Chapter III WTO/GATT SYSTEM AND THE URUGUAY ROUND

Transcription

1 Chapter III WTO/GATT SYSTEM AND THE URUGUAY ROUND GATT AND THE OPENING OF MARKETS FOR FREE TRADE GATT traces its origins to In that year, at Bretton Woods, New Hampshire, the delegates of the United States and the United Kingdom proposed a comprehensive economic and financial plan for post-world War II reconstruction and development. The delegates envisioned the formation of three international economic and financial institutions. Two of them, the World Bank ("Bank") and the International Monetary Fund ("IMF"), were created to address development and monetary issues. The International Trade Organization ("ITO") rounded out the institutional triad. GATT was to serve as an interim agreement until the ITO and its founding document, the Havana Charter, could be approved by national legislatures. In September 1946, the United States drafted a proposed Charter that became the basis for discussions at the First Session of the Preparatory Committee on the Havana Charter. Effective January 1, 1948, national representatives provisionally approved GATT in an effort to expedite international negotiations on tariff reductions, and their implementation, pending approval of the Havana Charter by national legislatures. President Truman approved it on behalf of the United States pursuant to authority granted under the Reciprocal Trade Agreements Act of GATT Article XXIX makes it plain that GATT was not intended by its drafters to function on a permanent basis. Its drafters contemplated that once the Havana Charter entered into force, and with it the ITO, Part II of GATT, which contains the bulk of the international legal commitments would be suspended. The Havana Charter was a far more complete document than GATT. It contained provisions relating to employment, economic development, restrictive business practices, and dispute resolution under ITO auspices. The Havana Charter never entered into force. In fact, the United Nations, the depositary for Charter accessions, received no acceptances of the Charter. Once it became clear that the Havana Charter had no chance of being approved by the neo-isolationist U.S. Senate, the State Department issued a statement that the Charter would not be submitted again to Congress. As a consequence, GATT was pressed into service by default to fill the institutional vacuum, despite its shortcomings. It therefore regulated international trade for over five decades without institutional backing. Nevertheless, GATT became the centerpiece of international trade law, doubling as a multilateral trade agreement and an international trade forum for its 114 contracting parties. In order to understand the substance of the GATT agreements one must understand how multilateral negotiations have proceeded over the years and the differing patterns of trade among

2 countries. The core rationale for GATT is to open up markets to trade. It therefore strives to create a level paying field among countries so that trade is conducted on more or less uniform and equitable grounds. For its first two decades, the General Agreement on Tariffs and Trade focused on reducing tariffs and eliminating import quotas on goods, the leading trade-protectionist devices used to shield domestic industries from import competition. By the mid-1960s, as tariff levels declined and as quotas were reduced or eliminated, governments resorted to a variety of non-tariff barriers to trade ("NTBs") to protect their domestic industries. Among these were antidumping duties, countervailing duties, products standards, and valuation of goods. In 1979, with the conclusion of the GATT-sponsored Tokyo Multilateral Trade Negotiations Round, many of these NTBs were addressed through a series of side agreements that were designed to keep the playing field level. With tariffs and NTBs in decline as effective trade protectionist devices, governments turned to "gray area" measures -- most notably, voluntary restraint agreements ("VRAs") -- to circumvent the Tokyo Round commitments and to protect domestic firms. With the conclusion of the Uruguay Multilateral Trade Negotiations Round in 1994, VRAs were made illegal. Countries have nevertheless tried to protect their industries through new forms of measure like labor standards and environmental standards. With respect to intellectual property law, the significance of GATT lies in negotiating a completely new agreement to address problems faced by the Paris convention and to prevent insufficient intellectual property law protection to act as a non-tariff barrier. Organization of the WTO and its agreements: The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations ("Final Act"), signed in Marrakesh on April 15, 1994, covers all areas negotiated in the Uruguay Round, with the specific market access commitments on tariff reductions and non-tariff barriers to trade in goods and services being recorded in national Schedules of Concessions. Outside of the Final Act, the most important of the Uruguay Round agreements is the Agreement Establishing the World Trade Organization, under which, the institutional functions of GATT 1947 are replaced by the World Trade Organization. The WTO Agreement establishes a single institutional framework that encompasses (1) GATT, (2) a series of understandings that amend GATT 1947, and (3) multilateral trade agreements ("MTAs") covering international rules on trade in goods, services, and intellectual property rights. The MTAs are integral parts of the WTO Agreement and are binding on all WTO Members. The six Uruguay Round Understandings included in Annex 1A; GATT 1947, as amended and modified; waivers granted under GATT 1947 and still in force on the date of entry into force of the WTO Agreement; and the Marrakesh Protocol, to which the WTO Members' schedules of market access commitments are appended, are referred to collectively as "GATT 1994." The Uruguay Round negotiators concluded the following twelve MTAs on trade in goods.

3 1. Agreement on Agriculture; 2. Agreement on the Application of Sanitary and Phytosanitary Measures ("SPS Agreement"); 3. Agreement on Textiles and Clothing; 4. Agreement on Technical Barriers to Trade ("TBT Agreement"); 5. Agreement on Trade-Related Investment Measures ("TRIMs Agreement"); 6. Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("Antidumping Agreement"); 7. Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 ("Customs Valuation Agreement"); 8. Agreement on Preshipment Inspection; 9. Agreement on Rules of Origin; 10. Agreement on Import Licensing Procedures; 11. Agreement on Subsidies and Countervailing Measures ("SCM Agreement"); and, 12. Agreement on Safeguards. In addition to the twelve MTAs on trade in goods, the Uruguay Round negotiators broke new ground by including two new sectors in the GATT-WTO system: (1) services trade under the General Agreements on Trade in Services, and (2) the protection of intellectual property rights under the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement"). The trade system envisaged by the WTO Agreement is a "single undertaking" approach. That is, membership in the WTO requires accepting all the results of the Uruguay Round without exception, i.e., GATT 1994 and the MTAs. THE PILLARS OF GATT The pillars of GATT refer to rules that every WTO member must abide by and no country can make a reservation to these rules. These rules were framed in order to bring some transparency in the system and to facilitate foreseability in the international trading order. 1. Most favored nation: The most favored nation clause states that every WTO member shall treat all WTO members on the same footing. This rule prohibits discrimination between WTO members. For instance, if the US fixes tariffs for steel rods at 10% for Australia, it must apply the same rate for steel rods from any other WTO member. Thus if India were to export steel rods to the US, it should expect to be charged a tariff of 10% 1. The unconditional MFN obligation requires that a WTO Member treat 1 Article I:1 provides that with respect to (1) customs duties and charges of any kind imposed on importation or exportation, (2) the method of levying those duties and charges, (3) all rules and formalities in connection with importation and exportation, and (4) all matters referred to in paragraphs 2 and 4 of Article III concerning national

4 imports from a Member on an equal, nondiscriminatory basis vis-a-vis all other Members' imports. The MFN obligation is "unconditional" in the sense that MFN treatment must be accorded to all imports from WTO Members, regardless of country of origin, and regardless of whether the exporting Member negotiated reciprocal trade concessions with the importing Member. The economic rationale for the MFN commitment is the basic, but compelling, one that discrimination can lead to wasteful trade diversion. Without the benefit of the MFN principle, the most efficient producers may not have equal access to a foreign market because of discriminatory trade preferences in favor of less efficient producers from other countries. The unconditional MFN principle fosters economic efficiency by promoting the most efficient allocation of resources and, thereby, lowering costs of production, increasing consumer choices, and promoting world economic growth. Unconditional MFN also serves the important political function of facilitating trade negotiations that would otherwise become extremely difficult if reciprocity were demanded as a condition for receiving the benefits of a trade concession. 2. National treatment: National treatment clauses were standard in bilateral treaties of friendship, commerce, and navigation concluded between the United States and many of its trading partners, and are thus not unique to the GATT-WTO system. The general theme of Article III of GATT is to prohibit Members from circumventing tariff concessions through non-tariff barriers to trade that might undermine the benefit of a tariff reduction. Like its MFN counterpart, national treatment is a nondiscrimination obligation, but imposed at the national level. Once imports have entered a Member's territory, internal taxes must be applied equally to imports and the like domestic product, and national regulations must not treat imports "less favorably" than similar domestic goods. The broad purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures. Article III ensures that internal measures are not applied to imported or domestic products in a way that affords protection to domestic products. To that end, WTO Members are obligated to provide equality of competitive conditions, a level playing field, for imported goods vis-a-vis like domestic products. Article III:4 is the source of specific national treatment commitments with respect to internal regulations affecting imports. Article III:4 provides: treatment in internal taxation and regulation: any advantage, favor, privilege or immunity granted by any contracting party to any product originating in or destined for any other contracting party shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.

5 The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product. 3. Tariff bindings: Tariff bindings is the third pillar of GATT. Tariffs or customs duties on imported goods are the only form of trade protection that the GATT-WTO system does not specifically prohibit. Rather, the imposition of tariffs is permitted with very few qualifications, the most important being that they be imposed on an MFN basis. Tariffs (also known as customs duties) are the one form of trade protection permitted under GATT. In a perfect world of totally liberalized trade any form of government sanctioned trade protection would be unacceptable. The political reality, however, is that at the time of the birth of the GATT-WTO system in 1947, contracting parties' tariff rates were high in order to protect domestic industries from import competition. Consequently, the progressive liberalization of trade through the gradual reduction of tariffs was the only palatable GATT response. However, negotiated tariff concessions are "bound," which means that they cannot be increased above the bound duty rate unless compensation is paid to other adversely affected WTO Members (such compensation will usually take the form of increased duties on goods of export interest to the Member raising its tariff). Reasons for the emergence of TRIPS: By the end of the Tokyo Round in 1979, many of the developed member countries already realized that they could not ignore issues raised by intellectual property law in discussions of international trade. This topic, however, had not yet been dealt with properly in the GATT. Before the Uruguay Round began in 1986, a Ministerial Declaration was issued in Geneva, which pointed to "the question of counterfeit goods with a view to determining the appropriateness of joint action in the GATT framework on the trade aspects of commercial counterfeiting." As a result of this Declaration, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) was included in the GATT. Although it has been asserted that the United States was particularly influential in bringing the international intellectual property debate within the GATT framework, many other developed countries agreed that the GATT could deal more effectively and assertively with certain aspects of IP rights on an international level than WIPO had done in the past. Dissatisfaction with the lack of effective enforcement provisions in the Paris Convention,

6 as administered by the WIPO, is often cited as the principal reason for moving negotiations on patent-related matters from the WIPO to GATT. There was another, more compelling reason for the United States to have taken the lead in that effort, namely to engage in what international trade scholars refer to as "linkage-bargain diplomacy." The key was to getting to an agreement the right mix of issues on the table, even if they are previously unrelated, so that they can be linked for bargaining purposes. A negotiator offers to the opposing negotiator something important in order to receive in return a concession that otherwise would not have been offered. Linkage-bargain diplomacy can be exploited to achieve treaties in diplomatically and politically difficult areas in which agreement would otherwise be elusive. WIPO, with its authority limited to intellectual property issues, could not offer linkagebargaining opportunities. GATT multilateral trade negotiations, however, could offer opportunities for creative bargaining, because the proposed agenda for the 1980s round of negotiations included textiles and apparel, agriculture, services, foreign direct investment, and government procurement. Many developing countries had much to gain from liberalized trade in textiles and apparel and agricultural products; the United States and other industrialized countries had much to gain from liberalization of services and an easing of controls on foreign direct investment. During the resulting Uruguay Round, negotiators recognized the benefit of intellectual property protection for both developed and developing countries. For developing countries, weak intellectual property protection discouraged 2 the necessary domestic investment in research and development that fuels economic development. Moreover, it was realised that intellectual property protection no longer just promotes technological advancement domestically, it also provides means for nations to compete effectively in the global economy, spurring much needed technology transfer to developing countries. Stimulated by a comprehensive draft agreement presented in December 1991 by GATT Director General Arthur Dunkel, the so-called "Dunkel Draft", member states ultimately agreed to an entire package of agreements: the creation of the World Trade Organization (WTO), amendment of the Dispute Settlement Procedures, agreements on Trade in Goods and Agriculture, application of Sanitary Measures, agreements on Trade-Related Investment Measures and Countervailing 2 The United States grew frustrated with the lack of protection of intellectual property abroad. The USTR requested the International Trade Commission ("ITC") to assess the effect of inadequate intellectual property abroad on the U.S. economy. The report was submitted in At that time the 193 companies responding to the ITC's questionnaire estimated their worldwide losses as a result of inadequate intellectual property protection in 1986 at $23.8 billion.

7 Duties, Antidumping Measures, and Inspections and Customs Procedures, as well as the TRIPS intellectual property accord. In the area of patents, TRIPS references the key articles of the Paris Convention and requires members to comply with them. It requires both national treatment and most-favored-nation treatment. It provides that no nation may discriminate in its patent system based on field of technology, a provision extremely important to the pharmaceutical and biotechnology industries whose drugs were not patentable in several member states. Most importantly it lays down the basic standards for patentability of inventions, establishes the term of patents to be at least twenty years from the time of filing the application, provides for effective enforcement of intellectual property rights both administratively and judicially, and limits the ability of member states to grant compulsory licenses under patents that they have granted. The TRIPS Agreement is remarkable for not merely stating the rights, which Members must protect, but also defining in great detail the national civil and criminal procedures by which they are to be enforced. Patentability of inventions: The subject matter that is patentable under the TRIPS is broadly defined. The agreement provides that "patents shall be available for any inventions, whether products or processes, in all fields of technology." 3 Member countries must now offer patent protection to both product and process innovations, as long as they are new and nonobvious. This change generally will require less-developed countries to adopt broader definitions of what is patentable, consistent with the laws of developed countries. India for instance did not provide product patents for pharmaceutical drugs. It only provided for process patents. The laws in India gave rise to a thriving generic drug industry wherein practically every foreign drug was reverse engineered without fear of any sanction. The pharmaceutical industry was greatly affected by this practice and reversing this trend among developing countries was top priority for the US as TRIPS negotiations were being conducted. However developing countries rebelled against a strict imposition of this norm without having the requisite infrastructure to implement it. They sought some compromise whereby the 3 Article 27:1 states as follows: Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. 3 Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.

8 level of protection that the US demanded would eventually be provided but it would be granted in a phased manner. The compromise resulted in article 65 4 and 66 5 for developing and least developed countries respectively. Developing countries like India have until January 1, 2005 to fully implement the 4 Article 65: Transitional Arrangements 1. Subject to the provisions of paragraphs 2, 3 and 4, no Member shall be obliged to apply the provisions of this Agreement before the expiry of a general period of one year following the date of entry into force of the WTO Agreement. 2. A developing country Member is entitled to delay for a further period of four years the date of application, as defined in paragraph 1, of the provisions of this Agreement other than Articles 3, 4 and Any other Member which is in the process of transformation from a centrallyplanned into a market, free-enterprise economy and which is undertaking structural reform of its intellectual property system and facing special problems in the preparation and implementation of intellectual property laws and regulations, may also benefit from a period of delay as foreseen in paragraph To the extent that a developing country Member is obliged by this Agreement to extend product patent protection to areas of technology not so protectable in its territory on the general date of application of this Agreement for that Member, as defined in paragraph 2, it may delay the application of the provisions on product patents of Section 5 of Part II to such areas of technology for an additional period of five years. 5. A Member availing itself of a transitional period under paragraphs 1, 2, 3 or 4 shall ensure that any changes in its laws, regulations and practice made during that period do not result in a lesser degree of consistency with the provisions of this Agreement. 5 Article 66: Least-Developed Country Members 1. In view of the special needs and requirements of least-developed country Members, their economic, financial and administrative constraints, and their need for flexibility to create a viable technological base, such Members shall not be required to apply the provisions of this Agreement, other than Articles 3, 4 and 5, for a period of 10 years from the date of application as defined under paragraph 1 of Article 65. The Council for TRIPS shall, upon duly motivated request by a least-developed country Member, accord extensions of this period.

9 whole gamut of TRIPS provisions and least developed countries have until January 1, Developing countries got a grace period of 5 years to implement the agreement and a further period of five years to grant product patents to those areas of technology in which product patents were not granted. They had to however provide for exclusive marketing rights (EMR) 6 to pharmaceutical companies. This is essentially an exclusive right for marketing a drug in the member nation for five years or until a product patent is granted or rejected, whichever period is shorter. Due to article 65 and 66 it is possible for companies that develop such inventions to file patent applications in developing countries prior to their implementing the TRIPS provisions in full. Applicants can also claim the date of filing as the priority date. Under TRIPS, even though a patent may not be granted until the end of the grace period, the invention must be afforded patent protection for the remainder of the patent term, as measured from the filing date. 2. Developed country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country members in order to enable them to create a sound and viable technological base. 6 Article 70:8 Where a Member does not make available as of the date of entry into force of the WTO Agreement patent protection for pharmaceutical and agricultural chemical products commensurate with its obligations under Article 27, that Member shall: (a) (b) (c) notwithstanding the provisions of Part VI, provide as from the date of entry into force of the WTO Agreement a means by which applications for patents for such inventions can be filed; apply to these applications, as of the date of application of this Agreement, the criteria for patentability as laid down in this Agreement as if those criteria were being applied on the date of filing in that Member or, where priority is available and claimed, the priority date of the application; and provide patent protection in accordance with this Agreement as from the grant of the patent and for the remainder of the patent term, counted from the filing date in accordance with Article 33 of this Agreement, for those of these applications that meet the criteria for protection referred to in subparagraph (b). 9. Where a product is the subject of a patent application in a Member in accordance with paragraph 8(a), exclusive marketing rights shall be granted, notwithstanding the provisions of Part VI, for a period of five years after obtaining marketing approval in that Member or until a product patent is granted or rejected in that Member, whichever period is shorter, provided that, subsequent to the entry into force of the WTO Agreement, a patent application has been filed and a patent granted for that product in another Member and marketing approval obtained in such other Member.

10 India mailbox dispute: This case was brought before the WTO by the US against India alleging that India did not have an adequate system to protect pharmaceutical patents by setting up an effective EMR procedure. A Member State is required, under Article 70.8, to implement a mailbox system whereby a procedure for filing patent applications is set up which will be reviewed when patent protection has been instituted. The applicant will, however, be able to claim the original filing or priority date and thus substantiate the novelty of the product for which the patent is being sought. However, according to Article , a Member must provide a system of exclusive marketing rights for the product if the Member does not grant patentability regarding the product. Exclusive marketing rights are granted subject to a mechanism requiring the following: 1) a mailbox application in respect of the product must have been filed in the relevant country; 2) a patent application must have been filed in respect of the same product in another Member after January 1, 1995; 3) that other Member must have granted the patent; 4) the other Member must have approved the marketing of the product; and 5) the Member in which the mailbox application has been made must also have approved the marketing of the product. India failed to align its legislation according to Articles 70.8 and 70.9 of TRIPS by the given time period. The U.S. thereafter filed a complaint with the WTO which set forth that India had not established an adequate mailbox system for pharmaceutical and agricultural chemical product patents according to the transitional time period expressed in TRIPS and India had equally failed to establish an exclusive marketing rights system by January 1, In the alternative, the U.S. contended that even if it were determined that India had established a valid mailbox system, it had failed to comply with the transparency obligations under Article 63 8 of TRIPS. 7 Where a product is the subject of a patent application in a Member in accordance with paragraph 8(a), exclusive marketing rights shall be granted, notwithstanding the provisions of Part VI, for a period of five years after obtaining marketing approval in that Member or until a product patent is granted or rejected in that Member, whichever period is shorter, provided that, subsequent to the entry into force of the WTO Agreement, a patent application has been filed and a patent granted for that product in another Member and marketing approval obtained in such other Member. 8 Laws and regulations, and final judicial decisions and administrative rulings of general application, made effective by a Member pertaining to the subject matter of this Agreement (the availability, scope, acquisition, enforcement and prevention of the abuse of intellectual property rights) shall be published, or where such publication is not practicable made publicly available, in a national language, in such a manner as to enable

11 The decision of the panel on Article India contended that as a WTO member it was free to set the means by which mailbox applications could be filed. The means to be used by India to fulfill its implementation was by adopting an Ordinance and subsequently by adopting a bill by the Parliament. The latter having lapsed, India set up that implementation project by instructing the patent offices to continue receiving applications and to maintain them separately for subsequent action in conformance with Article Due to the panel's opinion that India must maintain a degree of predictability in that process in order to fulfill the legitimate expectations of Members and to create the conditions of security and predictability, it thereby expressed that India would be required to fulfill its obligation to adopt legislative measures to implement Article 70.8(a) commencing January 1, The reason for that was to eliminate any reasonable doubts with respect to the possibility that mailbox applications and eventual patents based thereon could be invalidated or rejected; moreover, the procedures presently effective in India did not attain that goal. Panel decision as to Article 70.9: India accepted that it was subject to Article 70.9 and that the Indian governmental authorities did not currently have legal authority to grant exclusive marketing rights. The main issues with respect to Article 70.9 were the following: At what moment in time did the Indian executive have legal authority to implement that article and what was the scope of the term exclusive marketing rights? India's arguments supporting its position that it was not in violation of Article 70.9 are the following: a) India had not refused any application for exclusive marketing rights since no application for those rights were submitted to the Indian authorities. b) India was not required to presently implement a system for granting such rights due to the amount of time usually necessary for obtaining patents and marketing approval regarding pharmaceutical products. governments and right holders to become acquainted with them. Agreements concerning the subject matter of this Agreement which are in force between the government or a governmental agency of a Member and the government or a governmental agency of another Member shall also be published. Members shall notify the laws and regulations referred to in paragraph 1 to the Council for TRIPS in order to assist that Council in its review of the operation of this Agreement. The Council shall attempt to minimize the burden on Members in carrying out this obligation and may decide to waive the obligation to notify such laws and regulations directly to the Council if consultations with WIPO on the establishment of a common register containing these laws and regulations are successful.

12 c) The member states are required to implement a system for exclusive marketing rights commencing only on January 1, 2000, since the maximum period for those rights under Article 70.9 is five years. India's arguments to support its position that it was not required to have implemented legislation with respect to establishing a system of exclusive marketing rights by a certain date were rejected by the panel. The panel included that it was irrelevant that the grant of such rights had not yet been refused to an eligible product or that it would in fact take many years before anyone would be in a position to apply for a grant of such rights. Accordingly, the panel declared that the legitimate expectations of members were thereby unprotected since India had not implemented the legislation required under TRIPS. In addition, the panel held that the effective date of the provision must be the date of entry into force o the WTO agreement (in 1995), since Article 70.9 is directly tied to Article 70.8 which must be implemented by that date. Transparency argument under Article 63: India also argued that since it is a developing country, that under Article 65.2 of TRIPS, it is entitled to postpone until January 1, 2000 the implementation of TRIPS, except for Articles 3,4 and 5. As such, India contended that the provisions of Article 63 established that India had to fulfill obligations applicable thereto as of January 1, India similarly argued that it was not required to comply with certain transparency provisions of TRIPS; more specifically, that only laws and regulations, and final judicial decisions and administrative rulings of general application had to be published. In addition, India maintained that its decision to continue to receive applications for pharmaceutical and agricultural chemical product patents was a purely administrative matter and thus did not need to be published under Article As such, India argued that according to Article 63, only the law on which such a measure was based fell under the publication requirements of the Article. Finally, India argued that its system of filing currently implemented in India complied with all the necessary conditions for a transparent mailbox system for patents. The panel similarly rejected those arguments. In fact, the panel stated that a range of procedural and institutional provisions relating not only to transparency but also to dispute settlement and the establishment of the Council for TRIPS, which were understood by the Council for TRIPS as effective commencing either on January 1, 1995 or the moment a substantive provision had to be complied with. If, according to India's argument, it were not required to comply with transparency norms by virtue of Article 65.2, it would equally not be required to comply with dispute settlement provisions.

13 The panel held the contrary. In support of its decision, the Panel set forth that India had failed to comply with its obligation under Article 63 to publicize the specific terms and conditions of its method in such a manner as to enable governments and right holders to become acquainted with them. The panel went on to explain that indeed the private sector was not aware of the existence of the system nor were those people who had incurred the costs of money and time to file applications claiming pharmaceutical and agricultural chemical inventions aware of the status thereof. The panel submitted a recommendation that the DSB request India to conform its patent protection system (for pharmaceutical and agricultural chemical products) to the obligations under the TRIPS Agreement. Appellate body decision: India filed an appeal to the WTO appellate body contesting the findings of the Panel. The Appellate Body upheld the Panel's findings setting forth that India violated its obligations under Articles 70.8(a) and However, the Panels findings with respect to violations of Article 63 were reversed by the Appellate Body. With respect to the sanctions imposed by the Panel and affirmed by the Appellate Body, it was recommended that India adapt its laws to align with Articles 70.8(a) and The U.S. will be entitled to seek remedies in the form of retaliatory trade measures against India if it fails to make those changes in a timely way. More specifically, the recommendations set forth a time period of 30 days by which India must inform the Appellate Body of its intentions with respect to the implementation of its decision. If India fails to promptly comply with the recommendations, it will be required to proceed with negotiations with the U.S. on an appropriate amount to be paid the latter in the form of compensation, i.e. tariff reductions to the U.S. If an agreement in that regard cannot be reached, the U.S. would be entitled to request from the DSB authorization to suspend concessions favorable to India or suspend obligations to that country in the pharmaceutical/agricultural sector, or in the event that is feasible, in another sector. Subsequent to the mailbox dispute Indian was compelled to amend its laws. The Patent Amendment Act 1999, enacted on March 26, 1999, is effective retroactively from January 1, The Patent Amendment Act 1999 amends the Indian Patents Act 1970 by: (1) legitimizing Black Box applications for patents on medicine and agrochemicals that were filed on or after January 1, 1995, pursuant to the Patent Amendment Ordinance 1994, which has lapsed; and (2) providing Exclusive Marketing Rights (EMR) as an interim measure required by the TRIPs "pipeline protection" during the pendency of such Black Box applications. These Black Box

14 applications will not be examined until the ten-year transition period allowed to developing countries ends December 31, 2004, or until the Patents Act 1970 is comprehensively amended to conform to TRIPs. All those who have filed Black Box applications pursuant to the Patent Amendment Ordinance 1994 and whose applications have been delayed by the Indian Patent Office can claim EMR. The Indian Patent Rules 1972 have been amended, effective June 2, 1999, by the Patent Amendment Rules 1999, which are published in the Government of India Official Gazette. Patent fees, which had been among the lowest internationally, have been increased. The main Patent Office in Calcutta has jurisdiction over Exclusive Marketing Rights and the recording of assigned patent rights. Exclusive Marketing Rights (EMR) for Drug and Agrochemical Products: The Patent Amendment Act 1999 provides for the grant of EMR to sell or distribute the "article" or "substance" claimed in the Black Box application, subject to the following conditions: (a) The invention claimed in the Black Box application must satisfy the test of patentability under the Patents Act 1970 ("the Act"); (b) The grant of an identical patent ("article" or "substance") in a convention country on or after the filing of a Black Box application in India based on an application filed in the convention country on or after January 1, 1995 but before filing of the Black Box application in India; (c) Marketing approval in the convention country on or after filing the Black Box application based on tests conducted on or after January 1, 1995; (d) Approval by the competent authority in India to sell and distribute the product ("article" or "substance") in India. The preconditions for the grant of EMR are as follows: The Act defines certain inventions as "not patentable" and bars the patentability of inventions relating to atomic energy. The most relevant provisions of the Act are: i) the mere discovery of any new property or new use for a known substance or the mere use of a known process, machine or apparatus is not patentable unless such known process results in a new product or employs at least one new reactant; ii) a substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substances is not patentable. The product itself, and not just its use, must be novel. The composition must have synergy among its components. Moreover, in the explanatory note for grant of EMR, the exclusive right to

15 sell or distribute any "article" shall not include any "article" or "substance" already in the public domain. EMR is available only for novel pharmaceutical and agrochemical products, and not for a known product even if it is made by a new process. Infringement of EMR: The Patent Amendment Act 1999 allows the holder of EMR to sue for infringement of such exclusive rights in the same manner as a patentee. No infringement of EMR occurs, however, if the defendant can prove: (a) prior publication before filing of the Black Box application or a corresponding application in a convention country; or (b) that the invention has been used by him or the "article" or "substance" has been sold by the EMR holder before filing of the Black Box application in India or a corresponding application in a convention country. Compulsory License--EMR: The provision of a compulsory license for a patent will also be applicable in respect of EMR two years from the date of approval by the Controller. However, unlike existing provisions, the working requirement of the invention will be covered by import for sale or distribution. Power of Central Government: The Government of India reserves the right in the public interest to sell or distribute the "article" or "substance" covered by EMR by itself or through any other person authorized by it in writing at a fixed price for such "article" or "substance. Further the Rules to the Act provide that to avoid infringement of EMR on the basis of a prior recorded document of an invention, or prior trial or use or sale of the EMR product, the document/trial/use should be public and not include a personal document or a secret trial/use. Application for Revocation of EMR may be made. On being satisfied that the applicant has a prima facie case, the Controller shall notify the applicant who must request a hearing within 30 days from receipt of the notice. The Government of India has reserved the right in the public interest to sell or distribute the "article" or "substance" covered by EMR by itself or through any other person authorized by it in writing at a fixed price for such "article" or "substance. Scope of Rights and Term of EMR 9 : 9 Requirements for filing EMR application: (a) Name, address, nationality of the applicant. (b) Application number and date of Black Box application.

16 (1) Following the grant of EMR, the applicant will have the exclusive rights to sell or distribute the subject "article/substance" in India by himself, or through his agents or his licensees subject to the provisions of the law in force at the time. (2) The EMR shall be terminated at the end of five years from the date of grant of exclusive marketing rights in India or on the date of rejection of application for the grant of patent, whichever is earlier. Compulsory Licensing A compulsory license is an involuntary contract imposed upon a patent holder by a government entity. The compulsory license grants permission to the government entity or a third party to use the IPR to further some political or social objective. Compulsory licenses are a public right reserved by many nations as a safeguard against the dangers inherent in the monopoly granted by a patent. Compulsory licenses may be granted where a patent is acquired or used improperly. Compulsory licenses may also be granted where a patent holder refuses, typically on economic grounds, to use the patent to make available to the public the product or process protected by the patent. Under such a scenario, the public is denied access to the protected product or process because the patent holder has refused to make it available and has the right to prevent any other party from so doing. If the patented product or process is required to address a critical need, national and international laws have traditionally provided for compulsory licensing to meet that need. Compulsory licensing has always been a contentious issue between developed and developing countries. While developed countries restricted the scope of the government s prerogative, developing countries on the other hand, have traditionally given the government extensive rights to terminate a patent. The rationale is that public health concerns are far more serious than maintaining monopoly rights and where a patent is not being worked sufficiently enough to address a public heath crisis, monopoly rights should give way to government intervention and thus reduction in patent term. The Paris convention mentions compulsory licensing in Article 5(A)(2). Compulsory licenses were allowed only "to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent." But the provision was not really effective because the Convention itself (c) Patent numbers with the name of the convention countries where corresponding patent has been filed. (d) Particulars of marketing approval in convention countries. (e) Particulars of marketing approval in India.

17 provided for no minimum patent rights and thus if a country granted no patents at all 10, the issue of compulsory licensing became redundant. The TRIPS on the other hand, is a more substantive international document than the Paris convention not only laying down criteria for patentability but also enforcing patent rights through stringent enforcement mechanisms. It therefore comes as no surprise that TRIPS deals with the issue of compulsory licensing in a more substantive manner than the Paris Convention. The relevant article is Article 31, under which the patent holder's rights may be curtailed to safeguard national priorities by forcing it to grant a compulsory license to another entity before the normal period of patent exclusivity has elapsed. In this regard, member nations may grant a compulsory license to a third party that is not the patent owner in that member nation. The purported policy behind the compulsory licensing provisions is to promote the commercial exploitation of new inventions. The United States apparently argued against granting such compulsory licensing except where the patent rights are being used anti- competitively or there is a national interest at stake. Although the agreement provides for compulsory licensing, significant restrictions and conditions, such as limitations in the scope and duration of the license, accompany such use to protect the interests of the patent holder. The most significant limitations areas follows: (1) the compulsory license may be granted only after reasonable negotiations have failed 11 (this provision may be waived in case of national emergency) 12 ; (2) the scope and duration must be limited to the purpose for which the license was authorized and must cease if and when conditions change to eliminate the purpose 13 ; 10 Note that such an anomaly was allowed under the Paris Convention that only provided for national treatment. A country was obliged to treat foreign patentees on par with domestic patentees. But this did not preclude a country from not granting patent protection at all. 11 Article 31 (b): such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time. 12 Sub-clause further states: This requirement may be waived by a Member in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. In situations of national emergency or other circumstances of extreme urgency, the right holder shall, nevertheless, be notified as soon as reasonably practicable. In the case of public non-commercial use, where the government or contractor, without making a patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government, the right holder shall be informed promptly;

18 (3) the license must be exclusive and non-assignable; (4) the license shall be used predominantly for the supply of the national market of the granting nation 14 ; and (5) the right holder shall be paid adequate remuneration under the circumstances of each case. Compulsory licensing and the Doha declaration: The issue of compulsory licensing is especially important in the case of pharmaceutical drugs and access to life saving medications. The world AIDS crisis put this issue onto center stage. It started with South Africa enacting a new law that granted compulsory licensing for critical AIDS medications. Sub-saharan Africa contains more than 70% of the world s new AIDS cases. AIDS in that part of the region has created the most serious and largest public health crisis ever to be faced by the world community. As the crisis spiraled out of control access to drugs became more and more difficult due to the exorbitant cost of AIDS drugs. For instance keeping an AIDS patient alive for one year can cost up to $15,000- the equivalent of twenty four times the average annual income in Zimbabwe, where one in four adults is HIV-positive. It is estimated that of the nearly 25 million people infected only about 25,000 people, at most, have access to life- prolonging medicines. It was in this scenario that South Africa passed its laws granting compulsory licensing to AIDS medications. South African Parliament proposed the Medicines and Related Substances Control Amendment Act, which would allow the South African Health Minister to override patent rights to allow compulsory licensing and parallel importing. By issuing compulsory licenses, the Health Minister hoped to reduce the price of influential AIDS pharmaceuticals and make them more affordable to the population. Notably, the stated purpose of the Amendment was to reduce the cost of pharmaceuticals to protect the health of the public. South Africa had good reason to believe that the issuance of compulsory licenses would cause prices to decrease for desperately needed pharmaceuticals. Several other nations have used this method successfully, even at the disapproval of highly industrialized nations. The United States claimed that granting such a license was against TRIPS. But arguing such a position put the US 13 sub clause (c): the scope and duration of such use shall be limited to the purpose for which it was authorized, and in the case of semi-conductor technology shall only be for public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive; 14 sub-clause (g): authorization for such use shall be liable, subject to adequate protection of the legitimate interests of the persons so authorized, to be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. The competent authority shall have the authority to review, upon motivated request, the continued existence of these circumstances;