The USTR text requires Thailand to abolish the pre-granting opposition which provides proceedings for the invalidation or amendment of patents before the patent office. Revocation cannot be undertaken in the cases of abuses of patent rights or nonworking of patents which are generally the cause of high drug prices as provided by the Paris Convention for the Protection of Industrial Property.⁸ The text also imposes stricter standards on compulsory licensing than those under TRIPS and the Paris Convention, in terms of more stringent conditions for issuing a non-voluntary license.⁹ The proposed text permits Thailand to issue compulsory licenses in the following three circumstances only: (i) to remedy a practice determined by a judicial or administrative body as anti-competitive according to competition law of the country; (ii) in the case of public non-commercial use; or (iii) in the case of national emergency or other circumstances of extreme urgency.

The USTR demands Thailand to extend the term of patents in case of unreasonable delays in the patent grant. Such delays occur when there is a delay in the issuance of a patent of more than five years from the filing date or three years after a request for examination of the application has been made, whichever is later.¹⁰ In addition, Thailand must enforce data exclusivity, which prevents the national drug regulatory authority from using the originator's clinical test data for a period of five years (in the case of pharmaceutical products) and 10 years (for agricultural chemical products) from initial regulatory approval of the original product. The drug regulatory authority is prevented from granting market approval to generic drugs on the basis of bio-equivalence or on the fact that the original product has got a marketing approval in a foreign country.¹¹

The text the USTR has proposed to Thailand contains a provision obligating the Thai drug regulatory authority to inform the patent holder as to any attempt to register a generic drug. The authority is barred from approving registration for a generic medicine unless it is certain that the manufacturing, importing and selling of the generic will not infringe the patent rights of other companies.¹²

The new IP rules also impose a high level of trade mark protection. "Trade mark" is defined under the draft FTA treaty in the broadest manner, including non-visually perceptible trade marks, such as scent marks. Sound, texture and smell could be registered as trade marks. The USTR text also requires Thailand to give effect to arts 1 to 6 of the Joint Recommendation Concerning Provisions on the Protection of Well-Known Marks (1999), which is an international standard adopted by the Assembly of the Paris Union for the Protection of Industrial Property and the General Assembly of WIPO, and the WIPO Trade mark Law Treaty.

The USTR text links IP and investment rules by including IP rights in the definition of investment. The trade parties may not impose performance requirements. Expropriation or other measures tantamount to expropriation are prohibited except when such measures are taken in the public interest, on a non-discriminatory basis, against payment of prompt, adequate and effective compensation, and in accordance with due process of law. The text also incorporates provisions for investor-to-state dispute settlement that allows private investors to sue the host state directly in international dispute tribunals fo rmonetary compensation for government policies or actions judged by the tribunal to undermine an investor's future profits.

The new IP regime proposed by the United States may have a devastating impact on Thailand, particularly on its attempt to build technological capability in the pharmaceutical sector. The impact of the new IP rules on the Thai pharmaceutical industry will be analysed and discussed in the final section. Next, we will turn to examine the structure and characteristics of the pharmaceutical industry to provide background for analysis of IP implications.

STRUCTURE AND CHARACTERISTICS OF THE PHARMACEUTICAL INDUSTRY

Pharmaceutical production and supply

There are two major stages of pharmaceutical manufacture: the production of raw materials, and the combination of these raw materials into a finished product form. The production of raw materials involves R&D activities to search for new physiologically active ingredients having certain therapeutic effects, and the preparation of raw materials. The active ingredients of a drug, or sometimes called new molecular entity (NME), are the most important element for drug manufacture. They can be produced from synthetic or semi-synthetic chemicals, natural substances (e.g. extracts of animals or plants), or fermentation (e.g. micro-organisms). The final stage of production, called the formulation process, is the process for the combination of the raw materials into pharmaceutical products. There are various dosage forms of medicines, including tablet, capsule, liquid, ointment, etc. In every stage of production, appropriate technical and quality control measures are required so that the purpose for which the product is intended can be safely and rapidly achieved.

R&D carried out in the pharmaceutical industry has the aim of inventing new knowledge which can be developed further into a new product, a new use or a new less costly process of production. Medicinal research generally requires considerable capital investment and high technical input. A large company, therefore, can meet such high costs more easily than a smaller one. The high degree of investment required makes it difficult for companies with limited access to investment funds to engage in pharmaceutical research. Instead, these companies tend to buy the active ingredients from the large firms. Like R&D, the preparation of the raw materials, particularly the active pharmaceutical ingredients, is normally technically complex and requires high technology and considerable capital investment. On the contrary, the formulation and packaging of active ingredients and intermediates into finished product forms are relatively simple and technically straightforward, and capital investment needed in this process are low.

The pharmaceutical companies tend to concentrate on R&D and the production of raw materials at one site, and decentralise the later stages of production at other locations.¹³ As regards to R&D and production of raw materials, developed countries are generally preferable, from the perspective of the drug companies, to developing countries due to a number of factors, including the availability of well-trained researchers and technicians, an extensive university network, an advanced manufacturing sector and mass-production to supply necessary equipment and machines, and large high-income consumer markets which generate the demand to buy new drugs.

Pharmaceutical raw materials are generally produced by the large companies themselves or by their affiliates. The guaranteed access to raw materials is the main reason for their vertically integrated operations. If the firm is large enough, it can perform all functions of drug-making. However, large firms may subcontract the formulation and packaging processes to independent firms in the local market. This usually occurs when the industrial infrastructure of the host country is sufficiently developed.

Footnotes

8. Paris Convention, art.5(A)(3).

9. TRIPS Agreement, art.31; Paris Convention, art.5. See F. Machlup and E. Penrose, "The Patent Controversy in the Nineteenth Century" (1950) 10 Journal of Economic History 1; C. Vaitsos, "Patents Revisited: Their Function in Developing Countries", Journal of Development Studies, Vol.9, No.1, 1972, pp.71-97.

10. The demand is based on US law, the Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act.

11. C.M. Correa, "Protection of Data Submitted for the Registration of Pharmaceuticals: Implementing the Standards of the TRIPS Agreement", South Centre, Geneva, 2002.

12. As an example, US-Vietnam Bilateral Trade Agreement that Vietnam signed with the United States in 2001 requires Vietnam to provide data exclusivity. Vietnamese law requires a manufacturer to prove that the use of the generic drug it seeks registration will not lead to infringe patent rights of other companies. This in effect prevents generic medicines to enter the market as it is almost impossible for the generic company to prove the patent status of the drug. See J. Kuanpoth and L.H. Duong, "Legal and Trade Issues Related to Access to Affordable Anti-retroviral Drugs for People Living with HIV/AIDS in Vietnam", Ford Foundation, Hanoi, 2004.

13. G. Gereffi, The Pharmaceutical Industry and Dependency in the Third World (Princeton University Press, New Jersey, 1983), p.203; L. Hancher, Regulating for Competition: Government, Law, and the Pharmaceutical Industry in the United Kingdom and France (Clarendon Press, Oxford, 1990), p.43.