Annex II. Special compulsory licences for export of medicines

Operation of the System: context and scope

While Chapter IV, Section C.3(a)(iii), outlines the policy context of the Paragraph 6 System and why it allows special compulsory licences for export of medicines in limited circumstances, this annex provides supplementary information setting out its operation and use. The System is the only flexibility in the TRIPS Agreement that specifically entails action by (at least) two countries (i.e. an importer and an exporter). It operates on the basis of notifications to the TRIPS Council by these countries, which, in turn, result in the various actions described in this annex.

What is the Paragraph 6 System?

As outlined in Chapter IV, Section C.3(a)(iii), the Doha Declaration on the TRIPS Agreement and Public Health (paragraph 6) recognized that WTO members with insufficient or no manufacturing capacity in their pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement, as the agreement then stood. To overcome those difficulties, WTO members adopted the Paragraph 6 System. It addresses a particular scenario for access to medicines:

• A country needs to import a medicine from a foreign supplier because it lacks sufficient manufacturing capacity in its pharmaceutical sector.
• The medicine can be produced under a compulsory licence in another country.
• Export of the non-predominant part of the production in that country does not satisfy the needs of the importing country.
• Therefore, the importing country has to use the Paragraph 6 System in order to import medicines produced under a compulsory licence from another country.

The System provides WTO members with an additional flexibility, which is a special type of compulsory licence permitting production of medicines exclusively for export. The System links demand in importing countries with supply from exporting countries. In addition, it waives the obligation on importing countries to pay adequate remuneration to the right holder following the grant of a compulsory licence (Article 31(h) of the TRIPS Agreement), if such remuneration is provided for in the exporting country.

What products are covered by the System?

The System is available for any pharmaceutical sector products (including active ingredients and diagnostic kits) that are patented or manufactured under a patented process and are needed to address public health problems afflicting developing countries and least-developed countries (LDCs), especially those resulting from HIV/ AIDS, tuberculosis (TB), malaria and other epidemics. This list of public health problems is based on paragraph 1 of the Doha Declaration and is not intended to be exhaustive.

Use of the System

This section describes which WTO members can use the System as importers and exporters; and the terms and conditions under which the System may be used.

Which countries can use the System as importers and exporters?

While all WTO members are eligible to use the System as importers, developed countries have elected not to use the System for their imports,¹ and some higher-income developing countries and territories have agreed that they would use the System as an importer only in situations of national emergency or other circumstances of extreme urgency.² Nevertheless, the System itself is not restricted to emergency situations. Most WTO members have not indicated that they would limit its use to such situations. Some WTO members have implemented the System so as to enable exports to developing countries and LDCs that are not WTO members. While any WTO member may participate in the System as an exporter, they are not under any obligation to do so.

How is the System used?

The essence of the System is the grant of a compulsory licence by the exporting country to meet the need(s) identified by the importing country. The entitlement to do so is triggered by notifications sent for information to the WTO TRIPS Council, including:

• An importing country’s general notification of intent to use the System (not required for LDCs).
• An importing country’s specific notification of needed pharmaceutical product(s).
• An exporting country’s notification of a compulsory licence issued for exports to meet the needs of the importing country or countries.

Notifications need only be very brief, and may be in the form of a letter sent by fax or email, and signed by any authorized government official. Such notifications are required for transparency purposes. It is expressly provided that they are not subject to approval by any WTO body. No standard form is established. The WTO Secretariat provides model notifications on its website (see Figure A.1).³ Further guidance is also provided by the World Bank (Abbott and Van Puymbroeck, 2005) and the WHO (Correa, 2004).

How does an importing country use the System?

Notifying general intention to use the System

Countries other than LDCs need to submit a general notification of intent to use the System. This can be done at any time prior to actual use, and it does not commit these countries to use the System. Rather, they simply reserve the right to do so in the event of potential future need. The general notification comprises the simple statement by a WTO member that it intends to use the System.

Notifying the need to import specific pharmaceutical products

When a country wishes to create the option of importing particular products under the System, it submits a specific notification of its import needs.

The specific notification includes:

• Names and expected quantities of the products the country needs to import.
• If a patent is in force in the country for any of the pharmaceutical products listed, an indication that a compulsory licence has been or will be granted. LDCs may simply indicate an intent to use the extended transition period under the TRIPS Agreement.
• An indication that the country has established that it lacks the capacity to manufacture the product. LDCs are already deemed to have insufficient manufacturing capacity, and thus they are exempt from adhering to this requirement.

This notification can be submitted at an early stage of the procurement process, before any final decision about preferred sources of supply. It does not create any obligation to use the System should a better alternative emerge. A country is therefore free to notify expected medicine requirements as a routine step in the procurement planning process, thus facilitating assessment of the full range of access options, signalling demand for potential suppliers, and clearing the way for actual use of the System should it present the most commercially viable option.

Countries pooling their procurement needs can make joint notifications. Given that the System recognizes the need for economies of scale in a regional context, joint notifications by countries with similar needs may provide a pathway for the establishment of commercially viable level(s) of demand for production and shipment.

Source:  www.wto.org/medicinesnotifications.

 

If a compulsory licence is needed on a patent in force in the importing country, that country must still respect general TRIPS Agreement requirements for compulsory licensing. There is no obligation to seek a voluntary licence from the patent holder in cases of public non-commercial use, or if there is a national emergency or other circumstances of extreme urgency. (The Doha Declaration clarifies that countries have the right to determine when such situations exist.) Furthermore, there is no obligation to seek a voluntary licence if the compulsory licence was issued to remedy an anti-competitive practice. However, in all other cases, the importer should make prior efforts to obtain authorization from the patent holder on reasonable commercial terms and conditions. To avoid double payment to the patent holder, the licensee in the importing country is exempted from the requirement to pay remuneration under a compulsory licence if payment has already been made in the exporting country.

How does an exporting country use the System?

Any country can export under the System if it has a pharmaceutical industry with the capacity to manufacture the needed product – and if its domestic law allows the grant of a compulsory licence to export. If there is no patent in force for the products in the exporting country, then there is no need to resort to the Paragraph 6 System. Equally, if the product is already being produced under a compulsory licence for the domestic market, the non-predominant portion of the production quantity can be exported without using the System.

Once a compulsory licence for export under the System has been issued, the exporting country submits a notification.

The exporting country’s notification of the licence(s) for export contains the following details:

• name of the licensee(s)
• product(s) for which the licence(s) has/have been granted
• quantity(ies) for which the licence(s) has/have been granted
• country(ies) to which the product(s) is/are to be supplied
• duration of the licence(s)
• optionally, any other licence conditions and other information, such as the patent number(s)
• address of website providing information on quantities shipped and distinguishing features of the product(s).

When granting the special licence for export, the exporting country needs to apply the standard TRIPS Agreement requirements for compulsory licences, except that:

• the limit is removed on the quantity that can be exported under compulsory licence, and the entire production quantity is exported to the beneficiary countries
• the requirement for adequate remuneration is calculated on a different basis, namely the economic value of the authorization in the importing country.

Do regulatory authorities have to approve products manufactured under a special compulsory licence?

While the System does not deal with marketing authorization for pharmaceutical products, use of the System may entail facilitating regulatory clearances. It remains a separate responsibility of health authorities to determine whether products are safe and effective, and it is up to the exporting and importing countries to decide whether their respective pharmaceutical regulatory authorities will review the products manufactured under the System or whether they will rely on regulatory reviews carried out by counterpart authorities either in the countries using the System or even in another jurisdiction.

Which safeguards against diversion need to be put in place?

In order to ensure that products exported under the System are used to address the public health problems afflicting the importing country or countries, specific safeguards against diversion apply:

• Production carried out in the exporting WTO member as a result of a compulsory licence is limited to the quantity necessary to meet the needs of the importing WTO member(s), and the entire quantity produced must be exported to the importing WTO member(s).
• The products must have specific labelling or marks. They should have distinctive packaging and/or be specially coloured or shaped – as long as these latter requirements are feasible and do not have a significant impact on price. Before shipment, the manufacturer must post on a website details of the quantity of products it has manufactured under the compulsory licence, as well as details of the way in which it has specially labelled or packaged them. The WTO website is available for the manufacturer to utilize for the purpose of publishing this information, but such use is not mandatory.
• Importing WTO members must take reasonable measures within their means to prevent re-exportation. Such measures should be proportionate to these members’ administrative capacity and the risk of trade diversion. Importing WTO members are entitled to receive technical and financial assistance from developed-country WTO members so as to meet this obligation.
• Other WTO members need to have in place effective legal procedures and remedies in order to prevent importation into their markets of diverted pharmaceutical products produced under special compulsory licences for export, using the means that are already available to them under the TRIPS Agreement.

How can the System be used at regional level?

Under a regional mechanism established by the System, the condition otherwise applicable to compulsory licences (i.e. that they be used to predominantly supply the domestic market), is also waived. The purpose is to allow WTO members who are party to a regional trade agreement (RTA) to better harness economies of scale in their regional economic community and also enhance their purchasing power by combining demand to facilitate bulk imports or local production of pharmaceutical products for distribution within the relevant region. The regional mechanism enables the exporting and re-exporting of products that have been manufactured under a compulsory licence to take place more easily among WTO members who are party to an RTA, provided that:

• the RTA complies with the General Agreement on Tariffs and Trade (GATT) and the so-called Enabling Clause (the name given to a 1979 GATT Decision permitting preferential arrangements among developing countries and LDCs in goods trade)
• at least half the WTO members who are party to the RTA are LDCs
• these WTO member share the public health problem(s) in question.

The WTO does not state which RTAs satisfy these requirements, and thus no list of RTAs qualifying for this regional mechanism is available.

The regional mechanism can cover pharmaceutical products manufactured within the regional trade area under compulsory licence. It can also cover products manufactured elsewhere under compulsory licence and imported by one RTA party under the Paragraph 6 System. Either way, the products can be traded among the parties to the RTA without any further notification or adherence to any additional requirements other than those that apply at the time of the importation into the regional trade area under the Paragraph 6 System.

The regional mechanism does not override patents or national marketing approval requirements. Where a patent is in force for any country in the region seeking to use this mechanism, either a voluntary or compulsory licence would be required in the country that is seeking to use the mechanism. Equally, the product should still be approved for distribution in each of the countries concerned.

What does the WTO General Council Chairman’s statement add?

The General Council decisions to establish the System were both adopted in light of a statement by the General Council Chairman which reflected several key shared understandings of WTO members,⁴ notably:

• The System should be used in good faith to protect public health and should not be used to pursue industrial or commercial policy objectives.
• The requirements on product differentiation apply to active ingredients produced and supplied under the System. They also apply to finished products containing such ingredients. In general, special packaging and/ or special colouring or shaping should not have a significant impact on the price of pharmaceuticals. (In relation to the prevention of diversion of products, members and producers are encouraged to draw from and use best practices guidelines and to share information on their experiences and practices in preventing diversion).
• Importing countries should include information on how they established that they had insufficient or no manufacturing capacities in their local pharmaceutical sector.

The Chairman also noted that developed countries had agreed to opt out of the System as importers (also reflected in footnote 3 of the 2003 Decision/ Protocol Amending the TRIPS Agreement)⁵ and that 11 higher-income developing countries and territories had agreed to restrict the use of the System as importers to situations of national emergency or other circumstances of extreme urgency.

Domestic implementation

Countries can implement the Paragraph 6 System as importing countries, exporting countries, or as both.⁶ There is no obligation on WTO members to use the System in either capacity, and it remains one option among many that can be used to enable access to medicines.

Importing members

Importing WTO members will generally need to make legislative changes in order to exercise the option of dispensing with remuneration on imports under a compulsory licence, where remuneration has already been paid in the exporting country. While the required submission of a notification to the WTO does not necessitate special legislation, such notification requirement may be addressed in laws or implementing regulations. Importing WTO members are obliged to take reasonable measures to prevent the re-export of imported products but, again, this is possible without the need to use special legislation. For example, in the Philippines, the law simply requires that the compulsory licence “shall also contain a provision directing the grantee of the license to exercise reasonable measures to prevent the re-exportation of the products imported under this provision”.⁷

Exporting members

Exporting WTO members typically need to make limited legislative changes in order to use the Paragraph 6 System, except where it is directly applicable under national law (this is reportedly the case in Japan, for example). Countries that have already incorporated the 1994 TRIPS Agreement standards into law will have restricted compulsory licences (i.e. predominantly to supply the domestic market). Therefore, at a minimum, this limitation will need to be amended so as to allow for the export of the entire quantity produced under a compulsory licence issued under the System. Implementation of compulsory licences for export under the System would also need to take account of the need to limit the volume of production to that referred to in the importing country(ies) notification(s), the obligation to export the full quantity of production, and special marking or labelling of the products.

Regional mechanism

Implementation of the regional mechanism would entail ensuring that the relevant legislation in exporting countries in the region does not limit the proportion of exports under a compulsory licence, as would be the case under the limitation predominantly to supply the domestic market, which applies to standard compulsory licences under the TRIPS Agreement. For countries that intend only to import, changes may be required in their domestic law so that the licensee can be exempted from paying remuneration to the right holder in a situation where a compulsory licence to import has been granted and where remuneration has already been paid in the exporting country.

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See footnote 3 to the 2003 Decision/Protocol Amending the TRIPS Agreement, WTO documents WT/L/540 and WT/L/641. back to text

See the list contained in the Chairman’s Statement, WTO documents WT/GC/M/82, para. 29 and WT/GC/M/100, para. 29. back to text

See www.wto.org/medicinesnotifications back to text

WTO documents WT/GC/M/82, para. 29 and WT/GC/M/100, paras. 28–29. back to text

WTO documents WT/L/540 and WT/L/641. back to text

A collection of laws implementing the Paragraph 6 System is available at www.wto.org/english/tratop_e/trips_e/par6laws_e. htm. back to text

Rule 13 of the Implementing Rules and Regulations of Republic Act 9502 Otherwise Known as the “Universally Accessible Cheaper and Quality Medicines Act of 2008”, notified in WTO document IP/N/1/PHL/I/10. back to text