Improving Access to Medicines: What needs to be done

This South Bulletin provides a  summary of the South Centre’s three submissions to the UN Secretary General’s High-level Panel on Access to Medicines on some of the key actions that need to be taken to strengthen the access to medicines for people in developing countries:

The Need to Assert the Primacy of the Right to Health over Trade and IP Rules

A Binding International Treaty on Medical Product R&D under the Auspices of the UN

Limitations of the Paragraph 6 System of the TRIPS Agreement

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Access to Medicines: South Centre’s views on what needs to be done

The South Centre has made three written submissions on some of the key actions that need to be taken to strengthen the access to medicines for people in developing countries.

These submissions were made to the High-level Panel on Access to Medicines established by the United Nations Secretary-General , Mr. Ban Ki-moon. Below is a summary of the South Centre’s three submissions.

By the Development, Innovation and Intellectual Property (DIIP) Programme, the South Centre

A High-Level Panel on Access to Medicines convened by the UN Secretary-General is currently considering a number of proposals to address the policy incoherence between intellectual property (IP) rights, human rights, trade rules and access to medicines.

The High-Level Panel has received 177 submissions from a diverse range of stakeholders including patients’ groups, policy-makers, intergovernmental organizations and pharmaceutical companies. It has also conducted two global public hearings and dialogues.

The final report of the High-Level Panel will be submitted to the UN Secretary-General in June 2016. The Secretary-General will present the report to the UN General Assembly to take further action.

The South Centre made three submissions to the High-Level Panel in response to the call for contributions. These submissions are based on the premise that the right to health for all must prevail over trade and intellectual property rules. The three submissions are publicly available on the website of the High Level Panel: http://www.unsgaccessmeds.org/list-of-contribution/, listed as South Centre,  No. 67, No. 112 and No. 113.

The Need to Assert the Primacy of the Right to Health over Trade and IP Rules

An effective way to address policy incoherence between the right to health over trade and IP rules is first and foremost, to assert the primacy of the right to health for all, over trade and intellectual property rules. The attainment of good health and well-being is an objective as well as a human right, whereas trade or intellectual property are means. Thus there should be primacy of health over trade or IP. In this context, the South Centre submitted a series of recommendations to the HLP for its endorsement.

First, developing countries should tailor their intellectual property regimes to their own domestic technical, economic and social needs and capacities. To this aim, these countries should incorporate the TRIPS flexibilities into national patent law to enhance access to medical products. The implementation of these flexibilities is a means to balance patent rights with the right to health, stimulate competition, protect consumers, and facilitate access to generic medical products that are accessible and affordable to governments and consumers.

Second, a key flexibility is that countries are free to determine in their own way the definition of an invention, the criteria for judging patentability and patentable subject matter, the rights conferred on patent owners and what exceptions to patentability are permitted, subject to meeting the minimum standards laid down in the WTO TRIPS Agreement. Countries should apply a rigorous definition of patentability criteria. Moreover, revision of national patent laws to allow and effectively use other flexibilities should be promoted. These include: compulsory licenses and government use authorization, parallel importation, research exception, limit the extent of test data protection, and develop  robust patent examination systems with pre-grant and post-grant opposition.

Third, patent offices should be encouraged to reject pharmaceutical patent applications as not constituting inventions for the following: new dosage forms of known medicines, new salts, ethers, esters and other forms of existing pharmaceutical products, discovery of polymorphs of existing compounds, enantiomers, therapeutic, diagnostic or surgical methods of treatment and claims for new uses of known products.

Fourth, countries should take measures to control anti-competitive practices and abuse of intellectual property rights in their jurisdictions. Multilateral trade rules allow substantial flexibility in the development and application of competition law and policy. As a consequence of accommodating the variety of potential competition approaches, remedies available to address anti-competitive behaviour may permit a broader range of remedial action than some other public health-related flexibilities associated solely with patents.

Fifth, developed countries should stop the use of unilateral trade measures and free trade and investment agreements as a means to pressure countries to undertake TRIPS plus commitments. The recent rise of bilateral and multilateral FTAs threatens public health and access to affordable medicines. Strong trade and power asymmetries exist between developed and developing countries during FTA negotiations. Trade-oriented pressures are applied to developing countries to surpass the protection afforded by TRIPS and to diminish the system of the TRIPS flexibilities. These are ill-suited ‘TRIPS-plus’ solutions.

Furthermore, the special rapporteur on the right to health has pointed out that: “TRIPS-plus provisions in FTAs differ from agreement to agreement, but their purposes are by and large to: Extend the patent term, introduce data exclusivity, introduce patent linkage with drug registration and approval, and create new enforcement mechanisms for IPRs. There should be the promotion of reform of African regional IP organizations – ARIPO and OAPI – in order that they accommodate the flexibilities available under TRIPS such as the transition period for LDCs as well as application of strict criteria of patentability. The current operations of ARIPO do not facilitate the full use of TRIPS flexibilities and instead erects patent barriers to the importation and local production of affordable medicines.

Sixth, LDCs should make (and should be provided assistance to do so) effective use of the current transition period that allows them to not apply pharmaceutical patent protection, test data protection or exclusive marketing rights; and recommend that the current waiver be made permanent until the time an LDC graduates from that status. At present, LDCs are not be obliged to implement or apply or to enforce patents as well as test data protection for pharmaceutical products, or to make available a mechanism for filing patent applications for pharmaceutical products (mailbox) or to grant exclusive marketing rights to such applications, until 1 January 2033 or the expiry of such later transition period that may be granted by the WTO Council for TRIPS. LDCs should actively use the created policy space in this transition period and take immediate steps to amend their respective national laws to provide for such exclusions.

Seventh, there should be a ban on the application of non-violation and situation complaints with respect to the TRIPS Agreement. Introduction of non-violation complaints under TRIPS could enable legal challenges to regulatory and public policy measures that may be consistent with the obligations under the TRIPS Agreement. For example, public health measures such as issuance of compulsory licenses, or packaging restrictions on harmful products could be challenged even if these are consistent with TRIPS obligations if non-violation complaints are allowed. Unlike non-violation complaints in GATT, where a finding of nullification or impairment of the expected benefits would lead to an adjustment of the impugned tariff measure, in TRIPS this would lead to an amendment of the substantive obligations under the agreement. In this way, it can undermine the balance of rights and obligations and interests of right holders and users in TRIPS. Moreover, non-violation complaints could lead to narrowing the scope of flexibilities under the TRIPS Agreement. The experience of non-violation complaints under GATT suggests that the existence of non-violation complaints has led the panels to adopt a narrow interpretation of the provisions of GATT. For example, while TRIPS requires the grant of patents in all fields of technology if the patentability criteria are satisfied; it does not define novelty, inventive step or industrial applicability. This allows for diversity in the treatment of patent applications in different territories which enables developing countries to define what is patentable very narrowly. If non-violation complaints were allowed, it is possible that decisions to reject a patent based on a strict definition of the patentability criteria may be challenged. Therefore, non-violation complaints would seriously impair the balance of rights and obligations enshrined under TRIPS.

Eighth, WIPO and other international organizations should provide technical assistance on IP policy to developing countries that builds their capacity on the use of TRIPS flexibilities.

Ninth, WIPO and WTO should undertake human rights impact assessments prior to any norm-setting activities, especially if they have an impact on public health.

Tenth, the results of publicly funded research should be made available to all, and not be eligible for patent protection. Global, open access to publicly funded research should be promoted to advance collaborative scientific research and avoid unnecessary and costly duplication of work.

There should be greater transparency by pharmaceutical firms, product development partnerships, biotechnology firms and other entities, in disclosing the real costs of research and development, including in carrying out clinical trials, and for them to share the results of clinical trials.

New initiatives and business models to stimulate R&D in medical products that “de-link” the cost of R&D from prices should be promoted. However, principles need to be established to ensure that if public resources are used to promote de-linkage, there is full transparency on the real costs of activities; disclosure of terms in contractual agreements for R&D and for IP; and that priorities for R&D are defined in accordance to public health needs.

A Binding International Treaty on Medical Product R&D under the Auspices of the UN

The second submission by the South Centre recommends that negotiations be undertaken for a UN treaty on R&D for medical products.

The current incentive model for pharmaceutical research and development (R&D) has failed to incentivize R&D for new medicines to treat a number of diseases that do not offer substantially profitable markets to private firms. Several reports and studies, as well as the WHO Global Strategy and Plan of Action on Public Health, Innovation and Intellectual Property (GSPOA) adopted by WHO Member States (2003-2008) have acknowledged this problem. On one hand, there is little investment in R&D in relation to diseases that are prevalent in developing countries, since large pharmaceutical firms focus efforts on developing products to satisfy the demand of wealthy markets. On the other hand, products that are subject to patents and other forms of exclusive rights are normally sold at prices that are out of reach for large sectors of the population, both in developing and developed countries.

In April 2012, the WHO Consultative Expert Working Group (CEWG) on R&D Financing and Coordination recommended the WHO member States to start negotiations on a binding international instrument on health R&D under article 19 of the WHO Constitution, as the best way to create an appropriate framework to ensure priority setting, coordination, and sustainable financing of affordable medicines for developing countries. The CEWG stated that “… a binding instrument on R&D is necessary to secure appropriate funding and coordination to promote R&D that is needed to address the diseases that disproportionately affect developing countries.” The CEWG recommendation was made after considering a number of proposals that recommended the conclusion of a binding R&D treaty, including a proposal by Bangladesh, Barbados, Bolivia and Suriname for WHO discussions on a biomedical R&D treaty. However, this recommendation of the CEWG has still not been adequately considered by the WHO member States owing to political opposition from developed countries to the idea of an alternative R&D mechanism.

After the call for a global pharmaceutical R&D (GSPOA and CEWG), there have been numerous initiatives and policy processes related to global health innovation. In addition, there are ongoing efforts through product development partnerships (PDPs) to step up R&D for neglected diseases. There is a major risk that the multiplication of such proposed R&D frameworks could lead to further duplication and fragmentation and lack of consistent application of the CEWG principles that R&D mechanisms must be based on – affordability, effectiveness, efficiency and equity.

A binding international instrument or international treaty on R&D can be negotiated under the auspices of the UN to provide an adequate framework to define medical R&D priorities and ensure the coordination and sustainable financing of R&D on drugs that could be made available at affordable prices.

The conclusion of a binding R&D instrument under the UN will contribute to the realization of the Sustainable Development Goals (SDGs), and particularly the health related SDG Goal 3 and Targets 3.8 to achieve universal health coverage and access to quality essential health-care services and access to safe, quality and affordable essential medicines and vaccines for all, and 3.11  to support the R&D of vaccines and medicines for the communicable and non-communicable diseases that primarily affect developing countries, provide access to affordable essential medicines and vaccines, in accordance with the Doha Declaration on the TRIPS Agreement and Public Health that affirms the right of developing countries to use to the full the provisions in the TRIPS Agreement regarding flexibilities to protect public health, and, in particular, provide access to medicines for all.

A binding international R&D instrument under the UN would provide a global framework for financing R&D in a way that delinks costs from prices for new medical products and for improved coordination to avoid the fragmentation of medical R&D efforts.

A global instrument on R&D of medical products negotiated at the UN could have the following specific objectives:

(i) To promote R&D for all diseases, conditions and problems (including non-communicable diseases), while prioritizing those for which there is little R&D investment such as neglected diseases that disproportionately affect developing countries;

(ii) To set priorities for R&D on the basis of the global disease burden;

(iii) To provide alternative incentives to the intellectual property systems for the engagement of private and public actors involved in R&D based on public health needs rather than market expectations;

(iv) To develop sustainable financing mechanisms including pooled financing to increase available resources for R&D;

(v) To promote coordination of R&D and make better use of existing R&D capacities of the private and the public sector in both developing and developed countries;

(vi) To build R&D capacity in developing countries;

(vii) To promote greater transparency in the costs of R&D and sharing of data and information, particularly in early research and clinical trial stages;

(viii) To establish ethical criteria and financial mechanisms for conducting clinical trials with full disclosure of test data;

(ix) To promote that the results of R & D are in the public domain or otherwise accessible to all populations.

Though the proposed binding international legal instrument on biomedical R&D pursues public health objectives, the establishment of an alternative mechanism for medical R&D will have to necessarily involve multiple government agencies besides ministries of health, such as finance, trade, science and technology, and industry. As this proposed instrument would address a diverse range of government agencies and also a number of the SDGs, it is submitted that it will fall within the ambit of the UN to negotiate a binding international legal framework or convention on medical product R&D.

Limitations of the Paragraph 6 System of the TRIPS Agreement

The third submission by the South Centre concerns the ability of countries to procure lower priced medical products.

Pursuant to paragraph 6 of the 2002 Doha Declaration on TRIPS and Public Health the WTO General Council adopted a decision on August 30, 2003 allowing WTO members with insufficient or no pharmaceutical manufacturing capacity to import generic medicines under a compulsory license, as a waiver from the general requirement under Article 31 (h) of TRIPS that a CL can be issued only predominantly for being used by domestic manufacturers. In 2005 the WTO General Council adopted a Protocol amending the TRIPS Agreement which incorporated this mechanism as an amendment to the TRIPS Agreement (Article 31bis). The WTO Secretariat is urging member States to ratify the August 30th Decision to bring Article 31bis of the TRIPS Agreement into force.

While the Paragraph 6 system has been celebrated as a ‘solution’ to the problems faced by developing countries and LDCs in accessing affordable medicines, in actual practice it has not contributed to address such problems. Only a limited number of countries have adopted legislation to implement the August 30th Decision as an exporting country. Moreover, there has been very limited use of the system. Only one importing country (Rwanda) used the mechanism to import cheaper life-saving medicines from the Canadian generic company Apotex for 21000 HIV/AIDS patients. This is largely due to the fact that the system is unnecessarily burdensome and complicated. The Paragraph 6 system places obligations on importing countries making use of the system that are more onerous than those for countries that can issue a compulsory license  (CL) to supply the domestic market.

The experience in making use of the system also suggests that there are hurdles within the Decision that make it difficult for countries to import a generic drug under a CL, and also makes it difficult for generic manufacturers to export a drug under CL. In the Canada-Rwanda case, the only instance in which the Paragraph 6 system has been used, it took almost 27 months to meet all of the requirements. Thus, the system is less effective than it should be. Therefore, it is important that WTO members carefully examine the reasons behind the limited use of the system and address systemic deficiencies before making it permanent as article 31bis of the TRIPS Agreement (currently in the process of approval by WTO members).

Some of the key problems in using the Paragraph 6 system are:

Generic companies need to undertake negotiations for voluntary licenses with the patent holder before applying for a CL. Such negotiations may be protracted and complex, and a source of considerable delay and discourage generic manufacturers to participate in the process.

The Decision comprises a succession of complex procedural steps. First, a potential purchaser has to forecast the need for a medicine and identify a generic producer willing to participate in the process and fill the drug order. Second, the manufacturer has to try to negotiate a voluntary license with the patent holder. Third, if the negotiations are unsuccessful, a CL application must be filed in the home country of the generic producer. Fourth, if a patent exists in the country of export the generic producer has to apply for and obtain a CL in that country too. Each of these steps is time-consuming, involves substantial financial expense and holds no guarantee of success.

A country importing medicines using this system must also give a written notification to the TRIPS Council which must include the specific names and expected quantities of the product needed. Unless the importing country is classified as an LDC, it must also specify whether the product is under patent, and provide information that establishes that it lacks sufficient manufacturing capacity in the pharmaceutical sector to develop the drug being ordered.

The system also imposes conditions for commercialization of the products made under the CL. They must be clearly identified as being produced under the system through specific labelling; they should be specially packaged to be distinguishable from the branded product and in respect of its shape or colour. The generic manufacturer must post specific information about the quantity of the product, its destination and distinguishing features. These ‘anti-diversion’ measures are to ensure that the product will only be exported to the destination stated in the CL.

The Paragraph 6 system requires a drug-by-drug, country-by-country and case-by-case decision-making process. Indeed, the CL application must stipulate the destination and the quantity of drugs that are to be purchased and exported under the licence. Drug needs must therefore be determined with precision beforehand. If more patients are included, the only way to purchase more drugs is to begin the process again. A stock-out due to the procedural hurdles may lead to the treatment being interrupted and as a consequence patients may develop increased drug resistance (as in case of HIV/AIDS), creating the need for more expensive treatment. Conversely, if the needs have been overestimated, re-exportation of medicines imported under the system to another developing or least developed country in a similar situation is not permitted, unless there is a regional trade agreement between the two and the majority of its members are LDCs.

There is substantial scope for the patent holder to undermine the system. For example, the patent holder may decide at any time to offer the medicines at lower cost or for free, thus frustrating any efforts made to use the system in that particular case. This creates a huge uncertainty and additional risk and disincentives for potential suppliers. In view of these limitations of the paragraph 6 system, WTO members should be dissuaded from ratifying the protocol to the TRIPS Agreement incorporating the system under Article 31bis of TRIPS and should instead undertake a comprehensive review and evaluation of the paragraph 6 system.

The High-level Panel on Access to Medicines

The High-Level Panel is co-chaired by Ruth Dreifuss, former President of the Swiss Confederation and former chairperson of the WHO Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH), and Festus Gontebanye Mogae, former President of Botswana. The other members of the High-Level Panel are Andrew Witty, CEO of the multinational pharmaceutical company GlaxoSmithKline, Prof. Sakiko Fukuda-Parr, Awn Al-Khasawneh, the former Prime Minister of Jordan, Celso Amorim from Brazil, Winnie Byanyima, Executive Director of Oxfam International, Shiba Phurailatpam, Director of the Asia Pacific Network of People Living with HIV (APN+), Precious Matsoso from South Africa, Yusuf Hamied, Chairman of the Indian generic pharmaceutical company Cipla, Justice Michael Kirby, former judge of the High Court of Australia, Prof. Ruth Okediji, Prof. Jorge Bermudez, VP of Fiocruz, Prof. Kinga Goncz, Maria C. Freire (UNITAID), and Stephen Lewis.

An Expert Advisory Group of individuals with expertise and experience on matters including human rights, trade, innovation and public health as well as senior technical staff from WHO, UNAIDS, UNDP and other intergovernmental organizations will assist and advise the High-Level Panel.

Super drug-resistant gene raises new health alarm

A recently discovered gene that is resistant to an antibiotic used as a last resort and which can spread easily among bacteria has raised fresh concerns about the coming end of the use of antibiotics – if action is not taken immediately.

By Martin Khor

Antibiotic resistance – a process by which antibiotics no longer work because bacteria have become resistant to them – has climbed up the global agenda because of growing awareness of the immense threat this poses to human health and survival.

However, there is still not enough action to tackle this crisis.  Health Ministers met at the World Health Assembly in Geneva in May and had an opportunity to review the extent to which a Global Action Plan adopted last year had been implemented.

In the background is the recent disturbing news of the discovery by scientists of a gene, MCR-1, which creates resistance to colistin, a powerful antibiotic used as a last resort to treat infections when other medicines do not work.

Even more worrying is that the gene has the characteristic of being able to move easily from one strain of bacteria to other species of bacteria. This raises the spectre of many infections eventually becoming untreatable, bringing us closer to the nightmare of a post-antibiotics era.

The gene was discovered during a study undertaken in China.  Last November, Yi-Yun Liu and colleagues published a paper in The Lancet Infectious Diseases journal revealing they found the MCR-1 gene in 166 out of 804 pigs at slaughter that they tested, 78 of 523 samples of chicken and pork being retailed and in 16 of 1,322 hospital patients.

The study indicates that there is a chain in the spread of resistance from the use of colistin in livestock feed, to colistin resistance in slaughtered animals, in food and human beings.

One of the authors, Prof. Jian-Hua Liu from South China Agricultural University, was quoted by the Guardian  as saying these are extremely worrying results, which reveal the emergence of the first polymyxin resistance gene that is readily passed between common bacteria such as E. coli and K. pneumonia.

This suggests that “the progression from extensive drug resistance to pandrug resistance is inevitable”, added Liu.   Extensive resistance is when a bacterium is resistant to many drugs while pandrug resistance indicates resistance to all drugs.

Colistin is part of a category of antibiotics known as polymyxins.  In the past they had not been widely used as they are known to have toxic effects, but they have been recently more used as a last resort when other antibiotics don’t work because of resistance.

“All key players are now in place to make the post-antibiotic world a reality,” another of the paper’s co-authors, Prof. Timothy Walsh from University of Cardiff, told the BBC News website.

“If MCR-1 becomes global, which is a case of when and not if, and the gene aligns itself with other antibiotic resistance genes, which is inevitable, then we will have very likely reached the start of the post-antibiotic era.   At that point, if a patient is seriously ill, say with E. coli, then there is virtually nothing you can do.”

A major reason for the emergence and spread of the gene is suspected to be the heavy use of colistin to feed livestock to promote their growth.  Much of the worldwide annual use of 12,000 tonnes of colistin in animal feed takes place in China, according to the paper by Liu and colleagues.

The paper mentions that besides China, the MCR-1 gene has also been found in Malaysia and Denmark.  It revealed that Malaysian scientists had found bacterial DNA sequences in December 2014 with genes that look like MCR-1.  The possibility that E.coli with the MCR-1 gene had spread into other South-east Asian countries is “deeply concerning”, said the authors.

After the paper was published, new papers and information have shown that the MCR-1 gene has been found in bacterial samples in many other countries, including Thailand, Laos, Brazil, Egypt, Italy, Spain, England and Wales, the Netherlands, Algeria, Portugal, Canada and the United States.

The most frightening thing about MCR-1 is the ease with which it can spread resistance to other species of bacteria through a process known as horizontal gene transfer.

A few years ago, there was a similar scare about NDM-1, a gene with the ability  to  jump  from  one   bacteria   to other species, making them highly resistant to all known drugs, except two, including colistin.

If the colistin-resistant MCR-1 were to combine with NDM-1, then the bacteria having the combined gene would be resistant to virtually all drugs.

In 2010, only two types of bacteria were found to be hosting the NDM-1 gene – E. coli and Klebsiella pneumonia.  Within a few years, NDM-1 had been found in more than 20 different species of bacteria.

The discoveries of NDM-1 and now of MCR-1 add urgency to the task of addressing anti-microbial resistance.

In 2012, World Health Organization Director General Dr Margaret Chan warned that every anitibiotic ever developed was at risk of becoming useless.  “A post-antibiotic era means in effect an end to modern medicine as we know it.  Things as common as strep throat or a child’s scratched knee could once again kill.”

The World Health Assembly was an opportunity to take stock of the Global Action Plan on antimicrobial resistance.

An immediate action needed is to ban the use of colistin in livestock production.  The well-respected Lancet journal published a Comment in February that we must take the call to curtail the use of polymyxins (including colistin) in agriculture to the highest levels of government or face more patients for whom we need to say, “Sorry there is nothing I can do to cure your infection.”

Other antibiotics that are used by human beings should also be prohibited or heavily restricted in the livestock sector, especially if they are used as growth promoters. The Global Action Plan has five objectives: to use medicines properly in human and animal health; reduce infection by sanitation, hygiene and infection prevention measures; strengthen surveillance and research; educate the public as well as doctors, veterinarians and farmers on proper use of antibiotics;  and increase investment in developing new medicines, diagnostic tools and vaccines.

Martin Khor is the Executive Director of the South Centre. Contact: director(at)southcentre.int

This article was first published in The Star of Malaysia, dated 9 May 2016.

World Economy in Serious Difficulty: Call for Bold Measures

This article is based on a presentation by Dr. Yılmaz Akyüz, Chief Economist of the South Centre, at a South Centre conference which was placed in “The Real News” video online.

By Yılmaz Akyüz

The US was the cause of the crisis but has come out better than anyone else in the advanced world and better than many developing countries. During the crisis there was a widespread perception that this was the end of US hegemony. It was end of the dollar as the major reserve currency.

When we look back now, we see that the US is strengthened a lot more as a result of this crisis. Not only vis-à-vis other developed countries – Europe, European Union or Japan – but developing countries including China, in economic terms. The status of the dollar as a reserve currency today is unchallenged because of the crisis in Europe.

The US economy is also fragile. Usually economic expansions are often followed by contractions. This is part of the capitalist system working in boom bust cycles. The US has had 24 quarters of expansion since the beginning of the crisis. And a lot of people think simply on this observation that after such expansion US recovery or growth is supposed to come to an end on historical evidence.

But apart from that? It is very difficult to get out of the policies that US introduced in response to the crisis. It does not know how to get out of the policy of easy money. It is very hesitant in raising interest rates. But on the other hand if there is a slowdown in the US and a contraction and renewed instability they do not have any ammunition to respond to it, because they used all their ammunition to respond to the last crisis and they are still using the same except in bond purchases.

We have not had a serious debt crisis in an emerging economy in the past 10 – 12 years. However, the risks are very serious now. The world is caught in a debt trap today. Why? Because the resolution of the European and American crisis – which was a debt crisis – required cutting debt. But what we have seen is that the policies implemented to resolve that crisis have given rise to the accumulation of additional debt.

In the US, the ratio of public plus private debt to gross domestic product (GDP) increased from 200% to 280%. In Japan it increased to 500%; in the Eurozone and China it doubled. And in developing countries today it is close to 200% of GDP.

The current situation has an uncanny similarity to the 1970s and 1980s. Developing countries had a boom in commodity markets in the 70s which was accompanied by massive international lending by banks recycling petrodollars [oil surpluses]. And this twin-boom in commodities and capital flows to developing countries in the 70s ended up with a bust when the US raised interest rates in 1979 and 1980. And what we had was a debt crisis in Latin America. And the situation now is somewhat similar. We had a twin boom in commodity prices and capital flows and now we have come to the end of this boom even without the US changing its monetary policy in a big way. And the question is will the outcome be the same as in the 1970s?

We are highly vulnerable to the reversal of commodity prices and capital flows. The vulnerability to commodity prices nevertheless varies among developing countries because different types of commodities fell at different rates. Some developing countries benefit from commodity price declines but no developing country would benefit from tightening of the external financial situation. Now we cannot count on reserves. Traditionally we look at the reserve adequacy in terms of their volume relative to short-term external debt, but now there is a strong presence of foreigners in domestic bond, equity and deposit markets and their exit can cause significant turmoil.

Monetary policy now faces a major dilemma. In order to stimulate demand and growth we have to cut interest rates. A cut in interest rates can trigger capital outflows. So there is a dilemma between growth and stability. If we face a liquidity crisis we no longer have enough reserves to meet our imports and stay current on our debt payments and keep the capital account open – what do we do? Business as usual? Borrow from the IMF? Keep the capital account open? Continue allowing capital to run out, using reserves and the borrowing from the IMF and practicing austerity?

Now I think there is a strong misgiving vis-à-vis the IMF among the developing countries. And I am sure they will do their best to avoid going to the IMF in the event of a serious liquidity crisis. I am not referring to a solvency crisis, default – I am talking about simple liquidity crisis when you do not have enough foreign exchange to meet your current account needs and debt payments. Then what do you do?

Of course, the unorthodox response is to use reserves to support one’s economy, imports, not to support capital outflows. Are we prepared to impose controls over capital outflows? Are we prepared to impose temporary debt standstills? Or, are we prepared to impose austerity on creditors and investors rather than austerity on the people? These are the critical issues.

In conclusion, even if we avoid a fully-fledged financial crisis, the prospects are for sluggish, erratic growth and heightened instability in the global economy. Why? Because of financial excesses we have had in the past 8-9 years. And one cannot easily restructure balance sheets; that is the problem. We need to have a better policy mix than we have been using.

A few suggestions. First, stop relying on easy money which is not good except for speculation in advanced economies, abandon fiscal orthodoxy, invest in infrastructure and create jobs and create demand. Secondly, we need better control over international capital flows not only by recipient countries but also by source countries. Because they are most destabilizing. They are at the heart of the current difficulties that we face. Third, we need a mechanism for adequate provision of international liquidity and finally we need effective and equitable debt resolution mechanisms.

Now these issues should be studied and debated extensively, particularly at the current juncture. But unfortunately Bretton Woods institutions are not the best place to do that; neither to consider the fragilities, nor to resolve the problems. The IMF has missed one of the most serious crises in the world since the second world war, the subprime crisis. The IMF at the Secretariat level is not very efficient in providing early warnings to countries about the global economic situation. And this is not just a technical expertise issue; it is also a political issue. Because such an early warning – an effective projection of the difficulties in the world requires a critical examination of the policies of countries which exert significant impact on the world economy. It would require criticizing US and European economic policy. The IMF Secretariat cannot do that. In 2008 and 2009 when we were writing that the rise of the South was a myth, the IMF was promoting that the South was becoming a locomotive for the world economy. And they changed their mind only in 2013.

Secondly the IMF is not very bold in innovation. They are not bold in the reform of the international financial architecture. Why? Because the IMF is part of that architecture and that requires to reform that very same institution…So I believe that these matters should be discussed and debated among developing countries and in other fora such as the United Nations Conference on Trade and Development (UNCTAD), which has a much better record in anticipating these difficulties and providing proposals, which eventually became part of the mainstream.

Yılmaz Akyüz is the chief economist of the South Centre.

This article was published in  Inter Press Service (IPS).

The Rise of Investor-State Dispute Settlement in the Extractive Sectors

The investor-state dispute settlement (ISDS) system has been used by foreign investors against several African governments, constraining or hindering their use of pro-development policies and subjecting them to the threat of payment of monetary compensation.

By Kinda Mohamadieh and Daniel Uribe

African countries have been active in concluding international investment treaties. According to the United Nations Conference on Trade and Development (UNCTAD), as of end 2013, 793 bilateral investment treaties (BITs) have been concluded by African countries, representing 27% of the total number of BITs worldwide.

UNCTAD reports as well that several African countries are actively negotiating additional agreements. For example: the Southern African Customs Union is negotiating with India and the East African Community, including Burundi, Kenya, Tanzania, and Uganda, are in discussions with the United States.

Moreover, African countries are increasingly subject to investor-state dispute settlement (ISDS) cases, including claims that challenge the regulatory actions of host countries in a wide range of areas, including public services and race relations. Out of all cases registered under the International Centre for Settlement of Investment Disputes (ICSID), Sub-Saharan Africa accounts for 16% of these cases. In 2014, cases against Sub-Saharan Africa amounted to 20% of the overall number of new cases brought under ICSID during that year.

At the same time, African States have developed the Africa Mining Vision, which is aimed at introducing policy and regulatory frameworks intended to maximize the development of the region through the use of natural resources as catalyst for industrial development in order to diversify the economy. Africa is one of the most important producers of mineral commodities; however most of the minerals are exported in raw form (ore concentrates or metals).

In response, the Africa Mining Vision is intended to promote added-value mechanisms within the region with a view to fully benefiting from the potential of mining. The approach reflected in the Africa Mining Vision is similar to policies several other developing countries have been considering in order to increase their participation on strategic sectors and enhance benefits from resource wealth in order to serve development and industrialization objectives. For example, several Latin American countries, including Ecuador, Bolivia and Venezuela, have applied active policies to regain the States’ policy space to develop, plan, regulate and actively participate in strategic sectors such as mining, water, energy and telecommunication in order to guarantee the use of natural resources for an economically, environmentally and socially sustainable development of the State.

Since 2006, several African countries, including Ghana, Congo DR, Zambia, Liberia, Zimbabwe, Guinea, Cote d’Ivoire, Malawi, Sierra Leone, Burkina Faso, Kenya, Tanzania and Madagascar have taken actions in terms of regulatory or institutional changes, including amending laws or initiating the renegotiation of contracts with mining firms or indicated an intention to take one or both steps. A number of countries are debating approaches to the conception of domestic/local content within the context of the ‘Africa Mining Vision’.

In the case of African countries, similar to other developing countries, the expansion of international investment agreements could carry significant risks to policy space and policy tools necessary for industrialization and development. In the case of African countries, this implies risks to the potential use of sectoral policies, such as policies in the extractive industries and the Africa Mining Vision, in order to support and promote African countries’ industrialization objectives.

Much of the recent debate and controversy in regard to the international investment protection regime have revolved around their implications on policy space that developing countries need to promote development. The rising number of ISDS cases revealed how the rules established under international investment agreements, and the way they have been expansively interpreted by private investment arbitrators, encroach on government’s ability to regulate in the public interest.

The majority of the ISDS cases registered at ICSID are in the gas, oil, and mining sector; out of all the ISDS cases registered at ICSID until 2014, 26% were concentrated in the oil, gas, and mining sectors. This figure is 35% for the year 2014 alone. By contrast, in the year 2000, there were only three pending ICSID cases related to oil, mining, or gas.Through resorting to investor-state dispute settlement (ISDS) mechanisms, investors are challenging a broad range of government measures, not only challenging outright expropriation. Investors brought cases in relation to revocations of licenses (e.g., in mining, telecommunications, tourism), alleged breaches of investment contracts, alleged irregularities in public tenders, changes to domestic regulatory frameworks (gas, nuclear energy, marketing of gold, currency regulations), withdrawal of previously granted subsidies, tax measures and other regulatory interventions.

Similarly, ISDS has increasingly been used by investors in the extractive industries in several African countries, challenging governmental reform action, such as policy against speculation in the oil industry as well as tax measures. For example, Vanoil Ltd., a Canadian oil company, threatened to bring a case against Kenya after failure to secure extension of a pair of production-sharing contracts for onshore oil exploration in Kenya. African Petroleum Gambia Limited brought a case (contract-based) against Gambia disputing termination of hydrocarbon licenses for exploration of oil. Total E&P Uganda BV (Dutch), subsidiary of French company Total S.A., brought a claim in relation to a stamp duty imposed by the Uganda Revenue Authority on the acquisition of stakes from London-listed Tullow Oil.

The problem of the investment protection regime is multilayered and is rooted in the following deficiencies: an imbalance in the provisions of the investment treaties (including broad definitions of investment and investor, free transfer of capital, rights to establishment, the national treatment and the most-favoured-nation (MFN) clauses, fair and equitable treatment, protection from direct and indirect expropriation and prohibition of performance requirements), which focus on the investors‘ rights and neglect investors‘ responsibilities, while often lacking express recognition of the need to safeguard the host states‘ regulatory authority; vague treaty provisions, which allow for expansive interpretation by arbitrators and for the rise of systemic bias in favour of the investors in the resolution of disputes under investment treaty law.

Such trends are often not in line with the original intent of the States negotiating the treaty. The investor-state dispute settlement mechanism is led by a network of arbitrators dominated by private lawyers, whose expertise often stem from commercial law. Arbitrators have asserted jurisdiction over a wide range of issues, including regulatory measures on which constitutional courts had made a decision in accordance with the national law.

The way the ISDS system has operated so far generates deep concerns in regard to democratic governance and accountability; the lack of transparency and available public information on ISDS procedures limit the space of public participation and accountability. Currently 608 ISDS cases are known.

However, since most international investment agreements allow for fully confidential arbitration, the actual number is likely to be higher. Within this context, claims or threats by investors to bring forward a claim against a particular state are increasing.

Several countries, both developed and developing, have been reviewing their approach to investment treaties, including looking at ways of reducing their legal liability under bilateral investment treaties (BITs), especially given the surge in investor-to-state dispute cases from these treaties.

According to the UNCTAD, at least 40 countries and four regional integration organizations are currently or have been recently revising their model of international investment agreements, and at least 60 countries have developed or are developing new model IIAs since 2012. UNCTAD points out that ”the question is not whether to reform or not, but about the what, how and extent of such reform“.

Developing countries seeking to reform their approach to investment protection treaties have reviewed their existing international investment agreements and their implications. Some have set a moratorium on signing and ratifying new agreements during the time of the review. Some countries like South Africa, Indonesia, Ecuador and Bolivia chose to withdraw from all or some treaties. South Africa chose to replace BITs with a new national Investment Act entitled Promotion and Protection of Investment Bill, that clarifies investment protection standards consistent with the South African constitution. Indonesia chose to develop a new model BIT, so did India. Ecuador reverted to investment contracts as the main legal instrument defining the relation with investors, including setting clear obligations on the investor, such as performance requirements. Some states are pursuing alternatives at the regional level, through developing model rules that take into consideration the developmental concerns.

Kinda Mohamadieh is a Research Associate and Daniel Uribe is a Visiting Researcher at the South Centre .

This article was published in  Inter Press Service (IPS), on  28 March 2016.

This article is based on the South Centre Research Paper  65 available at: http://www.southcentre.int/research-paper-65-february-2016

“Free trade” in trouble in the United States

As an anti-free trade wave sweeps across the United States, developing countries have to rethink their own trade realities for their own development interests.

By Martin Khor

“Free trade” seems to be in deep trouble in the United States, with serious implications for the rest of the world.

Opposition to free trade or trade agreements emerged as a big theme among the leading American presidential candidates.

Donald Trump attacked cheap imports especially from China and threatened to raise tariffs. Hillary Clinton criticised the Trans-Pacific Partnership Agreement (TPPA) which she once championed, and Bernie Sanders’ opposition to free trade agreements (FTAs) helped him win in many states before the New York primary.

That trade became such a hot topic in the campaigns reflects a strong anti-free trade sentiment on the ground.

Almost six million jobs were lost in the US manufacturing sector from 1999 to 2011.

Wages have remained stagnant while the incomes of the top one per cent of Americans have shot up.

Rightly or wrongly, many Americans blame these problems on US trade policy and FTAs.

The downside of trade agreements have been highlighted by economists like Joseph Stiglitz and by unions and NGOs. But the benefits of “free trade” have been touted by almost all mainstream economists and journalists.

Recently, however, the establishment media have published many articles on the collapse of popular support for free trade in the US:

Lawrence Summers, former Treasury secretary, noted that “a revolt against global integration is under way in the West”. The main reason is a sense “that it is a project carried out by elites for elites with little consideration for the interests of ordinary people”.

The Economist, with a cover sub-titled “America turns against free trade”, lamented how mainstream politicians are pouring fuel on the anti-free trade fire. While maintaining that free trade still deserves full support, it cites studies showing that the losses from free trade are more concentrated and longer-lasting than had been assumed.

Financial Times columnist Phillip Steven’s article “US politics is closing the door on free trade” quotes Washington observers saying that there is no chance of the next president or Congress, of whatever colour, backing the TPPA. The backlash against free trade is deep as the middle classes have seen scant evidence of the gains once promised for past trade deals.

In a blog on the Wall Street Journal, Greg Ip’s article The Case for Free Trade is Weaker Than You Think concludes that if workers lose their jobs to imports and central banks can’t bolster domestic spending enough to re-employ them, a country may be worse off and keeping imports out can make it better off.

Orthodox economists argue that free trade is beneficial because consumers enjoy cheaper goods. They recognise that companies that can’t compete with imports close and workers get retrenched. But they assume that there will be new businesses generated by exports and the retrenched workers will shift there, so that overall there will be higher productivity and no net job loss.

However, new research, some of which is cited by the articles above, shows that this positive adjustment can take longer than anticipated or may not take place at all.

Thus, trade liberalisation can cause net losses under certain conditions. The gains from having cheaper goods and more exports could be more than offset by loss of local businesses, job retrenchments and stagnant wages.

There are serious implications of this shift against free trade in the US.

The TPPA may be threatened as Congress approval is required and this is now less likely to happen during Obama’s term.

Under a new president and Congress, it is not clear there will be enough support.

If the US does not ratify the TPPA, the whole deal may be off as the other countries do not see the point of joining without the US.

US scepticism on the benefits of free trade has also now affected the multilateral arena. At the World Trade Organization, the US is now refusing attempts to complete the Doha Round.

More US protectionism is now likely. Trump has threatened to slap high tariffs on Chinese goods. Even if this crude method is not used, the US can increasingly use less direct methods such as anti-dumping actions. Affected countries will then retaliate, resulting in a spiral.

This turn of events is ironic.

For decades, the West has put high pressure on developing countries, even the poorest among them, to liberalise their trade.

A few countries, mainly Asian, staged their liberalisation carefully and benefited from industrialised exports which could pay for their increased imports.

However, countries with a weak capacity, especially in Africa, saw the collapse of their industries and farms as cheap imports replaced local products.

Many development-oriented economists and groups were right to caution poorer countries against sudden import liberalisation and pointed to the fallacy of the theory that free trade is always good, but the damage was already done.

Ironically, it is now the US establishment that is facing people’s opposition to the free trade logic.

It should be noted that the developed countries have not really practised free trade. Their high-cost agriculture sector is kept afloat by extremely high subsidies, which enable them to keep out imports and, worse, to sell their subsidised farm products to the rest of the world at artificially low prices.

Eliminating these subsidies or reducing them sharply was the top priority at the WTO’s Doha Agenda. But this is being jettisoned by the insistence of developed countries that the Doha Round is dead.

In the bilateral and plurilateral FTAs like the TPPA, the US and Europe have also kept the agriculture subsidy issue off the table.

Thus, the developed countries succeeded in maintaining trade rules that allow them to continue their protectionist practices.

Finally, if the US itself is having growing doubts about the benefits of “free trade”, less powerful countries should have a more realistic assessment of trade liberalisation.

As free trade and trade policy reaches a crossroads in the US and the rest of the West, developing countries have to rethink their own trade realities and make their own trade policies for their own development interests.

Martin Khor is the Executive Director of the South Centre.

South African Minister Rob Davies calls for pro-development approach to IP policy, at WIPO conference

The World Intellectual Property Organization International Conference on Intellectual Property and Development that took place in Geneva on 7-8 April 2016 was opened by a Keynote Address by Dr. Rob Davies, Minister of Trade and Industry of South Africa. Below are excerpts of the Keynote Address by Minister Rob Davies, which advocates that IP policies should be formulated taking account of the development needs of developing countries.

I want to start by situating my remarks on IP protection in a wider historical view that all countries that have succeeded in breaking out of poverty and underdevelopment – beginning with Venice in the middle ages, through Britain in the 18th and 19th century, to the Asian newly industrializing economies, and to China and India today – all of them without exception have done so by nurturing a cluster of industrial activities characterized by increased, rather than diminishing, returns.

Nurturing has involved the identification and targeting of appropriate value adding activities, the deployment of public and private resources to support innovation, entrepreneurship and infrastructure development as well as the judicious use of tariffs and other forms of protection.

This understanding has informed South Africa and indeed Africa’s recognition that its sustainable development will, in great measure, be dependent on pursuing structural transformation of its economies through industrialisation.

Let’s step back for a moment: Over the last decade or so, Sub-Saharan African countries have shown impressive economic growth, outpacing advanced economies. That growth rate has also been above the average for all emerging and developing economies and while only Asia has recorded higher growth rates, the differential has been narrowing.

Seven of the top ten fastest growing economies in the global economy are African and Africa now offers the highest return on investment of any region in the world economy. Africa’s abundant natural resources, the growing consumer power of Africa’s emerging middle class and favourable demographics offer enormous potential for sustainable economic growth and development across the continent.

While all this has been positive, and suggests prospects for future growth and development are much improved, Africa’s growth path has been based primarily on commodity exports, particularly to Asian countries, as well as by strong consumption based on the rise of middle class consumers.

There is a now widening consensus among African government and business leaders that growth on this path will not be sustainable in the longer term and that, to place the continent on a firmer footing towards sustainable development, Africa will need to pursue structural transformation of its economic base and build a more diversified productive capacity, through industrialisation. The recent dramatic decline in a range of commodity prices, many of which are the mainstay of African production for export, should only redouble our efforts at industrialisation and economic diversification.

South Africa’s Industrial Policy Action Plan

In South Africa, the Government has chosen a growth and development path that prioritises industrial upgrading in more labour intensive sectors to generate sustainable and decent employment. Upgrading South Africa’s industrial base in this way and encouraging the production and export of more sophisticated value added products, require purposeful intervention in the industrial economy aimed at achieving dynamic, competitive advantages.

Our National Industrial Policy Framework and Trade Policy and Strategic Framework depart from the view that deliberate policy interventions are needed to address impediments to economic diversification, and that specific measures are considered on a sector-by-sector basis, dictated by the needs and objectives of sectoral strategies.

Two dimensions of this process may be instructive for the remarks I will make later more directly on IPR and economic development. First, our sectoral work is grounded in a ‘self-discovery’ process of engagement between government, business and labour, through which we collectively identify the specific measures and programmes needed to advance industrial development.

Second, our approach to tariff policy is one in which we make no a priori presumption of the benefits or costs of maintaining either low or high tariffs. Instead, tariff setting is assessed on the evidence obtained at firm and sector levels through detailed investigations that consider the impact of proposed tariffs on, amongst other things, economic output and employment across the value chain.

In short, tariff setting is evidence-based and the product of intensive consultations between affected stakeholders. Of course, the upper limits for tariffs are set by the binding obligations South Africa has undertaken in the WTO and in bilateral trade agreements.

IPR and Economic Development

If the proposition that industrial development and structural transformation are necessary for sustainable development in many developing countries is correct, a relevant question is whether and how IP protection can be designed to support these objectives.

Considerable work has been undertaken in the relationship between IPR and economic development, including excellent work under the aegis of WIPO. In our reading of this literature, it seems clear that the international community is far from reaching a conv

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