FTAA: Brazil’s Poison Pill – Part 2

FTAA: Brazil's Poison Pill - Part 2

Pharmaceutical companies have been criticized, in particular
by developing and less
developed countries, who claim the
need for cheaper medicines to treat their vast portion of population
suffer from serious disease and who, due to poor economic
conditions, cannot afford the pricey medicines.

Garraga Gouveia


Brazil has proved its commitment to further liberalization, through its active participation in the WTO, FTAA
negotiations and the Mercosur Agreement with Argentina, Paraguay, Uruguay as well as Chile and Bolivia (as associate
members). The Mercosur consists of a market of more than 200 million people and a GDP of over US$ 1.3 trillion; and its
greatest achievement is having opened new perspectives for trade within South America.

Although Brazil is still considered one of the most protected countries in the world, it has made consistent efforts to
open its market during the last two decades. "The IMF has been the battering ram that has forcibly liberalized Latin
America," says Marc Lee, author of the report
What Is Going on at the FTAA Negotiations. "Trade agreements," Lee explains,
"like the WTO and the proposed FTAA, serve to lock this economic model in place". As the Brazilian economy was driven
towards exporting, it became more dependent on more developed countries’ markets, the consumption capitals of the world.

The U.S. is already Brazil’s most important export market, accounting for almost 20 percent of the country’s
exports. However, Brazil still expects that it can reap as much benefit of the American market as the United States can take from
Brazil: while U.S. exports to the Brazilian market have grown by 103 percent since 1994—standing now at US$ 13.6 billion;
Brazil exports to the United Sates, by the other hand, grew by only 12 percent, in that same
period. 1

There is much to be gained by American companies and individual importers from increased trade flows in terms of
Brazilian exports to the U.S. In recognition of this, the US has tried, and will continue trying, to exchange market access for
concessions in intellectual property right disputes, investments, and services.

Intellectual Property Rights

Throughout the world there are people who are bringing innovations to market. The talent of the inventors is one of
the most valuable resources available to promote development and growth and it must be protected. This natural resource,
coming from beautiful minds, should always be motivated so that development of new creations never stops. Intellectual
property rights promote innovation by enabling the inventors to capture the monetary rewards of their work

In other words, "intellectual property is a highly specialized area of law designed to encourage creativity and fair
competition in the marketplace. It protects the rights of individuals and businesses who have transformed their ideas into
property by granting rights to the owners of those

As countries engaged in trade, intellectual property rights were brought to the attention of the international
community as well, since national laws would not be enough to protect a creation of one country in foreign lands. In this scenario,
"new internationally-agreed trade rules for intellectual property rights were seen as a way to introduce more order and
predictability and for disputes to be settled more

Thus, the basis for the creation of a system to internationally ensure intellectual property rights was touched upon for
the first time in 1986 in the Uruguay Round. The WTO Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS) was launched as an attempt to bring under a common rule the ways property rights are protected around the world.

One of the major items that are contained in the TRIPS agreement is patents. "A patent can be obtained for a new or
improved machine, article of manufacture, chemical composition, process, computer software or business method, or even an
ecommerce business model or enabling technology for the Internet. A patent allows you to prevent anyone from producing, using or
selling your invention unless you are paid for the privilege. A patent grants you the right to control the fate of your invention in
the marketplace".4 Under the TRIPS, member countries agreed that patent protections for products and process inventions
should last at least 20 years.

In order to avoid the abuse of power of a patent holder (such as charging an exorbitant price for the product or
failing to provide the product to a certain market), the TRIPS agreement allows governments to issue compulsory
licenses5, permitting other firms to produce the patent holder’s product or utilizing its process.

In spite of the insistent lobbying of the US government and the pharmaceutical companies, which tried to get higher
standards of patent protection for medicines, developing countries succeeded in having the WTO agree that public health comes
before patent rights. With the launch of the Doha Round, after these TRIPS issues were questioned, in particular by developing
countries seeking to clarify their rights of producing generic medicines to controlling serious diseases spread, the Doha
Declaration affirmed that the TRIPS Agreement shall not overlap the public health policies such as the fight against AIDS and
other epidemics.

The main paragraph of the Declaration says the TRIPS Agreement should be interpreted as support for the WTO
member rights to protect the health of their population by providing them with access to the needed medicines. The declaration
sets the members free to evaluate the situation and decide whether compulsory licenses or parallel
imports6 should be established. The document also mentions the obligation of the TRIPS Council to analyze the possibility of issuing compulsory
licenses by those countries whose governments are unable to produce the generics.

Therefore, the WTO agreement establishes exceptions to the exclusive rights of patents and authorizes countries to
break these patents, granting manufacturers the right to manufacture such patented medicine in case of national emergency. In
other words, public health should take precedence over WTO patent rules. Another important victory acquired by developing
countries after the Doha Declaration was the extension of time to comply with the TRIPS Agreement, from 2006 to 2016.

The Drug Industry

The Drug Industry market covers all worldwide commercialized pharmaceutical drugs, such as drugs used to treat
infectious diseases, cancers and tumors, disorders in the central nervous and gastro intestinal systems and cardiovascular
and endocrine problems.

While the United Sates has the biggest share of the Global Pharmaceuticals market, accounting for 40.3 percent of
the total, Latin America represents only 7.0 percent of the market and is the smallest sector if Australia, Asia and Africa are
counted within the same category. Merck & Co, Johnson & Johnson, GlaxoSmithKline Plc, Pfizer Inc and Novartis are the
Pharmaceutical International industry leading companies.

The Pharmaceutical market is expected to be worth US$ 585 billion in 2006, which corresponds to a growth rate of
46 percent in relation to the 2002 figures. In 2001, the industry grew by 7.0 percent, accounting for the value of $380
billion. 7

Since the Food and Drug Administration requirements have become more strict, the diseases more complex to treat,
and the system demanding of more complete information about the drugs, today it takes pharmaceutical companies 10 to 15
years in average to bring a new drug to the market.

The natural consequence of the lengthier time to market was the increase in the cost of developing a new drug. In 25
years, from 1975 to 2000, the average cost to create a new drug increased by 480 percent, from $138 million to $802 million.
Besides, there is a high risk of not getting the drug developed or approved; FDA approves only 0.4 percent of the drugs that enter
preclinical testing, and only 30 percent of the drugs that manage to enter the market generate revenues that either break even or
surpass average Research and Development costs. According to the Pharmaceutical and Manufacturers of America (Phrma), in
2002, the U.S. Pharmaceutical companies expended a total of $32 billion in R&D.

As a result, the Pharmaceutical Industry claims it is necessary to protect its inventions through patents, so they can
recoup the high amount of capital invested in the creation of the drug, which will enable them to engage in further
developments. If, on the other hand, patents are not respected and other companies are granted the right to produce copies of the
medicine, the general price will fall and the return on investment will represent only a small share of the potential value. Thus,
companies will gradually loose the incentive to research and develop further drugs that could mean the cure for currently
fatal diseases such as Alzheimer, AIDS, and others.

In 1984, the Hatch-Waxman Act was voted and passed by the Congress. The law gave generics manufacturers the
chance of challenging patents, entering the market before patent’s expiration day. Even though only 6 percent of all generic
drug applications for FDA represent actual patent challenges, the law helped generics to increase their share in the market
from 20 percent in 1984 to almost 50 percent in

The ones who benefited most from the Hatch-Waxman law were the drug consumers; as the Act provided a balance
between generics creation and incentives for generation of new drugs, at the same time increasing competition between research
based companies has grown—dropping drug prices, several new revolutionizing medicines to treat AIDS, cancer, mental
illness, and other diseases were developed, increasing the life expectancy of the global population.

The period of market exclusivity research-based companies enjoyed before, between the introduction of a
breakthrough medicine and competing innovators, has been shrinking since 1965.

Another consequence is that despite pharmaceutical companies’ right of enjoying patent protection for 20 years, the
actual patent life for drugs is estimated to be almost half that, largely because of the long time it takes to develop a new drug
and to get it approved by the FDA.

As a result, generics are coming earlier into the market and in greater quantity, the increased competition is causing
prices to fall, and the consumer has begun to enjoy more options lately. In spite of representing a higher share of the market,
the generic industry is still not satisfied and has been trying to change the Hatch-Waxman law to allow generics to copy
more medicines; Phrma joined forces with the U.S. Patent and Trademark office to argue that if these changes ever occur,
they will bring an unfavorable imbalance, decreasing incentives to innovation, injuring the industry and consumers.

In the international commerce arena, pharmaceutical companies have been heavily criticized, in particular by
developing and less developed countries, who claim the need for cheaper medicines to treat their vast portion of population that
suffer from serious disease and who, due to poor economic conditions, cannot afford the pricy medicines. While recognizing
the importance of patent protection in promoting incentives to further innovations, the society has been debating the
necessity of giving access to medicines to people that cannot afford them.

The main question on this issue posted to the world nowadays is: "What should come first: saving millions of lives
throughout the world by providing access of already existing medicines to the poor, or enforcing property rights to enable
pharmaceutical companies to engage in further research to find the cure for current fatal diseases?

Whereas the World Trade Organization has established the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) as an attempt to enforce patent protection worldwide, by allowing poor countries to make use of
compulsory license and parallel imports (in the case of national emergency or other grave circumstances), it [WTO] recognized
public health has to come before anything else.

1 Rubens Antonio Barbosa (Brazilian Ambassador to the United States), "Think of Brazil as a Supply Source" Embassy of Brazil, Brazilian Embassy in Washington, 2002.
(15 March 2003), Trade.

2 Litman Law, Intellectual
http://www.litmanlaw.com/info/ip.htm (9 April 2003)

3 WTO – World Trade Organization, "Intellectual Property: Protection and Enforcement".

WTO / Trade into the Future – deals – TRIPS, http://www.wtoo.org/english/thewto_e/whatis_e/tif_e/agrm6_e.htm
(1 April 2003) Agreements

4 Litman Law, Intellectual
http://www.litmanlaw.com/info/ip.htm (9 April 2003) Patent.

5 Compulsory License is a provision that allows countries to produce copies of brand medicines, upon payment of a
royalty to the Companies who own the brand.

6 When an importer finds a cheaper price of a good or equivalent good on the world market and imports the good
instead of paying higher local prices. These imports
tend to be outside authorized importer channels. Authorized retailers, who
are not allowed to source goods from parallel importers, generally oppose this practice since it makes them non-competitive
against unauthorized retailers who can source these relatively cheap goods.

7 "Global
– Pharmaceuticals (Industry Overview)",
Datamonitor Industry Profile Annual 2002
pNA Business and Company Resource Center,
(15 April

8 Pharmaceutical Research and Manufacturers of America (PhRMA), Pharmaceutical Industry Profile 2003
(Washington, DC: PhRMA, 2003).

To be continued. Next: "The Aids History in Brazil"

Andrea Garrafa Gouveia just finished her Master’s Degree in International Commerce and Policy at George
Mason University. She welcomes comments at


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