A report on

“Impacts of WTO, GATT, MIGA & Exim

Policy on Indian Pharmaceutical
Industry”
Submitted to

Prof. Frince Thomas

Prepared By

Rohan M Mistry
MBA-II (Sem IV)

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Pharmaceutical Industry and W.T.O:
(story of those days)
Indian pharma relieved as WTO pact fails Friday, 29 August, 2003.
India's pharma industry breathed a sigh of relief on Friday as a United States
backed drugs pact fell through at the eleventh hour during hectic World Trade
Organisation (WTO) parleys in Geneva.

"The drugs pact clearly represented the clout of the US pharma lobby and would
have ensured one way or the other that the poor paid more for generic
medicines," said D.G. Shah, secretary general of the Indian Pharmaceutical
Alliance (IPA).
World trade ministers had agreed in Doha, Qatar, in November 2001 that poorer
states that are unable to manufacture medicines would be allowed to import
cheap generic drugs.
While the Doha declaration set out to give access to medicines for all, it meant
setting aside patent laws protecting huge multinational companies. "The Doha
declaration set out to give the poor access to medicines. But this (US-backed)
pact would have only gone against its spirit by fettering exports by laying down
conditions," said P.S Khanna, member of the Organisation of Pharmaceutical
Producers of India (OPPI).
"If the deal had gone through, it would have imposed subtle, but very tricky
conditions on poor generic drug manufacturing countries effectively tying us up
in knots. We are relieved that some two dozen WTO members rejected the
proposal."
Although the 146 World Trade Organisation countries earlier agreed to pass on
a proposed compromise for approval by the body's ruling general council, it
failed on Friday to win overall backing.
Envoys had been tasked with agreeing to a solution to ensure that poor countries
without a pharmaceutical industry can import cheaper generic copies of
patented medicines for fighting killer diseases such as AIDS and malaria.
The US blocked a deal on cheap drugs drafted in December last year even
though it was backed by all other WTO members. The United States is worried
the proposal could open the way to generic producers in Brazil and India
flooding the market with cheap medicines.
They fear that Indian and Brazilian drug makers could even start copying

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nonessential anti-impotence drugs like Viagra.
Under the new compromise proposal WTO states would pledge not to abuse the
system and only waive patents to import generic medicines "in good faith" to
protect public health and not for commercial or industrial objectives.
It also stressed the importance of ensuring that generic medicines are not
diverted back to rich country markets, and that 23 developed countries would
not use the solution to import generic drugs.
A group of middle-income developing countries is also called on to agree to opt
out from using the solution unless faced with a national emergency.

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Pharmaceuticals
India has one of the most efficient pharmaceutical industries in the world.
Pharmaceutical firms grew mainly thanks to the absence of patent protection of
medical drugs in the country. For instance, Indian companies are now producing
their own AIDS drugs, which are available cheaply, compared to the original
products from foreign countries.
But the imposition of the new WTO rules will begin to threaten India's
achievements in the pharmaceutical field. The Indian Patents Act, introduced in
1970, boosted Indian pharma companies. The Act allowed them to develop and
patent alternative processes for products discovered and patented elsewhere.
According to the Indian Drug Manufacturers' Association, self-sufficiency in
Indian pharmaceutical sector is more than 70 per cent.
"Worldwide, India is a country of very low prices for high-quality medicines,"
points out the IDMA president Nishchal H Israni.
But now the rules of the game in the pharmaceutical industry will change as
India has committed to toe the WTO line on product patents. Product patent
rules and Exclusive Marketing Rights (EMR) under the WTO could effect a
paradigm shift in India's pharma majors.
As per the EMR provision, a product for which original patent was granted prior
to 1995, is not fit for an EMR in the country. This has forced nine leading
domestic pharma companies to form the Indian Pharmaceutical Alliance that
has demanded a more transparent WTO regime for EMR grants.
How will the WTO rules affect 500,000 employees working in roughly 20,000
pharma firms in the country?
Well, many expect a spate of mergers, acquisitions and alliances in the domestic
pharmaceutical industry in the coming years.

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Challenges for Pharma Industry-Post
2005 WTO-TRIPS Compliance
With the changing scenario of Intellectual Property Laws in the back drop of the
implementation of the Trade Related Intellectual Property Rights (TRIPS) under
WTO- World Trade Organization, India a signatory to WTO has to implement
the TRIPS which is a part of WTO. As part of TRIPS various laws on
Intellectual Property Rights have to be enacted and implemented. The crucial
law is that of the Patents Law which should not have any bar on product patents
on any segment. The current Patents Law regime excludes product patents for
drugs among many other things. In 2005 January the deadline set for developing
nations, TRIPS requires compliance of allowing product patents for all
segments.

This has a major impact on the Indian Pharma Industry which has grown to this
stature in the absence of the product patent regime. The moot point is what will
be the impact on the domestic industry on bringing in product patent regime.
The presentation will throw light and discuss on the following issues:

The interpretation of WTO-TRIPS from the Indian Context The Impact of

WTO-TRIPS on the Indian Pharma Industry The impact of WTO-TRIPS on the
Health care system The Public Policy choices under the TRIPS regime How to
respond to the challenges

This presentation to be made in power point presentation will deal the subject
from the matrix of private international law vs. public international law and a
SWOT analysis of the post 2005 scenario of WTO-TRIPS compliance. The
presentation will focus on the Pharma perspective with detailed statistics and
surveys of major perspectives on the pharma industry

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Changing trends in Pharma markets:
Impact of WTO policies in developing
countries
The World Trade Organization (WTO) established in the last millennium has a
philanthropic objective of achieving a single world market and economy. It
views a world with no trade barriers of social, political, cultural and
geographical nature. It wants a vibrant economy to play in the whole of the
world. The advents in communication technology, co-operations in science are
in fact giving a futuristic vision of one world and one economy. But practically
there is a vertical division of the world in to developed and developing
countries. The rise of patent regimen, General agreement on tax and tariff
(GATT) and Trade related intellectual property rights (TRIPS) has given
suspicion in the minds of the developing countries policy makers that WTO is
used a device to maintain the economic scale of development always remains
ahead of developing countries than developed countries.

The poor infrastructure, fragile economy, unemployment and poverty are in fact
holding back development of economy in developing countries.
Pharmaceuticals are health inputs and are not to be treated par with
consumables.

World health organization (WHO) essential drug policy clearly aims at

providing a health for all and accessibility of primary health care and medicine
to all the human beings of the world, irrespective of colour, creed and economic
status. It is continuously impressing upon governments of developed and
developing countries to make prizes of the drugs such that for want of money no
one get deprived of medicines and suffers morbidity and mortality due to
diseases.

Accordingly many governments have their own regional drug laws and
infrastructure to make available of the essential drugs to the needy people.
Among developed countries, essential drug policy of Australia is ideal. In
Australia, the drugs listed as essential are reimbursable by the patients.

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Among developing countries the Bangladesh, health policy is acclaimed as a
model essential drug policy for developing countries. It is of very great
importance to acknowledge the contributions of Sukhdev Lal Hathi, who
framed an excellent report after through study of the dynamics of the Indian
society economy and its requirements. Some silent features of the essential drug
policy of Bangladesh include;
• No propriety formulations in the market.
• Drugs are to be manufactured locally depending on requirement of the local
needs.
This has worked wonders for economically starved Bangladesh to provide an
efficient health care system.

The beginning of major drug policies in India took place with the establishment
of Hathi Committee to look into price trends, competitiveness and feasibility of
making Indian drug units to become self-sufficient. There were two major
concerns that were on the cards. First, India was dependent largely on western
countries for its supply of medicines. The growing monopoly of MNCs in
Pharmaceutical Industry was the issue of concern. Second, though the Indian
drug prices were comparatively quite low internationally, the MNCs tried to
produce much of the inessential drugs and kept the prices of essential drugs
high when compared to the purchasing power of the Indian masses.

Based on the Hathi Committee's recommendations, the profiteering attitude,

which neglected the welfare of the Indian people, was tackled with the
establishment of first Drug Price Control Orders of 1978 and 1979. For the first
time, comprehensive price control was introduced in the drug industry (though
few measures had been in force since 1970).
The new DPCO then grouped the drugs in four categories:
Category - I (Life saving)
Category - II (essential)
Category - III (less essential)
Category - IV (non essential/simple remedies)

Among these the first three categories were price controlled with mark up
(profits allowed) of 40%, 55% and 100%, respectively.

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Pharmaceutical industry, Post GATT
Scenario
The first round of trade negotiations took place while the Preparatory
Committee was still working on drafting the Charter because the participants
were anxious to begin the process of trade liberalization as soon as possible.
Their results were incorporated into the General Agreement (GATT), which
was signed in 1947.
Having agreed that in implementing their commitments on market access,
developed country Members would take fully into account the particular needs
and conditions of developing country Members by providing for a greater
improvement of opportunities and terms of access for agricultural products of
particular interest to these Members, including the fullest liberalization of trade
in tropical agricultural products as agreed at the Mid-Term Review, and
products of particular importance to the diversification of production from the
growing of illicit narcotic crops;

The GATT completed 8 rounds of multilateral trade negotiations (MTNs). The

Uruguay Round (the 8 th round) first multilateral agreement dedicated to the
sector. It was a significant first step towards order, fair competition and a less
distorted sector,( Understanding The WTO: The Agreements) Concluded with
the signing of the Final Act on April 15, 1994 , in Marrakesh , and produced the
World Trade Agreement (WTO) and its annexes

As of January 2000, all developed and developing countries who are members
of the World Trade Organization (WTO)were obligated to have domestic laws
and enforcement mechanisms that comply with the international standards set
forth under the Agreement on Trade-Related Aspects of Intellectual Property
Rights(TRIPs), is the most comprehensive multilateral agreement on intellectual
property.

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The agreement covers five broad issues:
• how basic principles of the trading system and other international intellectual
property agreements should be applied
• how to give adequate protection to intellectual property rights
• how countries should enforce those rights adequately in their own territories
• how to settle disputes on intellectual property between members of the WTO
• special transitional arrangements during the period when the new system is
being introduced. Intellectual property: protection and enforcement

During post independence and pre 1970, the cost of the drug in India was very
high with low availability and high import dependency. Export initiative was
very less and R&D activities were practically non-existence due to lack of
patent protection. During this period 80% of the ownership and 90% of the
market share was with MNC‘s.

Enactment Indian Patents Act of 1970 serves as the basis for patent protection
in India. It explicitly disallows product patents for “substances intended for use,
or capable of being used, as food or as medicine or drug.” Only method or
process of manufacture patents are allowed for such substances under the 1970
Act. The first major transition in the patents scenario in India took place with
the Indian Patents Act 1970 which came into force on 20th April 1972 replacing
the Indian patents and Designs Act of 1911.
It ought to be appreciated that the Indian Patents and Designs Act 1911 in force
until 20th April 1972, was fairly liberal as patenting of products related to
foods, pharmaceutical, chemicals, etc. was available with a full term of 16 years
in India.

Protected patent regime provided a safe platform on which pharmaceutical and

chemical industries could strike roots and grow in India and also meet the need
for increased production rather than relying on imports, which was then critical
for the infant Indian national economy. Expertise in institutions, R&D
capabilities, S&T infrastructure and industry during the last five decades has
selectively developed to extraordinary levels as compared to that in most
developing nations. However the Indian pharmaceutical industry has built its
structure along traditional lines of manufacturing molecules that have been
invented in other countries and not having patent protection in India as per the

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Indian Patent Act 1970, developing cost effective processes, formulations, and
drug delivery systems.

Present System as per Indian Patent Act 1970 System after January 2005 as per
TRIPS

1. Process Patenting only recognized.

2. Patent given only for 5 to 7 years.
3. Compulsory licensing (which helps in making drugs available to society) is
available.
4. When a company alleges another company is copying it, is the complainant’s
burden to prove the fact of copying.
5. Plant and Microorganisms cannot be patented.

1. Process as well as product patenting recognized

2. Patent given for up to 20 years.
3. Compulsory licensing only in emergency situations (In Doha meeting of
WTO it was decided to allow compulsory licensing for AIDS, Tuberculosis and
Malaria)
4. Reversal of burden of proof will be there. When a complainant lodges a
complainant the company against which complaint is lodged should stop
production and prove that it has not been copying.
5. Plant varieties and Microorganisms in which genetic modification work is
done can be patented. All over the world this clause is being used for
“Biopiracy” India’s neem, wheat, were patented and Indian Government could
get the patents cancelled only after a big fight in the WTO dispute settlement
body.

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Impact on Pharmaceutical Industry

IMPACTS ON SOCIAL POLICY

The GATT-TRIPs rules prohibit member countries from discriminating, in

granting patents, “as to the place of invention” and the “field of technology.”
These criteria will constrain
Countries in their use of IPRs as tools for development.

COLLABRATION:-

Many companies are collaborating in joint R&D and product and process
development to synergise their knowledge-base and effectively exploit available
human resources and infrastructure. Recently, Orchid Chemicals Pfizer
International, Glaxo as well as critical Ranbaxy’s Cipla formed a partnership
with Avesthagen, a biotechnology company based in Bangalore , to develop
biopharmaceuticals and targeted therapies
The facilities and infrastructure of Indian pharmaceutical companies have been
upgraded and there are now more than 70 US Food and Drug Administration
(FDA)-approved plants and over 200 good manufacturing practice (GMP)-
compliant facilities in India . Several Indian companies, including Dishman
Pharma, Shasun Chemicals, Suven Pharma and Jubiliant Organosys, are
actively engaged in making quality bulk drugs and APIs for companies such as
Bayer, Pfizer, Aventis and Novartis. Several companies have set up dedicated
manufacturing facilities for making bulk drugs for export.

There are a number of aspects concerning the prices of drugs in the Post
GATT after January 2005 period. The first and foremost issue is that a real
difference comes in only regarding drugs which are under patent in any one of
the WTO member countries. For the large number of drugs on which patents
have already expired there need not be “any fear of a price rise because there is
no real change in any aspect. Indian Government has issued a list of nearly 300
essential drugs required in healthcare a high percentage; nearly 90% of these
drugs are of patent. These drugs are usually sufficient as far as major healthcare
needs, i.e. about 90 to 95% of healthcare is covered by these drugs. In a number
of instances new patented drugs are only “me-too” molecules and it is not true

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that the newer drug is better than the old off-patent one. Very rarely is a new-
patented drug absolutely irreplaceable in treatment.

Pharmaceutical companies use a number of strategies to promote the sales of

their drugs, especially their patented drugs, because they plan to make money
before the patent expires. Let us look at this interesting example. (1) In 1992, an
antihistamine Terfenadine was introduced in India. At the time of introduction,
it was known that the drug can have marked side effects on the heart. This
information was downplayed and the molecule was aggressively marketed.
However in the late 1990s, the discovers of Terfenadine requested the FDA of
US for permission to withdraw the drug, citing side effects on the heart as its
serious drawback. FDA agreed and a worldwide withdrawal of the drug took
place. Siultaneously the makers of Terfenadine launched a new directive of the
drug Fexofenadine in the market. It was not a coincidence that the patent of
Terfe-nadine expired during its withdrawal from the world market. So the
strategy of the company is to substitute a drug going off patent with an under
patent drug.

A second strategy is to introduce a number of drugs of more or less same nature.

The first drug of a class of drugs called ACE inhibitors introduced was
Captopril; which was followed by Enalapril. Now we have Lisinopril, Ramipril,
Perindopril, Quinapril, Cilazapril, Benazepril, Fosinopril etc. Each drug will
claim a marginal benefit over others but for that reason its absence is not a
major problem. So if such a “me-too” which is in patent becomes very costly
after 2005 – it may very well happen – because Indian companies should not
produce patented drugs after January 2005 – we need not Worry over that PO
answer this problem, the FDA should demand that every new drug should be
tested against the best existing drug in that category and only if new drug shows
some marked advantages, it should be allowed into the market. Doctors should
also be explained that they should not easily discard existing drugs in favour of
new drugs.

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Impact of Exim Policy on Pharma
Industry
SPECIAL FOCUS INITIATIVES

With a view to continuously increasing our percentage share of global trade and
expanding employment opportunities, certain special focus initiatives have been
identified/continued for Market Diversification, Technological Upgradation,
Support to status holders, Agriculture, Handlooms, Handicraft, Gems &
Jewellery, Leather, Marine, Electronics and IT Hardware manufacturing
Industries, Green products, Exports of products from North-East, Sports Goods
and Toys sectors. Government of India shall make concerted efforts to promote
exports in these sectors by specific sectoral strategies that shall be notified from
time to time. Further Sectoral Initiatives in other sectors will also be announced
from time to time.

Technological Upgradation

To usher in the next phase of export growth, India needs to move up in the
value chain of export goods. This objective is 8 sought to be achieved by
encouraging technological upgradation of our export sector. A number of
initiatives have been taken in this Policy to focus on technological upgradation;
such initiatives include:

(a) EPCG Scheme at zero duty has been introduced for certain engineering
products, electronic products, basic chemicals and pharmaceuticals, apparel and
textile, plastics, handicrafts, chemicals and allied products and leather and
leather products. This scheme is being expanded to cover more export product
groups including marine products, sports goods, toys, rubber & rubber products,
additional chemicals / allied products and additional engineering products. The
scheme is also being extended upto 31.3.2012.

(b) The existing 3% EPCG Scheme has been considerably simplified, to ease its
usage by the exporters.

(c) The facility of EPCG Scheme for Annual Requirement is being introduced
to reduce documentation and transaction time.

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(d) To encourage value added manufacture export, a minimum 15% value
addition on imported inputs under Advance Authorisation Scheme has been
stipulated.

(e) A number of products including automobiles and other engineering products

have been included for incentives under Focus Product, and Market Linked
Focus Product Schemes.

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PROMOTIONAL MEASURES

Market Access Initiative

Under MAI (Market Access Initiative) scheme, financial assistance is provided

for export promotion activities on focus country, focus product basis. Financial
assistance is available for Export Promotion Councils (EPCs), Industry and
Trade Associations (ITAs), Agencies of State Government, Indian Commercial
Missions (ICMs) abroad and other national level institutions/eligible entities as
may be notified. A whole range of activities can be funded under MAI (Market
Access Initiative) scheme. These include, amongst others,

i. Market studies/surveys,

ii. Setting up of showroom / warehouse,

iii. Participation in international trade fairs,

iv. Displays in International departmental stores,

v. Publicity campaigns,

vi. Brand promotion,

vii. Reimbursement of registration charges for pharmaceuticals and expenses for

carrying out clinical trials etc., in fulfilment of statutory requirements in the
buyer country,

viii. Testing charges for engineering products abroad.

ix. Assistance for contesting Anti Dumping litigations etc. Each of these export
promotion activities can receive financial assistance from Government ranging
from 25% to 100% of total cost depending upon activity and implementing
agency.

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 Meeting expenses for statutory compliances

DOC (Dept. Of Commerce) provides for reimbursement of charges/expenses for

fulfilling statutory requirements in the buyer country, including registration
charges for product registration for pharmaceuticals, bio-technology and agro-
chemicals products on recommendation of EPCs. Financial assistance is also
provided for contesting litigation(s) in the foreign country concerning
restrictions/anti dumping duties etc on particular product(s) of Indian origin, as
provided under the Market Access Initiative (MAI) Scheme of DOC.

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EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME
Zero duty EPCG scheme allows import of capital goods for preproduction,
production and post production at zero Customs duty, subject to an export
obligation equivalent to 6 times of duty saved on capital goods imported under
EPCG scheme, to be fulfilled in 6 years reckoned from Authorization issue-
date. The scheme will be available for exporters of engineering & electronic
products, basic chemicals & pharmaceuticals, apparels & textiles, plastics,
handicrafts, chemicals & allied products, leather & leather products, paper &
paperboard and articles thereof, ceramic products, refractories, glass &
glassware, rubber & articles thereof, plywood and allied products, marine
products, sports goods and toys subject to exclusions as provided in HBP
(handbook of procedures) Vol. I Validity period for import of capital goods and
provision for extension in export obligation period will be as separately
provided in the HBP Vol. I. All other provisions pertaining to concessional 3%
duty EPCG scheme under this Chapter, to the extent they are not inconsistent
with the above provisions of zero duty EPCG scheme, shall be applicable to the
zero duty EPCG scheme also. The zero duty EPCG scheme will be in operation
till 31.3.2012.

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Multilateral Investment Guarantee
Agency
The Multilateral Investment Guarantee Agency (MIGA) is a member
organization of the World Bank Group that offers political risk insurance. It was
established to promote foreign direct investment into developing countries.
MIGA was founded in 1988 with a capital base of $1 billion and is
headquartered in Washington, DC. 175 member countries comprise MIGA's
shareholders.

MIGA promotes foreign direct investment into developing countries by insuring

investors against political risk, advising governments on attracting investment,
sharing information through on-line investment information services, and
mediating disputes between investors and governments. MIGA's membership in
the World Bank Group enables the organization to intervene with host
governments to resolve claims before they are filed.

MIGA's Business

MIGA provides guarantees against non-commercial risks to protect cross-border

investment in developing member countries. The organization's efforts protect
investors against the risks of currency inconvertibility and transfer restriction, in
addition to expropriation, war, civil disturbance, and terrorism. MIGA also
oversees breach of contract disputes for conflicts between the investor/project
enterprise and the authorities of the host country. These coverages may be
purchased individually or in combination.

MIGA can cover only new investments. These include:

 new, Greenfield investments;

 new investment contributions associated with the expansion,
modernization, or financial restructuring of existing projects; and
 Acquisitions involving privatization of state enterprises.

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Over the years, the organization has provided more than $22 billion in political
risk insurance for over 600 projects in 100 developing countries. Its outstanding
guarantees portfolio stands at $7.7 billion. Among MIGA's accomplishments: it
provides water, electricity and other basic infrastructure, in addition to
generating tax revenues and creating training programs. MIGA also assists with
the development of facilities to tap natural resources through sustainable
policies and programs.

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