April 6, 2005
by Jeremiah Norris
Brazil says it can no longer afford to import AIDS drugs for its highly praised nationwide treatment plan. It has threatened to break drug patents unless foreign manufacturers slash their prices. Under World Trade Organization rules, a nation can use this provision by applying for a "compulsory license" if it is a case of national health emergency or of national interest. It may pay royalties but it does not have to seek the patent holder's approval.
How did Brazil, the world's tenth-largest economy and the fifth-largest population, reach this state of affairs? Indeed, Brazil is facing a severe health-care situation, one which is increasingly becoming more expensive to maintain. In 1997, Brazil initiated a free distribution program for AIDS drugs. It is now treating 180,000 AIDS patients.
The program, however, has run into two foreseeable problems. First, approximately 80 percent of the Brazilian public-health budget is subcontracted out to private providers. The reason: Brazil's public-health system is dysfunctional. Although its employees are publicly compensated, many of them "moonlight" in the private medical sector. Second, the program has to cover the cost of patients who have developed resistance to first-line treatments for AIDS. According to Médecins Sans Frontières, the health activist organization, second- and third-line therapies can be 20 to 30 times more expensive than first-line drugs. In 2001, Brazil reported that 6.6 percent of those with primary HIV-1 (the main HIV/AIDS strain) infections had experienced resistance, requiring movement to the more expensive therapies. It also reported that drug resistance was on the rise, with one study indicating that it had reached 44 percent among those in treatment more than two years. If 180,000 Brazilians are now under treatment, then a conservative estimate indicates that the range of those in second- and third-line treatments since1997 is between 42,000 and 50,000 patients.
The Brazilian government is facing an unanticipated burden in the public financing of free AIDS treatment. The growing cohort of drug-resistant patients has a larger societal cost than the combined funds needed for the remaining patients on first-line therapies. This represents a sequential increase in the number of chronically ill people whose care and maintenance will ultimately prove to be financially unsustainable - unless Brazil can shift their costs to foreign manufacturers on the pretext that the price of their products is the cause for this national emergency.
But what endgame does Brazil have in mind, especially since it is up against a March 31 deadline with the U.S. on the Generalized System of Preferences, after being on the U.S. Trade Offices Watch List for the past year and a half? Will it drop this threat for compulsory licenses if the preferences are renewed? Or will it suspend its declared intent to construct and operate a uranium-enrichment facility in the town of Resende in return for preferential tariffs?
There are more responsible alternatives for Brazil to consider in tariff negotiations. It could accept the offer of the U.S. Food and Drug Administration to have its local capacity in drug development approved for the manufacture of generic pharmaceuticals, giving Brazil an unparalleled export market. It could also reduce taxes set at 18 percent on medicines while negotiating lower reimbursement contracts with the private providers serving AIDS patients. And the World Bank and Inter-American Development Bank could reduce their rates on loan repayments, allowing the proceeds to finance AIDS treatment.
Brazil could also lower treatment costs by redirecting portions of its export income to finance the care of domestic AIDS patients. Last year, under the Generalized System of Preferences, Brazil exported to the United States $3.2 billion of products, in competition with U.S. manufacturers. It grows more soybeans than the U.S., and its aircraft industry competes successfully with Boeing. Such alternatives would allow Brazil to secure the "national interest" at its own expense rather through the expropriation of intellectual property from foreign drug companies whose products have extended the lifespan of 180,000 Brazilians.
Compulsory licensing is a measure designated by the World Trade Organization (WTO) for the poorest countries with health emergencies. It should not be abused by those who can afford to pay by means other than through the placement of their own AIDS patients on the altar of preferential tariffs.
Jeremiah Norris is a Senior Fellow and Director of Hudson Institute's Center for Science in Public Policy. He specializes in public-private partnerships in development assistance, trade and development, and global AIDS, tuberculosis, and malaria policies.
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