Order Code RS21609
Updated November 5, 2003
CRS Report for Congress
Received through the CRS Web
The WTO, Intellectual Property Rights, and
the Access to Medicines Controversy
Ian F. Fergusson
Analyst in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
The most visible issue concerning intellectual property rights confronting World
Trade Organization negotiators at the upcoming Cancún Ministerial is the ability of
developing and least developed countries to access medicines to fight public health
epidemics such as HIV/AIDS, tuberculosis, malaria, and other infectious diseases within
the context of the Trade-Related Aspects of Intellectual Property (TRIPS) Agreement.
The Agreement will allow poor developing countries to issue a compulsory license to
a third-country producer to manufacture generic drugs at an affordable price. The accord
reflects contentious issues in the negotiations including the scope of diseases,, country
eligibility, and diversion safeguards. Some have questioned the economic utility of
issuing compulsory licenses. This report will be updated as necessary.
Issue
After 20 months of debate, the World Trade Organization (WTO) has reached an
agreement on the so-called Paragraph 6 issue, the use of compulsory licenses by
developing countries without manufacturing capacity to access medicines. The issue of
access to affordable medicines is one of great concern to developing countries whose
health-care systems are often overwhelmed by HIV/AIDS and other infectious diseases.
Some developing countries have viewed the TRIPS agreement as an impediment in their
attempts to combat such public health emergencies by restricting drug availability and by
transferring scarce resources from developing countries to developed country
manufacturers. For the developing world, the issue of compulsory licenses is an
important test as to whether the WTO can meet the development needs of its members,
and conversely, whether the developing world can influence the actions of the world
trading system.
Developed country pharmaceutical industries view the TRIPS agreement as essential
to encourage innovation in the pharmaceutical sector by assuring international
compensation for their intellectual property. Without such protection, industry claims it
Congressional Research Service ˜ The Library of Congress

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could not recoup the high costs of developing new medicines.1 The industry has feared
that amending the provisions of TRIPS may lead to the wholesale renegotiation of the
accord. Producers have unilaterally undertaken to reduce prices for certain HIV/AIDS
medicines, but these efforts at differential pricing have not been systematic.2 The United
States has been forceful in expressing the views of the U.S. pharmaceutical industry in the
negotiations. In December 2002, the United States blocked a compromise on the
compulsory licensing issue to which all other nations had agreed; however, other
countries with pharmaceutical industries such as the European Union, Switzerland, and
Japan have also advanced positions consistent with the views of their pharmaceutical
concerns.
Background
The TRIPS is a component agreement of Uruguay Round negotiations which created
the WTO in 1995. It sets minimum standards of protection for patents, copyrights,
trademarks and other forms of intellectual property based on three core commitments of
the WTO: minimum standards, national treatment, and most-favored-nation treatment.
Adherence to TRIPS is a prerequisite for membership of the WTO, and provisions of the
agreement can be enforced through the WTO’s Dispute Settlement Understanding
mechanism.
The Doha Declaration. In agreeing to launch a new round of trade negotiations,
trade ministers adopted a “Declaration on the TRIPS Agreement and Public Health” on
November 14, 2001.3 The Declaration sought to alleviate developing country
dissatisfaction with the TRIPS regime. It delayed the implementation of patent system
provisions for pharmaceutical products for least developed countries (LDC) until 2016.
The declaration committed member states to interpret and implement the agreement to
support public health and to promote access to medicines for all. It also affirmed the
right of WTO members to use the flexibilities in the TRIPS agreement to promote these
goals. The declaration reiterated that each member has the right to grant compulsory
licenses and to determine the terms and circumstances in which they are issued. Each
country also has the right to determine what constitutes a national emergency or
circumstances of extreme urgency, defining these terms to include public health crises
such as “HIV/AIDS, malaria, and tuberculosis and other epidemics.”
Paragraph 6 of the Declaration directed the WTO’s Council on TRIPS to formulate
a solution to the use of compulsory licensing by countries with insufficient or inadequate
manufacturing capability by December 2002. Compulsory licenses are issued by
governments to authorize the use or production of a patented item by a domestic party
other than a patent holder, and compulsory licenses are authorized by Article 31 of TRIPS
1 Pharmaceutical Research and Manufacturers of America , Intellectual Property website,
[http://www.phrma.org/issues/intprop].
2 Integrating Intellectual Property and Development Policy, UK Commission on Intellectual
Property (CIPR), September 2002, p. 41.
3 Declaration on the TRIPS Agreement and Public Health, WTO Document
WT/MIN(01)/DEC/2, November 14, 2001, available at:
[(http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm]

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within certain limitations for use in the domestic market. The Agreement limits their
issuance only to cases in which the government has made efforts to obtain authorization
on reasonable commercial terms or in a circumstance of extreme urgency or national
emergency. In addition, the production or use of the invention covered by the patent is
limited in scope and duration to address the circumstances in which the license is
authorized, the right holder is granted adequate remuneration for use of the patent, and
such production is predominantly authorized for the domestic market. It is this last
provision that has been the focus of the Paragraph 6 negotiations because it appears to
convey the right of compulsory licensing only to countries with the capability to
manufacture a given product.
The Agreement
The Decision4 reached on August 30, 2003 adopts a text drafted by a previous TRIPS
Council Chairman Eduardo Perez Motta in 2002. That text previously was approved by
all WTO members save the United States, which blocked its passage in December 2002
due to concerns of the U.S. pharmaceutical industry about potential abuse of the system.
The Decision does not amend the Motta text, but adds a chairman’s statement to clarify
certain aspects of it . The Decision permits a waiver of Article 31(f) of the 1994 TRIPS
agreement, which provides that compulsory licenses are to be used predominantly for the
supply of the domestic market. The Decision waives 31(f) for exports of pharmaceutical
products to least developed countries (LDC) and countries with insufficient
manufacturing capacity. The accompanying Chairman’s statement, which does not have
the status of a binding legal document, reflects what it terms “several key shared
understandings” of Members concerning the interpretation and implementation of the
agreement. The Decision and accompanying Chairman’s statement contain language
resolving key issues in the debate including the scope of diseases to be covered under the
agreement, the countries eligible for the system, and protections against the threat of
diversion of pharmaceuticals made under the system to developed country markets- a key
concern of the pharmaceutical industry.
Disease Coverage. One key issue of the debate was disagreement on the language
defining a grave public health threat. The Decision allows compulsory licensing for
medicines based on the scope of the language in the Doha ministerial declaration:
“HIV/AIDS, malaria, tuberculosis and other epidemics.” During the December 2002
debate, developing countries accepted this wording as reflecting the intent of the Doha
Ministerial declaration, although they had sought even less restrictive language.
However, the U.S. considered this position too broad, and countered with more restrictive
language: “HIV/AIDS, malaria, tuberculosis or other infectious epidemics of comparable
gravity or scale, including those that may arise in the future.”5 This language was too
restrictive for the developing countries, and debate over this language subsequently
caused the United States to reject the Motta text. Developing countries were adamant
that the language in the Ministerial Declaration on the scope of diseases should form the
4 Council for TRIPS, “Implementation of Paragraph 6 of the Doha Declaration on the TRIPS
Agreement and Public Health,” (IP/C/W/405), August 30, 2003, and accompanying Chairman’s
statement available at [http://www.wto.org/english/news_e/pres03_e/pr350_e.htm].
5 “U.S. Sticks to Hard Line on TRIPS, as Supachai Tries to Broker Deal,” Inside U.S. Trade,
December 20, 2002.

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basis for the agreement, and during negotiations in the spring and summer of 2003, the
U.S. position seemingly shifted from limiting the scope of diseases to restricting country
eligibility.6
Eligible Countries. The scope of developing country eligibility to use the
compulsory license mechanism has also proven controversial in the negotiations. The
term ‘developing country’ in the WTO runs the gamut from the poorest, least developed
countries to middle-income countries like South Korea and Brazil who have their own
manufacturing capacity. As stated above, TRIPS grants each nation the ability to assign
compulsory licenses to their domestic manufacturers. However, there is a broad range of
technical sophistication among the pharmaceutical industries of the developing countries.
A country that can make aspirin may not be able to reengineer or reformulate
sophisticated drugs in order to utilize the existing compulsory license language of the
agreement. The question became whether a country that has some manufacturing
capability, but not necessarily a specialized expertise, would be able to use a Paragraph
6 mechanism to issue a compulsory license to a more sophisticated industry in another
country to produce a medicine.
The Decision adopted on August 30 set out certain criteria for determining whether
a country lacks domestic manufacturing capacity, but essentially countries would self-
declare their eligibility by notification to the TRIPS council. It reflects the position of
some developing countries to reject any restrictions on their ability to self-determine
eligibility. It clarified that eligibility notification would include information on the
manner in which a country determined it had no manufacturing capability. However, no
formal reviewing mechanism to assess the self-determination of eligibility by developing
countries, as the United States proposed, was incorporated into the statement.7 The
Chairman’s statement also contained language that the system not be used as an
instrument to pursue industrial or commercial policy objectives. This statement reflects
industry concerns that the system could serve to aid the expansion of generic
pharmaceutical industries in developing nations.
In addition, several groups also indicated they would not avail themselves of using
the new compulsory license system. The Decision referred to 23 developed countries that
would refrain from using the system as an importer. The chairman’s statement reported
that the 10 nations joining the European Union will also opt out of using the mechanism
as importers from the date of their accession. Until that time, they pledge to use the
mechanism only “in situations of national emergency or other circumstances of extreme
urgency.” In addition, several other nations announced that they would only use the
system as importers under this same formulation including Hong Kong, Israel, Korea,
Kuwait, Macao China, Mexico, Qatar, Singapore, Taiwan, Turkey, and the United Arab
6 “U.S. Government, Industry Wrestle with New Approach to TRIPS and Health,” Inside U.S.
Trade, June 27, 2003.
7 “U.S. Pushes for System to Review TRIPS Compulsory License Requests,” Inside U.S. Trade,
August 8, 2003.

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Emirates. This list reflects U.S. efforts in the negotiations to seek to persuade more
advanced developing countries to refrain using the waiver.8
Safeguards. Another concern was the issue of the use of safeguards to prevent
diversion of these generically manufactured drugs from poor developed countries to
developed country markets. The Decision calls for the drugs to be specially marketed or
packaged with identifiable characteristics, such as distinguishable colors or shapes
“provided that such distinction is feasible and does not have a significant impact on
price.”9 It also declared that importing countries should take measures “within their
means” to prevent trade diversion to prevent reexportation of products imported into their
countries.10
The Chairman’s statement reaffirmed the importance of protecting the system from
diversion of pharmaceuticals to rich country markets. It clarified that specialized marking
and characteristics should apply to active ingredients and final products, not just to
formulated pharmaceuticals. It also adopted a U.S. suggestion explicitly to state that
using special packaging or distinguishing characteristics is feasible and would not affect
drug prices.11 The statement listed several best practices for protecting against diversion
in an annex. However, the Chairman’s statement did not incorporate a U.S. proposal to
limit distribution of these generic drugs to humanitarian public health programs, either run
by the government or by charitable organizations.12
Policy Implications
The issuance of compulsory licenses has been advanced as a way for developing
countries without domestic manufacturing capability to obtain affordable medicines to
treat their populations afflicted with HIV/AIDS and other epidemics. However, a system
of compulsory licensing may have a relatively modest effect on the availability of
medicines in the developing world. According to chief EU trade negotiator Pascal Lamy,
“we have solved about 10% of the problem of access to medicines by developing
countries.” Other issues such as poor distribution systems for medicines in poor countries
and the lack of trained personnel to administer the drugs may hinder the effectiveness of
the new policy.13
Compulsory licenses have rarely been used by developing countries. This situation
can be attributed to lack of patent protection in many countries. Developing countries are
not required to enforce a TRIPS compliant patent system until 2005, and the compliance
8 “WTO Chair Menon Pushes to Finalize Agreement on TRIPS- Essential Drugs,” International
Trade Reporter, August 21, 2003.
9 Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public
Health, Note from the Chairman, Paragraph 2(b)(ii), December 16, 2002.
10 ibid, Paragraph 4.
11 Inside U.S. Trade, August 22, 2003.
12 Inside U.S. Trade, August 1, 2003; “U.S. Sets New Condition for TRIPS Deal While Showing
Flexibility,” Inside U.S. Trade, August 22, 2003.
13 “WTO Drug Pact Lifts Trade Talks,” Wall Street Journal, September 2, 2003.

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date for LDCs was extended until 2016 by the Doha Ministerial Declaration. However,
some developing countries do have patent regimes that cover some pharmaceuticals. In
these countries, the threat of compulsory licensing can be used to negotiate better prices
from developed world pharmaceutical manufacturers. Brazil, a country with a relatively
sophisticated pharmaceutical industry with the ability to reverse engineer and innovate
new drugs, was able to extract substantial price concessions on HIV/AIDS drugs from
international manufacturers based on a credible threat of compulsory licensing.14
Subsequent to the conclusion of the agreement, several nations have announced that
they will utilize this mechanism. In Brazil, a Presidential decree issued September 5
granted the government the authority to import generic medicines without the consent of
the patent holder in cases of national emergency or public interest. Brazil claims that it
cannot manufacture certain HIV/AIDS drugs in the quantities necessary for use in its
extensive treatment programs. The Philippines, despite prior pressure from the United
States to opt out of the then proposed accord, announced an expansion of an existing
generic drug importation program on October 13, citing the WTO agreement. In addition,
legislation in Canada is being prepared to amend its Patent Act to allow its generic
pharmaceutical industry to manufacture and sell HIV/AIDS medicines to countries
seeking to use the WTO system.
There also may be little economic incentive for a supplier to manufacture the
product in the case of an LDC issuing a compulsory license. Under the system
contemplated by the Decision of August 30, 2003, a developing country with no
manufacturing capability may use a compulsory license to obtain a product for a generic
manufacturer in another country. However, the generic manufacturer in the second
country may have no economic incentive to do so, especially in limited quantities to poor
countries. In addition, under many of the proposals the product would have to use special
packaging or distinctive shapes to avoid diversion. Under such restrictions, it is not
certain that a generic producer would undertake the development and formulation costs
for such a limited market.15 Thus, even though a compulsory license was issued, the
drugs may never be manufactured.
According to some NGOs and AIDS activists, this is precisely the result being
sought. One activist claimed that restrictions advocated by the U.S. create “a watertight
system so that no generic drugs ever get through to the patients in developing countries
who desperately need them.”16 U.S. officials, however, maintain restrictions such as
specialized packaging to prevent diversion serves the interest of recipient nations by
providing additional safeguards that the medicines will be used by the intended
recipients.17
14 Integrating Intellectual Property Rights and Development Policy, UK Commission on
Intellectual Property Rights (CIPR), September 2002, p. 43.
15 CIPR, pp. 45-46.
16 Medecins Sans Frontieres News Release, August 25, 2003. available at,
[http://www.msf.org/content/page.cfm?articleid=E05CFA2B-B49D-4CED-8EA32C8A0588D147]
17 Press Conference by Ambassador Peter Allgeier, Geneva, June 20, 2003.

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