8th February 2000

DSB Rules On Generic Drugs

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A WTO Dispute Settlement Panel has issued a preliminary ruling in an EU- Canada dispute over Canada’s generic drug regime. The Panel found that Canada is not in violation of global intellectual property rules by allowing domestic generic pharmaceutical makers to carry out preparations for producing a drug before its patent expires. The EU brought the case to the WTO, complaining that the Canadian generic drug regime violates the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). Specifically, the EU argued that Canada’s regime violated TRIPs by favouring pharmaceuticals over other technologies (Article 27.1); by allowing the manufacture of patented product without the patent holders approval (Article 28); and by failing to protect patented products for 20 years after filing (Article 33).

Canada allows generic drug manufacturers to stockpile generic drugs six months before a drug’s patent expires, and to begin preparations to make the generic version at any time. This allows Canadian generic drug producers to deliver generic drugs to market more quickly than if work on a generic version of a drug had to wait until patent expiry. The WTO Panel ruling found that the process of preparing for manufacture of generic versions of drugs (e.g. filing for licences, etc) prior to patent expiry does not violate TRIPs. However, the Panel found that manufacturers must wait until patent expiry before commercial production can commence. Generic drug manufactures note that the ruling would result in only modest production delays for generic drugs, but goes a long way to protect consumer interests by cutting time-to-market for generic drugs by as much as two to three years.

In other dispute panel news, a WTO Panel ruled that Mexico violated WTO antidumping rules by imposing duties against imports of US high fructose corn syrup (HFCS) after considering the HFCS imports’ impact on only a part of Mexico domestic sweetener industry. The US brought the case to the WTO in May 1998. The Panel did not recommend that Mexico withdraw the duties, but did call on Mexico to revise its methodology with respect to how the duties are imposed.

WTO Members on 27 January adopted a WTO Dispute Settlement Panel ruling that the US’ Section 301 law does not violate international trade rules (for background on the dispute see BRIDGES Weekly Trade News Digest Vol. 4, No. 1, 10 January 2000, /html/weekly/story2.01-10-99.htm ). The EU had brought a complaint against the US law in March 1999 in the context of the ongoing dispute between the EU and US over the EU banana import regime. Section 301 is a mechanism used by the US Trade Representative to identify what it deems to be unfair trade practices faced by US exporters and demand reform - backed by the threat of sanctions.

The Panel based its finding in favour of the US on commitments made by the US in its Statement of Administrative Action (SAA) issued as part of the US bill implementing the Uruguay Round trade agreements. Under the SAA, the US Trade Representative is required to base any Section 301sanctions on WTO panel and Appellate Body reports (see BRIDGES Weekly Trade News Digest Vol. 4, No. 1, 10 January 2000, /html/weekly/story2.10-01-00.htm ).

The EU chose not to appeal the WTO ruling, noting that the ruling rendered the US a “an empty shell, as this panel report does not only impose on the US the clear obligation to follow [WTO dispute] rules and procedures when using Section 301, but it also impedes the use of Section 301 as a threatening tool,” according to EU Ambassador to the WTO Roderick Abbott. However, a number of countries expressed disappointment that the EU did not appeal the ruling, arguing that the SAA provisions did not go far enough to ensure US compliance with WTO rules. Other Members welcomed the ruling, noting that it has the effect of putting the US on probation.

Also at the 27 January DSB meeting, the US announced it would appeal a ruling by a WTO dispute panel ruling which found that US countervailing duties imposed on imports of British steel violate global trading rules (see BRIDGES Weekly Trade News Digest Vol. 4, No. 1, 10 January 2000, /html/weekly/story2.10-01-00.htm ).

“WTO panel allows generic drug makers to start before patents end,” INSIDE US TRADE, 4 February 2000; “Generic drug manufacturers pin hopes on ruling on tests for patented medicines,” INTERNATIONAL TRADE REPORTER, 26 January 2000; “WTO Panel concludes Mexico “inconsistent” in HFCS case,” DOW JONES, 31 January 2000; “US trade law 301 approved by WTO,” FINANCIAL TIMES, 28 January 2000; “EU says WTO ruling draws teeth of US trade law,” REUTERS, 27 January 2000; “WTO adopts Section 301 ruling; curb on US retaliation welcomed,” INTERNATIONAL TRADE REPORTER, 3 February 2000.