WTO amendment on access to medicines faces EU conundrum

Only three more ratifications are needed for the WTO’s first ever amendment to take effect. Or is it … FOUR?

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Note: The “conundrum” was dodged on January 23, 2017 when five countries were officially announced to have ratified the amendment. The total leapt over the targeted 110 to 112. Now that the target has been reached, this blog post will no longer be updated. But the conundrum remains unresolved. More up-to-date information is available here.


By Peter Ungphakorn
FIRST PUBLISHED BY IP-WATCH, APRIL 14, 2016
REVISED AND POSTED HERE JUNE 12, 2016  |  UPDATED NOVEMBER 30, 2016

After waiting for over a decade, the World Trade Organization is finally close to achieving the first ever amendment to its rule-book, with only a handful of members still needing to formally accept new intellectual property provisions dealing with one aspect of access to medicines.

Two thirds of the membership (110 of the WTO’s present 164 members) have to ratify or “accept” the amendment (on exporting medicines made under compulsory licence) before it can take effect. The number of accepting members is finally approaching the two thirds. This has exposed a discrepancy in the way the European Union’s membership is counted. And that in turn raises questions over when the 110 is actually reached.

Worse, the counting method the EU uses could even prevent some amendments ever taking effect.

The strange case of the missing EU member

Normally, the EU is counted as 29 WTO members: its 28 member states plus the EU itself. This explains why the WTO’s membership is currently 164.

Counting the EU as 29 would mean that 107 members have accepted the amendment, and only three more are needed to reach 110 — detailed figures below.

The question on Par.6 acceptanceThe WTO and EU were interviewed back in March and early April 2016 (before the latest acceptances were received, and when the WTO had 162 members, requiring 108 acceptances). At that time, the number needed seemed to be 11, a number the WTO confirmed but the EU contradicted.

“We are 11 short of the two thirds we need,” WTO spokesman Keith Rockwell told IP-Watch in March 2016. “We expect Qatar and Tajikistan to ratify [in April] which would then leave us nine short.” (Nine have now ratified since March.)

But the European Commission, which speaks on behalf of the whole EU, has a different count: 28.

“To our best knowledge, the number of votes the EU has according to the WTO agreement corresponds to the number of EU Member States, which is 28,” said Daniel Rosario, the Commission’s spokesperson for trade (note “to our best knowledge” and “votes”).

“Therefore … the TRIPS amendment would at this point be 12 WTO members short of entry into force.” Rosario said at that time.

In this particular case, the discrepancy makes no difference to the real world. The content of the amendment is already in effect through a legal instrument known as a “waiver”, which remains in place until the amendment takes effect. So politically, the WTO may be able to go ahead and celebrate its first ever rule-change without having to worry about the legal niceties.

But the WTO is above all a legal organisation, where getting the rules right in detail does matter tremendously, as can be seen from any official WTO document or dispute ruling. The EU and WTO have had nine years to try to sort out this question — the EU accepted the amendment in 2007. It remains unresolved.

THE ARITHMETIC

  • Two thirds of WTO members = 110
  • Non-EU members accepting amendment = 78
  • WTO says 3 more non-EU members needed because EU = 29
  • EU says 4 more non-EU members needed because EU = 28

Even if this particular amendment has little impact on the real world, failure to sort out the legal issues could hold up future amendments that will count. One is already in process, on “trade facilitation” (streamlining border procedures).

And for a handful of critically important provisions, all WTO members have to accept an amendment, not just two thirds (Article 10.2 of the WTO Agreement).

In present circumstances, that means 164 acceptances, a figure that can never be reached if the EU is only counted as 28. Something has to give.

The issue: compulsory licensing for export

The 1994 WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) contains a number of flexibilities allowing governments to bypass certain patent rights, including for pharmaceuticals.

One is compulsory licensing (or some other means) where the government can decree that generic versions can be made without the permission of the patent owner, provided some conditions are met, such as an attempt at voluntary licensing.

But the agreement also says that for compulsory licensing (or similar action), “any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use” (Article 31(f)). This would normally prevent the generic from being exported to a poorer country. (The original drafters said later that at the time they had underestimated the implications.)

In 2003, WTO members agreed to change the rule so that medicines made under compulsory licence could be exported to countries that are unable to make the medicines themselves. The legal means was a “waiver” — Article 31(f) is waived provided certain conditions are met such as special packaging and distinctive marks for the generics, and notification to the WTO. Specifically, countries following the provisions of the waiver will not be challenged under the WTO’s legal dispute settlement system.

Two years later, WTO members agreed to turn the waiver into an amendment of the TRIPS Agreement. The waiver remains in place until the amendment takes effect, without any need to renew it. The main reason for doing this is to be legally tidy. A waiver deviates from the rules; an amendment is part of the rules.

The one practical benefit is visibility: the waiver cannot be seen among the WTO agreements, whereas an amendment would be included. Other than that, switching from the waiver to the amendment makes no difference at all from the point of view of public health:

  • Access to medicines (the right to export a product under compulsory licence) is identical
  • The requirements for distinctive packaging and marks are identical
  • The notification requirements are identical
  • Protection against legal challenge is also unchanged

(The two are compared unofficially here [pdf])

More than 10 years after the amendment was agreed, it is only now approaching enough acceptances for it to come into force. The slow pace of acceptances should not be seen as a lack of interest in access to medicines because the amendment makes no practical difference. The real intergovernmental work on access to medicines is taking place elsewhere including collaboration between the World Health Organization, World Intellectual Property Organization and WTO.

Rather, it is a lack of commitment to the system and the institution — a failure to follow up on a decision taken many years ago and to ensure multilateral rules are tidied up — which may sound abstract but is at the heart of the WTO’s functions.

Counting members, votes and instruments

The failure to sort out how the EU is counted reflects a similar lack of commitment to the institution. The WTO and EU seem to be basing their versions on different WTO rules.

The WTO’s approach is straightforward. The EU is 29 members out of 164, and that also applies to the number accepting an amendment.

THE FOOTNOTE IN THE TRADE FACILITATION AGREEMENT

¹ For the purposes of calculation of acceptances under Article X.3 of the WTO Agreement, an instrument of acceptance by the European Union for itself and in respect of its Member States shall be counted as acceptance by a number of members equal to the number of Member States of the European Union which are Members to the WTO

The EU’s method is different, counting itself as 28 WTO members instead of 29. EU spokesman Rosario only cited the Trade Facilitation Agreement which was agreed in 2014 — nine years after the TRIPS amendment — and is set out as an amendment to the package of WTO agreements. Here, a footnote says the EU should be counted as the same number as its member states (28).

Counting the EU as 28 for the TRIPS amendment “is in line with the one recently agreed in another multilateral instrument, the Trade Facilitation Agreement,” Rosario said.

In WTO agreements, the only case where the EU would be counted this way (28) is for voting (Article 9.1 of the WTO Marrakesh Agreement). Presumably this was designed to avoid giving the EU a numerical advantage over countries voting on the opposite side. (Voting has only ever been used once — and some say even that was a mistake — because members prefer decisions by “consensus”, defined as: “if no Member, present at the meeting when the decision is taken, formally objects to the proposed decision” — footnote to the same Article 9.1.)

But the arithmetic of accepting an amendment is different. When the EU is counted this way (28 instead of 29), it is imposing on the WTO membership the need for one additional non-EU member to accept in order to reach two thirds. The rules themselves (Article 10 of the Marrakesh Agreement) do not refer to voting for this purpose, only “acceptance by two thirds of the Members”. (Voting only comes into play explicitly for decisions about amendments.)

Conundrum pull quote 3If the EU is citing some obscure legal principle that accepting or ratifying an amendment is the same as voting, it has not said so openly.

There may be another explanation. When a country accepts a WTO amendment it also has to “deposit an instrument of acceptance” with the WTO. If the EU were to be counted as 29 WTO members, its instrument of acceptance would have to be on behalf of all 29, including the EU itself.

Internal legal problems may be preventing the EU from doing so, perhaps because that would imply the EU itself has jurisdiction over its member states’ intellectual property regimes, a contentious issue. But if that is the case, again, why not come clean?

All we know is what the instrument says: it is attached to the EU in the WTO’s list of acceptances, the only instrument that had to be made available on that list (note that Croatia is listed separately because it accepted before joining the EU).

Citing the “Treaty establishing the European Community”, the instrument’s only reference to the member states is that “the Protocol [amending the TRIPS Agreement] will be binding on the Member States of the European Union.” This sounds more like confirmation of a separate issue: that the amendment will apply to the EU member states, rather than an indication of how many have accepted it — according to the rules, an amendment normally only applies to those countries that have accepted it, not to the rest of the WTO’s membership.

Possible solutions, and an elephant

And yet, if the EU and WTO wanted to resolve this, they could, even without a treaty change. These are some possibilities, bearing in mind that if the EU counts only as the number of its member states then it is forcing one additional non-EU member to accept the amendment in order to reach the needed two thirds:

  • An interpretation by the WTO General Council to clarify how the EU should be counted for accepting amendments. This would be the clearest solution.
  • The EU unilaterally declaring that it will accept whatever count the WTO uses (29 in this case), or that it will always be the number of member states plus the EU itself
  • The EU routinely having a footnote clarifying its number as happened with trade facilitation
  • Making sure that at the end two members accept simultaneously, so that the two thirds figure is always reached no matter which count is used. This would be the messiest solution.

Finally, the elephant in the room. If the EU really has difficulty accepting a “member states plus one” count for the purposes of amendments, it might go so far as to say that in such cases it considers the WTO’s membership also to be all members apart from the EU itself, ie 163 instead of the present 164. This would give the WTO a variable membership count, which many would find difficult to swallow. Besides, there are no provisions in the WTO agreements for taking this route.

PS: countries that have not yet accepted

The following non-EU countries have not yet accepted the amendment. After the two thirds have been reached, the amendment will only apply to those that have accepted.

It will not apply to any remaining on this list:

Afghanistan; Angola; Antigua and Barbuda; Armenia; Barbados; Bolivia; Burkina Faso; Burundi; Cabo Verde; Cameroon; Chad; Congo; Côte d’Ivoire; Cuba; Democratic Republic of the Congo; Djibouti; Ecuador; Fiji; Gabon; The Gambia; Georgia; Ghana; Guatemala; Guinea; Guinea-Bissau; Guyana; Haiti; Jamaica; Kazakhstan; Kuwait; Kyrgyz Republic; Liberia; Liechtenstein; Madagascar; Malawi; Maldives; Mauritania; Mozambique; Namibia; Niger; Nigeria; Oman; Paraguay; Russian Federation; Saint Vincent & the Grenadines; Sierra Leone; Solomon Islands; Suriname; Swaziland; Tonga; Tunisia; United Arab Emirates; Vanuatu; Venezuela; Viet Nam; Yemen; Zimbabwe


The figures

WTO membership = 164Two thirds = 110

Acceptances listed on WTO website (where EU = 1 and Croatia is listed separately) = 80
(78 non-EU + EU + Croatia, which accepted before joining the EU)
Acceptances (EU = 28) = 106 (EU WTO members = 28 member states)
Acceptances (EU = 29) = 107 (EU WTO members = 28 member states + EU)
Still needed = 3 (or 4 according to EU count)

(WTO acceptance data last updated November 30, 2016)


More:
Two WTO amendments in race to be first


Revised from an original analysis on Intellectual Property Watch, April 14, 2016. Reproduced under Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International Licence

Updated July 15 and 29, 2016 to reflect the WTO’s increase in membership to 163 on July 14 and to 164 on July 29, 2016; and June 22, 2016–November 30, 2016 to add acceptances by Papua New Guinea, Peru, Belize, Benin, Dominica


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Nothing simple about UK regaining WTO status post-Brexit

It’s complex enough to fuel the arguments of campaigners on both sides, delight trade lawyers, and frustrate everyone else


By Peter Ungphakorn
POSTED JUNE 7, 2016 | UPDATED AUGUST 19, 2016

European Parliamnet hpgruessen Cropped CC0pugblic domain

WTO Director-General Roberto Azevêdo has finally broken his silence over the UK leaving the EU (Brexit), first with the Financial Times, followed by Reuters, the Guardian and others. One of his key points was that the UK would face complex talks in the World Trade Organization. What did he mean?

This is not an argument for or against Brexit. Proponents on either side can weigh up the costs and benefits and make their own cases.
But they cannot assume that becoming an independent WTO member will be simple and quick for the UK

A common assumption in the June 23 referendum debate is that after leaving the EU, the UK could “simply” operate as an ordinary WTO member. Eventually that’s true, but getting there would be far from simple.

Some experts believe that the adjustments would be little more than technical, and that any negotiations would be straightforward. They could be right. It would depend on whether the WTO’s membership is determined to accommodate the UK’s wishes.

LINKS

BBC Reality Check
LSE Brexit Blog
The Economist Brexit Brief (pdf)

But recent experience in the WTO suggests that is unlikely. A closer look at the details suggests some key issues could be politically contentious among the WTO’s members, currently 162 countries.

On top of that, recent negotiating experience suggests that willingness to accommodate each other’s interests quickly is a scarce commodity in the WTO and even a final agreement cannot be guaranteed.

If that is true, then post-Brexit, the UK can expect a long and rough ride.

Negotiating with diverse countries

To be clear, these negotiations would be about sorting out the UK’s legal status quo in the WTO. They would be separate from any free trade agreement such as with the US, EU or anyone else, although the complicated web of talks would feed into each other.

The UK is already a WTO member, but its membership terms are bundled with the EU’s. Re-establishing the UK’s WTO status in its own right means both the UK and the EU would negotiate simultaneously with the rest of the WTO’s members to extract their separate membership terms. Agreement on the UK’s terms is unlikely before those of the EU.

Both the UK and the EU would negotiate simultaneously with the rest of the WTO. … Agreement on the UK’s terms is unlikely before those of the EU

For its part, the UK would have to negotiate with the EU itself, the US, China, Russia, India, Brazil and any trading nation or group of nations that matters, large or small, rich or poor. It would only take one objection to hold up the talks because the WTO operates by consensus, not voting, one reason why WTO negotiations take so long.

The UK government would have to balance conflicting interests domestically as well.

This is not an argument for or against Brexit. Proponents on either side can weigh up the costs and benefits and make their own cases. But they cannot assume that becoming an independent WTO member will be simple and quick for the UK.

The only way it could, would be if a post-Brexit UK became — as some propose — much more of a free trader, with low import duties across the board, and minimal subsidies for farmers. This would be simple to establish in the WTO, but domestic opposition would have to be overcome first.

Otherwise, much of the UK’s negotiations in the WTO would be tough, and could still be hotly debated domestically. For example, how much in subsidies for farmers would the UK want to negotiate? Since that would come out of the EU’s entitlement, how much would Brussels want to keep for itself? How much potential protection against imports would the UK want to reserve for its producers? Negotiating those would be complex, with almost all WTO members demanding a say.

Tricky subjects

The complexity comes from the EU’s strange situation in the WTO. The EU is 29 WTO members: the 28 member states plus the EU itself. They have combined “rights” (eg, to be able to export to other countries, and not to be discriminated against), balanced against shared “obligations” (eg, to open up to imports from them, and not to discriminate against them).

The UK would be creating its own rights and obligations out of the EU’s. Other countries with different interests would want to ensure the balance is also right for them

In the WTO, the EU has agreed to keep its import duties within certain limits. For example, for some types of shoes this is a maximum of 17%. That limit applies to all EU members when they import from outside the EU. The EU’s quotas — allowing quantities of certain products to be imported at special lower-duty rates — are for the whole single market, not any individual country such as the UK. Limits on agricultural subsidies are also for the entire EU.

To be an independent WTO member, the UK would be creating its own rights and obligations out of the EU’s. That’s not as simple as it sounds. One reason is because other countries with different interests would want to ensure the balance is also right for them.

Take just one hard-fought issue: low-duty import quotas for high-quality beef, just two of almost 100 EU quotas. The EU opened these beef quotas after lengthy negotiations with the Argentina , Australia, Brazil, Canada, New Zealand, Paraguay, Uruguay, and the US. Extracting UK beef quotas out of the EU’s would require negotiations with all of them, plus possibly other suppliers such as Botswana, India and Namibia, and definitely the EU itself — Ireland, Germany and France have particularly strong beef lobbies.

While the exporting countries are pressing for the UK’s quota gates to be opened wider, and jostling with each other for paths through the opening, UK farmers would be pushing in the opposite direction. Remember, to reach agreement, the WTO’s consensus rule would apply.

The EU’s black hole

UPDATE
The goods schedule for the EU’s enlargement in 2004 to 25 members (EU–25) was certified and circulated in December 2016. Details are here

Now comes the surprise. We don’t know what most of the EU’s current commitments in the WTO are. The UK would be negotiating a share of key quantities that are unknown.

The only confirmed commitments on tariffs, quotas and farm subsidies are from before 2004 when the EU had 15 member states. The EU has expanded three times since then, but in 12 years it has been unable to agree with the WTO membership on revised commitments.

Now comes the surprise. We don’t know what most of the EU’s current commitments in the WTO are. The UK would be negotiating a share of key quantities that are unknown

That in itself is a warning. The UK will be negotiating a share of numbers that are unknown, with no guarantee of agreement. There may be practical solutions but again they will have to be negotiated.

Take agricultural subsidies that have a direct impact on prices or on how much farmers produce. The EU’s limit for its (pre-2004) 15 members is €67.2 billion. However, when informing the WTO about its subsidies, the EU says the limit is now €72.4 billion, perhaps from a secret updated draft that has not yet been agreed by the WTO’s membership. (An account of how these figures evolved can be found here.)

Actual subsidies are currently way below the limits, so the UK might have room to manoeuvre. Unless the UK decided to scrap support for prices or production volumes completely, it might try to negotiate a percentage of the EU’s limit (whatever it is). A number of responses is possible.

The hardest bargaining would take place if Australia and others persisted with their desire for everyone in the WTO to scrap this type of subsidy — allowing only a minimal amount worth up to 5% of the value of agricultural production. UK production is currently around £10 billion, implying a £500 million subsidy ceiling, considerably less than the £3 billion some have mentioned for a post-Brexit UK. British farmers would react.

A mountain of work

Some issues would be simpler. Many EU commitments could be converted to the UK’s without the need to negotiate, although the WTO membership would still want to confirm the conversions. This would be the case where no changes are needed.

For example, the UK could continue to observe the EU’s ceilings on tariffs (such as the 17% on shoes), and its market-opening pledges in services sectors. It could also simply translate EU regulations — on food safety, animal and plant health, and product standards and labelling — into its own. And so on.

That’s still a mountain of work: the EU (and UK) has around 20,000 products listed for collecting customs duties, thousands of product standards and regulations and extremely complicated limits on access to its services market.

(Some analysts even question whether other WTO members would accept the UK simply adopting EU tariffs.)

Besides, the UK would still be applying EU rules. Moving away from them, one of Brexit’s objectives, would require further negotiation or at least peer review in the WTO. (See also BBC Reality Check on a possible “lifetime’s worth of Parliamentary legislative sessions” in order to separate UK law from EU law)

None of this is impossible, but it won’t be sorted out quickly.


Updated

  • June 10, 2016: adding reference to BBC Reality Check on separating UK law from EU law
  • August 2, 2016: adding link to article questioning whether other countries would object to  UK simply adopting EU tariffs
  • August 19, 2016: adding link to article explaining the evolution of the EU’s de facto domestic support commitment

Picture credit: HPGRUESEN Creative Commons public domain CC0

Want to know more? A comprehensive report on these issues was published by AgraEurope in March 2016: