the US to demand that Thailand relinquishes the right to conduct bio-equivalence
tests when US legislation itself allows for this.

Exclude Drugs Under SMP from the National List of Essential Drugs
As the name, Safety Monitoring Program (SMP) suggests, drugs under the scheme are being tested for their safety. In all fairness to Thailand, it is reasonable
that until there is clear information on safety, these drugs should not be on the essential drug list.

Fiery Opposition from US Washington was quick to make its opposition known to
the Thai government. In the few months following the resolution, US envoys sent to meet Thai officials included Barbara Weisel, Deputy Assistant USTR for Bilateral Asian Affairs, high ranking officials from the US Embassy in Bangkok, as well as from the US Department of Health and Human Services.

Pressure on Thailand has not only been limited to the SMP, which the US finds ‘unacceptable’, but also on other issues – such as Thailand’s draft Trade Secrets
Law, and even Thai FDA’s plans to label genetically modified foods.

Thailand’s Achilles’ heel is their US$8.7 billion worth of exports to the States. USTR is threatening to put Thailand on the Priority Watch List. Once on the list, unilateral trade sanctions against Thai exports could be taken under Section 301 of US’ Trade Act as long as USTR determines that an act, policy or practice of thailand ‘violates or is inconsistent with any trade agreement, denying the rights or benefits derived thereof to the United States, or is, unjustifiable and burdens or restricts United States commerce’. When developing countries agreed to accept
TRIPS in the multilateral trading system, they expected that such unilateral action by the US would be removed. However, this has not been the case. According to a Thai official, should they be put on the Priority Watch List, the negative impact would be
immediate. Export volumes would immediately fall because importers would already be anticipating that US could at any time slap on a high levy on products from the country.

A formal letter dated May 11 was sent by USTR to Dr Vichai Chokavivat, the Secretary General of the Food and Drug Administration. The points made in the letter included:

1) Washington’s Disapproval of the draft Thai Trade Secrets Law The draft Thai Trade Secrets Law has already been through a first reading by the Senate. Section 7(2) of
this Law permits the disclosure of test data by a government agency to protect any ‘public interest’ not having commercial objectives. According to Washington’s letter, ‘Such an exception to the protection against disclosure of test data is both
overly broad and does not conform to the exception found in TRIPS Article 39.3… we respectfully request to see the most recent version of the draft law, and, as we offered to your delegation in Geneva, stand ready to assist you by suggesting adequate language to ensure a Trips-consistent law’.

Washington also asserts that ‘While it is our hope that the new Trade Secrets Act will provide a significant improvement over the 1993 SMP, should the new law provide less protection than that afforded by the 1993 SMP, the US government would have serious concerns’.

This interpretation by Washington seems unreasonable.TRIPS Article 39, entitled ‘Protection of Undisclosed Information’ in fact supports ‘public interest’
objectives. Article 39.3 explicitly states that ‘Members shall protect such data against disclosure except where necessary to protect the public…’.

2) Washington Denounces Changes in SMP In response to the change in the SMP as announced by the Thai FDA, Washington responded as follows:

‘The Thai FDA requested that the US unilaterally abandon benefits affording data protection for pharmaceuticals as established in the 1993 Bilateral Agreement. The US declines to relinquish such benefits.’

In retaliation to Thailand’s request for the names of pipeline products, and the country where a patent was first granted, Washington stated in their letter that

‘We have reviewed as well the TFDA’s new requirement that US pharmaceutical manufacturers submit lists of products qualifying for the SMP under the 1993
Agreement, or sacrifice the protection of the test data or such products should they be introduced to the Thai market in the future. The 1993 Agreement provides no such stipulation whereupon SMP protection is qualified based on a prior written submission listing the products that were granted foreign patents between 1986 and 1991. This requirement would effectively limit the extent of protection afforded under the 1993 Agreement.

Furthermore, the release of such information discloses valuable indications of a company’s potential marketing strategy, and threatens to compromise industry trade secrets. The US government requests the Royal Thai government withdraw this modification to its SMP policy’.

On the exclusion of SMP products from Thailand’s National List of Essential Drugs, Washington had this to say:

‘The exclusion of SMP drugs from the NLED would effectively negate the original intent of the SMP and pose potentially harmful risk to public health…innovative products qualifying for the SMP will not be listed or stocked in most hospitals.

The letter goes on to state that ‘continuation of the original SMP is necessary to offer some form of data protection until a satisfactorily TRIPS-consistent Trade Secrets Law is passed, enacted, and successfully implemented. A gap in data protection coverage for US products would be unacceptable’.

Finally, the statement concludes with a diplomatically veiled threat, that
‘We were encouraged by our talks with your delegate in Geneva, and believe the successful implementation of a Trade Secrets Act in compliance with the TRIPS
Agreement would greatly improve Thailand’s attraction as a destination for foreign investment – not only for the research pharmaceutical industry – but for all
manner of industries providing access to innovative products’.

3) Washington Pressures FDA Not to Label Genetically Modified (GM) Products
This final point was not included in the 11 May letter by USTR, but has been communicated by Dr Vichai Chokavivat, Secretary General of the FDA. He revealed
that Washington’s pressures have not been limited to the SMP. In fact, they have used the occasion of this dispute to raise other issues, such as Thailand’s intentions to label GM products. On 13 February 2001,in addition to expressing their disapproval of the SMP, US envoy to the FDA also threatened that trade sanctions under Section 301 would be imposed on Thailand should they go ahead with labelling. The Thai
FDA had already resolved, in 1999, to have food products with GM concentration higher than 3 per cent carry a GM label.

WTO USED BY POWERFUL TO INSTITUTIONALISE THE LAW OF THE JUNGLE
According to WTO’s Director General Mike Moore, the WTO benefits the poor because it is rules-based. The alternative, he warns repeatedly, would be the law of the jungle.

The situation between US and Thailand, the treatment developing countries receive at the WTO, and the treatment of members of civil society who dare to disagree, offers another view:
1) That the law of the jungle still rules despite having a WTO
2) That in fact, the WTO is USED to justify bilateral pressures (e.g. that Thailand’s draft Trade Secrets Act – which is already TRIPS consistent – should, according to US, be brought in line with TRIPS Article 39.3); and worse
3) That bilateral pressures are ‘multilateralised’ in the WTO.

This may not be surprising after all. India’s Ambassador Narayanan in Geneva, when addressing a group of NGOs in March this year, commented that the WTO is a rules-based organisation. However, those rules have been written on the basis of power.

Corporations lobbying and funding the US government, push Washington to make bilateral deals with developing countries, which are then reinforced and made permanent in WTO rules. (This is how Thailand came to accept the TRIPS in the Uruguay Round).

The same governments and corporations are now ferociously lobbying the WTO to widen and deepen its coverage by taking on yet another round of trade negotiations at the November Ministerial. Despite many developing countries’ vehement protests, the pressures for new multilateral investment and government procurement agreements continue. We see developing countries’ concerns in implementation issues being systematically marginalized. Instead, the powerful countries and the WTO Secretariat take on an ‘I know what’s best for you’ attitude. And to top it all, as time marches on and the powerful countries become more desperate to ensure that their new round is launched at Qatar, we witness arm-twisting and underhand pressure tactics taking place between the big players and trade ministers of developing countries in order to win them over. All this to me, reeks of bilateral pressures, multilateralised.

Furthermore, when Washington’s interests happen to fall outside the WTO ambit, Washington uses its infamous Section 301 (the ‘bilateral’ law of the jungle). And to make the relationship between Washington and the WTO even more incestuous, the WTO’s Dispute Settlement Body, in 2000, ruled in favour of retaining Section 301. The then USTR, Barshefsky noted, ‘Today’s action by the WTO closes the door on…unfounded claims regarding the legitimacy of Section 301. Section 301 has been and will remain essential to our efforts to enforce our international trade rights’.

And, as if the corporate agenda is not already blatantly coercive, police are now shooting at demonstrators protesting against this corporate-led-globalisation ‘logic’. Three were shot in Gotenburg at the EU/US summit, and one shot dead with life ammunition, and run over in Genoa, when the G7 met to launch a new round of negotiations. Other demonstrators were treated with brutality by the Italian police.

If all of this is not the law of the jungle, institutionalised, systematised, multilateralised, globalised, and at its ugliest, what is the law of the jungle?