International Trade Agreements and Public Health: WHO's Role

Dr Michael Scholtz, Executive Director
Health Technology and Pharmaceuticals
World Health Organization

Presented at the Conference on Increasing Access to Essential Drugs in a Globalized Economy, Amsterdam, 25-26 November 1999

Ladies and Gentlemen,

Thank you for your invitation to attend this important and inspiring Conference. I welcome the opportunity to discuss with you more in detail the World Health Organization's views on pharmaceuticals and its role within the context of the international agreements on trade as just outlined by Dr Gro Harlem Brundtland, WHO's Director-General.

Each of WHO's 191 Member States, in joining the Organization, has agreed that health is a human right. And access to essential drugs is a critical part of this fundamental human right. Our work in WHO is built on that premise.

It is WHO's view that with the globalization of the world economy we need to pay particular attention to access to drugs. With this globalization goes increased access for some. But for far too many this is not the case - and this will continue to haunt the international community.

As Dr Brundtland has just said to this Conference, "Essential drugs are a public good and not simply just another commodity." We need to make this clear to those who now prepare to sit down as a new round of trade negotiation starts.

Since the concepts of national drug policies and essential drugs were introduced by WHO nearly 25 years ago, three out of four countries - nearly 150 countries in total - have adopted national essential drugs lists. Nearly 100 governments have put these lists into practice through clinical treatment guidelines. Most importantly, through a combination of public and private health systems, the absolute number of people with access to essential drugs has nearly doubled, from 2 billion people in 1977 to nearly 4 billion people in 1997.

It has been repeated over and over again: despite this greatly expanded access to essential drugs and vaccines in the last two decades, many problems persist, particularly in developing countries. As we approach the year 2000, one-third of the world's population still lacks access to essential drugs. In the poorest parts of Africa and Asia, over 50% of the population do not have regular access to the most vital essential drugs. Unlike in most industrialized countries, we know that up to 90% of medicines are paid "out-of-pocket" in developing countries. We also know that this expenditure represents a much larger proportion of household spending in a developing country than in a developed country.

Today, 13 million children under five years of age die every year in developing countries and about 10 million of these deaths are due to acute respiratory infections, diarrhoeal diseases, tuberculosis and malaria alone. Many of these deaths could be prevented if essential drugs were made available. And let us be clear about it - many of these deaths occur in countries which actually do have essential drugs policies. There are countries which have essential drugs lists, but lack the drugs on the list, while at the same time drugs which are not on the list are available. So we are confronting a highly complex issue and will intensify our work to improve access for those in need.

Today, I should like to address three critical questions concerning access to essential drugs, multilateral trade agreements, and WHO's broader role in the area of health and trade. These questions are:

  • First, what is WHO's approach to securing access to essential drugs?
  • Second, what are WHO's views on multilateral trade agreements and access to drugs?
  • Third, what is WHO's broader role with respect to international trade agreements and public health?

Turning to the first question, what is WHO's approach to securing access to essential drugs?

Rational selection and use of essential drugs in both the public and private sectors are fundamental to securing access. Access can never be ensured if drugs are not selected according to their comparative efficacy and cost-effectiveness; nor if they are over-prescribed by health professionals and over-consumed by patients.

Adequate Financing

Beyond rational selection and use, three factors are critical for securing access: (1) adequate financing, (2) affordable prices, and (3) reliable supply systems.

In our view, payment for essential drugs through general government revenues and social health insurance is the preferred approach to drug financing. Where such an approach has been effectively pursued, it has achieved the greatest equity and solidarity - and, most importantly, such an approach has achieved the best access to essential drugs. But securing adequate financing through public revenues and social health insurance is not an easy task.

Even among countries at the same level of economic development, governments vary greatly in their financial commitment to health care and, within health expenditures, the share spent on pharmaceuticals. This results in over a five-fold difference in per capita public spending on essential drugs among countries with comparable national incomes.

The evidence is clear: countries which invest wisely in health do experience greater economic development. Among other things, this involves allocating adequate funding for essential drugs and targeting the use of this funding to high-impact public health problems such as tuberculosis, malaria, HIV-AIDS, and childhood illness. Governments must play their role. In quoting Nobel Laureate Amartya Sen's concluding remarks from the keynote address to the Fifty-second World Health Assembly in May 1999, I should like to reiterate that, and I quote, "If it is the doctor or the school teacher or the nurse who feels more threatened by resource considerations than the military leaders, then the blame must at least partly lie on us, the public, for letting the militarist get away with these odd priorities".

WHO is seeking ways to achieve results through better spending on health in addition to more spending in many countries. We are looking at how selected governments, which have the foundations for success in place, can be assisted in formulating a health component of Poverty Reduction Strategies. We are also looking at ways to improve the sharing of experiences between countries.

One promising trend is the increase in social and private health insurance coverage and expanded drug benefits in countries as diverse as Argentina, the People's Republic of China, Egypt, India, the Islamic Republic of Iran, Georgia, South Africa, Thailand and Viet Nam. Some of these programmes have special arrangements for rural and low income populations. Drugs represent 25% to 70% of total costs for these schemes. Increasingly, WHO is working with such programmes to apply the essential drugs concept and to address the particularities of drug management within health insurance.

Private, out-of-pocket spending on drugs is the largest household health expenditure in many countries, accounting for 50% to 90% of pharmaceutical sales. User charges for drugs in public health services are also increasingly common. These should be seen as transitional measures to more equitable public financing and social health insurance.

WHO is exploring with major foundations and other funding sources the development of endowment funds or other innovative financing mechanisms for eradication and control of specific communicable diseases in the least developed countries.

Just look at the current initiatives to link debt relief with renewed investment in the social sector. When the richest nations decided to embark upon a new programme of debt relief for the highly indebted poor countries, there was an underlying current that, this time, a new agenda should be put in place: an agenda of social development and poverty reduction. Resources freed from debt relief should go to strengthen the health and education components. If things go well we will have yet another financing tool to help us invest in cost-effective health interventions especially among the poor. Such a sustainable external source of financing may contribute to secure access in the poorest countries.

We have also seen an increasing number of drug and vaccine donation programmes, aimed at specific diseases, such as to fight river blindness, elephantiasis, polio, leprosy and other diseases targeted for eradication. WHO applauds and encourages the increasing preparedness of the private sector, governments, bi- and multi-lateral donors for their efforts. In the mid-term we must be able to establish planned donations as a sustainable component of drug supply systems. However, in the long-term, only self-sufficiency can be an answer to increasing disease burden.

Affordable Prices

Sustainable financing is critical. But equally important, drug prices must be affordable for government and consumers. A variety of measures exists to contain pharmaceutical prices paid by governments and the costs paid through health insurance programmes. Many of these measures can be used to contain direct consumer expenditure.

Manufacturers' selling prices (MSP) can be contained through competition and volume purchasing. Competition among chemically different, but therapeutically similar patented drugs can bring down the price of patented products. This effect is beginning to be seen among HIV-related drugs. I will add to this discussion on manufacturers' selling prices later in my review of the TRIPS agreement.

Effective measures to reduce manufacturers' prices can only be part of the strategy, however. In developed countries, manufacturers' prices typically represent 50%-60% of the final consumer price, which means that prices roughly double between the manufacturer and the consumer. The situation can be worse in developing countries where the MSP can be as little as 20% of the price finally paid by the consumer. Up to 80% of the price paid for drugs by the consumer consists of import duties, taxes, distribution costs, and dispensing fees - a five-fold increase between the manufacturer and the patient!

WHO is advocating the reduction or even elimination of import duties for pharmaceuticals - still over 30% in some countries for the private consumer. We also need to address reduction of value-added and other national and local taxes, which can be 20% or more of the final selling prices.

Finally, WHO supports governments in seeking reasonable levels of distribution and dispensing mark-ups. Countries are slowly moving from the older system of percentage mark-up for the pharmacist to a system of fixed professional dispensing fees. This may reduce prices. More importantly, though, it reduces the incentive for the pharmacist or drug seller to dispense higher cost products - for example, dispensing a 50 rupee product when a 20 rupee product would be equally effective.

Whatever strategies are used to contain pharmaceutical prices, price information is essential. WHO provides monthly price information on nearly 200 pharmaceutical essential drug active ingredients and other starting materials, including HIV-related drugs. WHO also distributes price information on finished dose essential drugs. Within countries, prices and cost/benefit information should be readily available to both health professionals and consumers for making informed decisions when evaluating alternatives.

Reliable Supply Systems

The third critical element for access to essential drugs is a reliable mix of public and private supply systems. Many countries continue to struggle with an unfortunate combination of inefficient public supply systems meant to serve the entire country and private supply systems which serve mostly urban areas. Decentralization of public services sometimes compounds the problem. Yet we have seen progress through innovative approaches to public and private supply systems in countries such as Benin and other West African countries, Colombia, Guatemala, the Newly Independent States, South Africa and Thailand. These promising developments have much to teach all of us.

In summary, addressing the problem of access to essential drugs depends on having all three critical factors in place. Too often, manufacturers who should be working to reduce prices are busy blaming unreliable supply systems; policy-makers in a position to influence drug financing are busy blaming high prices; and health care managers who could improve supply systems are busy blaming inadequate financing. Instead, all parties should be working toward a common solution - each contributing constructively from their own political, technical and economic perspectives.Let me now turn to the second question I posed: What are WHO's views on multilateral trade agreements and access to essential drugs?

When the World Trade Organization came into being in 1995, several new trade treaties came into effect which are binding on all members. Among these agreements, TRIPS (the Trade-Related Aspects of Intellectual Property Rights) has been of greatest significance with respect to pharmaceuticals. Prior to the Uruguay Round, countries had adopted various approaches to drug patents, suited to their policies and needs; at least 40 countries did not grant patents for pharmaceutical products per se.

As many of you know, in May 1999 - after a series of discussions among WHO Member States over an 18-month period - the World Health Assembly adopted the resolution on the Revised Drug Strategy. Among other things, the resolution took note of, "concerns of many Member States about the impact of relevant international agreements, including trade agreements, on local manufacturing capacity and on access to and prices of pharmaceuticals in developing and least developed countries."

The resolution called on WHO to, "cooperate with Member States, at their request, and with international organizations in monitoring and analysing the pharmaceutical and public health implications of relevant international agreements, including trade agreements, so that Member States can effectively assess and subsequently develop pharmaceutical and health policies and regulatory measures that address their concerns and priorities, and are able to maximize the positive and mitigate the negative impact of those agreements."Patent laws affecting pharmaceuticals should not be viewed separately from the health systems in which they operate. To go back to the first part of my intervention: it is not the TRIPS agreement which is to be blamed for the failure to provide access to essential drugs; it is not the existence of the multilateral TRIPS patent agreement that is under discussion, but the implementation of TRIPS provisions and their effect mid-to long-term.

WHO has consistently given five messages to highlight public health concerns in using patents for pharmaceuticals:

  1. Patent protection stimulates development of needed new drugs, but countries must ensure a balance between the interests of the patent holders and the needs of society.
  2. The Research & Development priority setting for pharmaceuticals and vaccines does not respond to the needs of the majority of people, therefore public involvement is needed to ensure development of new drugs for certain priority health problems.
  3. Generic competition should begin promptly upon patent expiration.
  4. Preferential pricing is necessary for lower-income countries and should be actively pursued.
  5. Health regulations should not create technical barriers to trade.

First: Patent protection stimulates drug development and research

Patent laws specify the rights of the patent holder and the public. The working of patent rights for pharmaceuticals should be closely monitored in an impartial way to ensure that it benefits both the patent holders and the public. Essential drugs are a public good and cannot be treated as just another commodity. Intellectual property standards should be implemented in line with the provisions made with appropriate use of the exceptions to ensure equitable access in the case of national emergencies and/or patent rights abuses. The TRIPS agreement provides a number of safeguards meant to protect the rights of the public. These include extension of transition period, disclosure of inventions, compulsory licensing and exceptions which can support the marketing of generic drugs. As the UN technical agency for public health, WHO's mandate is to protect public health interests and to propose measures to safeguard these interests.

Therefore, WHO encourages governments to enact national legislation that allows them to use these safeguards within the scope of WTO agreements. Provisions included in the WTO agreements to protect public health and the rights of the public should be understood for what they are, safeguards to be used as intended. Exceptions should not be misunderstood as "loopholes", to be ignored or closed.

WHO has long been sensitive to the potential misuse, for protectionist purposes, of measures intended to safeguard public health. Very early in WHO's history, for example, the World Health Assembly called for elimination of quarantine restrictions of doubtful medical value that interfered with international trade and travel.

Finally, we must keep in mind that a patent is not a product. Significant intellectual, financial and manufacturing capacity is sometimes required to transform the licence of a patent into a product. We should not forget that a number of patents have, in the past, not been filed in developing countries owing to lack of commercial interest. Voluntary licensing, preferably coupled with technology transfer, may better serve to increase access to essential drugs than compulsory licensing.

Second key message: The Research & Development priority setting for pharmaceuticals and vaccines does not respond to the need of the majority of the people.

As the balance between demand and supply for pharmaceuticals is often imperfect, so is the priority-setting for investing in related research and development. Patents have stimulated the discovery of new drugs, but it does not follow that these new drugs have been affordable to all people or that they have met the most pressing therapeutic needs. And increasing concern is being expressed that countries, in which clinical trials are carried out to prove efficacy and safety for registration purposes, do not benefit from the results. Research and development in the pharmaceutical industry follows industrialized countries' market demands. Tropical diseases, chronic in countries where cash incomes are extremely low, are particularly neglected.

We therefore need to create mechanisms and incentives that drive research and development into neglected areas of high medical need according to disease burden. This is especially so in the more unattractive low economy markets. WHO is actively encouraging other sources, such as the public sector, to finance research and development in pharmaceuticals and provide incentives for innovation in vital fields, for instance that of tropical diseases. The recently created "Medicines for Malaria Venture" and the "Global Alliance for Vaccines and Immunization" are concrete initiatives addressing this concern, that are welcomed by many of WHO's stakeholders. But the innovations and patents created with public funds should, as a rule, be licensed on an non-exclusive basis in order to encourage competition, at least those applicable for disease that are in the centre of public health interest.

Third key message: Preferential pricing is essential for lower-income countries and must be actively pursued.

Lower-income countries simply cannot be expected to pay the same prices for essential drugs as the wealthier countries. This principle of solidarity, namely that the richer pays absolutely and relatively more than the poor, is very common in national tax laws. Experience in the vaccine sector demonstrates that significant price differentials can be achieved between prices in developed countries and those in low-income countries. We recently heard an encouraging statement from one company that indicated similar price differentials may be achieved for other pharmaceuticals, including newer essential drugs.

Therefore, WHO strongly supports efforts to develop mechanisms for preferential low prices, defined as "market segments", for essential drugs in lower-income countries. For governments, industry and other interested parties there is a range of options which might be used to achieve preferential pricing. These include voluntary licensing with transfer of know-how and market segmentation with alternative, lower cost presentations and packaging in a closed public sector and private distribution systems in low-income countries.

Parallel imports can also contribute to lower prices, especially where drug prices are higher in poorer countries than in richer ones. At the same time, where lower income countries are benefiting from preferential prices, these prices for developing countries must be protected by measures which would prevent parallel exporting to developed countries. This principle would obviously apply to essential, patented drugs rather than generics.

Fourth key message: Generic competition should begin promptly upon patent expiration

WHO has long promoted public and private sector use of generic drugs of assured quality. Experience from countries with "generic-friendly" policies clearly demonstrates that the resulting market competition greatly increases affordability of medicines for the population, stimulates genuine innovation within the research-based industry, and encourages increased production efficiency by the generic industry.

Logically, WHO is in favour of "early workings" of patented drugs by generic manufacturers, to encourage competition, which is also a major motivation in the research for improved products. This includes the use of patented drugs for research and testing needed for early registration and prompt production of generic drugs. Countries with variations of early workings provisions include Argentina, Australia, Canada, Hungary, Israel and the USA.

Fifth key message: Health regulations should not create technical barriers to trade.

The WTO Agreement on Technical Barriers to Trade - the so-called "TBT Agreement" - has as its objective that unnecessary obstacles to international trade are not created. One important principle in this agreement is that technical regulations and procedures should be based on scientifically developed, international standards, guidelines and recommendations. In the area of pharmaceuticals, WHO norms, standards, and guidelines represent international consensus. In addition, there are a number of regional and cross-regional efforts aimed at harmonization of regulatory requirements. These efforts are instructive and often achieve technologically demanding standards. One example is the International Conference on Harmonization (ICH). It is important, however, that such initiatives, involving smaller groupings of countries be used to serve public health interests, but without creating trade barriers.

Turning to the third question, what is WHO's broader role with respect to international trade agreements and public health?

When the World Trade Organization began its operation, it was argued that the new trade agreements would work to the benefit of all. Patent protection would promote research and development of needed new drugs, and it would ensure a vigorous and dynamic pharmaceutical industry. At the same time patent protection would encourage transfer of technology which would strengthen pharmaceutical production in developing countries thereby contributing to enhancing access. Varying levels of national development would be acknowledged through the granting of periods of transition, and other provisions would protect public health. Trade in services would increase availability and quality of health care services in countries. Measures provided in other WTO agreements would protect public health and prevent barriers to trade in pharmaceuticals and other health care services.

Now, five years after WTO came into being, we need to ask to what extent progress is being made toward these goals. This question has been posed at recent regional meetings of health officials in Washington, in Bangkok, in Cairo and in Baragwanath, South Africa. It is being asked by professional associations, relief organizations, public interest NGOs and by other stakeholders in WHO and WTO.

WHO has in the past facilitated, supported and participated in such discussions and continues to do so. But what are WHO's roles in this broader debate? There are five key roles.

First, WHO has an advocacy role to ensure that trade liberalization contributes towards a more equitable distribution of economic benefits and a just society. This requires the Organization to provide input to governments, not just health ministers, linking trade policies to sound social policies that recognize health as a global public good.

Commercial and public health concerns have to be balanced. In the pharmaceutical arena, for example, there is a need to provide sufficient incentives and patent protection to ensure development of needed new drugs, while ensuring affordability and access to existing drugs and to new essential drugs. This cannot be seen as an either/or situation or as one objective overwhelming another. We must balance the two aims.

Second, as part of this role, WHO is monitoring and analysing the impact of trade agreements on the availability and affordability of health services, including essential drugs. For example, the WHO Collaborating Centre for Health Economics in Thailand just last month published a study on the implications of the WTO TRIPS agreement for the pharmaceutical industry in Thailand. This study evaluated the effects of Thailand's 1992 patent law revision, which in essence followed TRIPS standards.

The findings of the Thai study include the observations that (1) there had been no significant increase in transfer of technology or foreign direct investment, (2) pharmaceutical spending increased at a higher rate than overall health care spending, and (3) originator firms had done better than domestic generic firms. But the authors also recognized that Thailand depends and benefits to a significant degree on the export of goods other than pharmaceuticals.

WHO is supporting similar studies in other regions. These studies should help to develop a common methodology for monitoring and evaluating the effects of TRIPS and related trade agreements.

WHO is also initiating a study to evaluate options to manage knowledge and innovation in the areas of high priority diseases, funded with public funds and carried out by governmental agencies.

The third role for WHO, especially in developing countries, is that of helping to strengthen the hands of ministers of health when governments debate trade, finance and health issues. Several weeks ago, in a presentation to the WTO, Joseph Stiglitz, Chief Economist of the World Bank, commented that, "The basic notions of equity and a sense of fair play require that the next round of trade negotiations be more balanced; that is, more reflective of the interests and concerns of the developing world than has been the case in earlier rounds. Unless we achieve greater balance we will place at peril the success of future trade negotiations."

Fourth, WHO supports countries in invoking the safeguards in WTO agreements which permit developing countries a graduated implementation of these agreements. Historically, industrialized countries have strengthened their patent laws as they have developed industrially and economically. Developing countries have until the end of this year to be WTO-compliant. Yet several argue that they have neither the human and nor the financial resources to benefit from TRIPS or fear a negative effect on public health in their countries. They argue that an additional period of transition is needed. Provisions for extensions of the transition period are made in the agreement. In this context, WHO will collaborate with Member States in evaluating the justification for applying the provisions of Article 66, which enables least developed countries to extend the transitional period for implementation of TRIPS. Countries must balance the potential benefits with the potential drawbacks in respect of access to pharmaceuticals and define their strategy based on that evaluation.

As its fifth role, WHO is advising countries on the new economic international environment, within the framework of national drug policies. Guidance is being developed in response to Member States' questions regarding the relationship between international agreements and drug prices, innovation and local production, the use of exceptions, technology transfer, licensing arrangements, and the transition period for the least developed countries. An updated bibliography on globalization, patents and drugs has been prepared to enable countries to research such issues themselves.

Cooperative work is also underway with UNAIDS and UNICEF with regard to trade agreements and access to HIV-related drugs. Access to drugs is part of the round table process between WHO and NGOs and WHO and industry. Joint working groups addressing research and development needs and incentives related to "neglected disease", as well as counterfeit and substandard drugs, are in progress with the research-based, generic and self-medication industries. A contact group with interested parties from WHO, WTO, WIPO, and UNCTAD has been established This group is formulating concrete projects of collaboration following meetings of Dr Brundtland with other heads of agency, and recently with Mr Mike Moore of WTO.

In conclusion, WHO has in the past actively been reaching out to many important partners, including those of you represented at this meeting. We look forward to progressing and enhancing this collaboration with you in the future as we strive together to improve universal and equitable access to essential drugs to the world's population. Trade and health must go hand in hand to reduce poverty and disease burden.

I want to end my address by congratulating M‚decins sans FrontiŠres on their very well deserved award of the Nobel Peace Prize. This is international recognition for many years of outstanding commitment and support to countries and people in crisis. It demonstrates the important political and technical role of NGOs in today's globalized society. And it is only through collaboration that we can hope to bring about a more equitable world and access to basic health care for all.

Thank you for your attention.