Global Health Policy

August 12, 2009

Terminology Matters: The Dispute between India and EU over Generic Drug Transshipments

By Tom Bollyky

Over the last sixteen months, EU customs officials have impounded more than 20 shipments of pharmaceutical products manufactured by Indian companies. The EU maintains these seizures were intended to prevent trade in counterfeit medicines. India argues the EU is targeting developing country drug manufacturers and undermining access to lawful, safe, and low-cost generic drugs in developing country markets. Last week, India announced plans to seek settlement of the dispute at the World Trade Organization (WTO).

The legal merits of the EU’s actions and India’s potential WTO claims are interesting questions. The more important issue for global health, however, is that disputes such as this one may be undermining international efforts to combat the trade in counterfeit medicines and the environment  for legitimate generic products in developing countries.

The Dispute
The final destinations of the Indian drug shipments at issue were not the EU. The drugs were being “transshipped” – shipped through EU transit hubs (i.e., airports and seaports) – before being routed to their final destinations, in this case, developing country markets. Transshipment is a legitimate, routine, and cost-saving component of world trade. Many of us are drearily familiar with the practice from U.S. commercial airlines that route passengers through hub cities – airports in Chicago, Atlanta, Minneapolis, or elsewhere – before putting them on connecting flights to their final destination.

Transshipment is also a tool sometimes used to disguise the real source and destination of illegal, grey market, or counterfeit goods. Council Regulation (EC) No. 1383/2003 permits EU custom authorities to seize goods in transshipment if those goods are suspected of infringing intellectual property rights. Patent rights are national in nature. Accordingly, a drug may be, as they apparently were in this case, unpatented or off-patent in India and its developing country destination, but infringe patents in the EU.

Indian pharmaceutical exports, mostly generic products, are increasingly big business, growing from $1.5 billion in 2003 to $4.9 billion in 2008. Many Indian companies use European ports to transship drugs and active pharmaceutical ingredients (API) to markets where there is no patent protection for the product. As a result of the EU actions, Indian generic drug makers say they had to spend more money and time to ship to transit hubs outside of the EU and ensure that seized shipments reach their destinations.

International Efforts to Stop the Trade in Counterfeit Medicines
The dispute between India and EU is the most recent evidence of the growing divide between developed and developing countries over intellectual property and transshipment that is paralyzing initiatives to stop the trade in counterfeit medicines and improve import safety. The work of International Medical Products Anti-Counterfeiting Taskforce (IMPACT), a WHO-sponsored initiative, is stalled by debates over whether it has become dominated by multinational drug company interests rather than ensuring access to quality, safe and effective medicines. India, Brazil, and other developing countries recently opposed the Standards to be Employed by Customs for Uniform Rights Enforcement initiative (SECURE) at the World Customs Organization (WCO) as global intellectual property norm setting instead of a tool for improving  import safety and customs performance.

This trend is worrisome. Stopping the trade in counterfeit medicines is important for public health. Substandard, adulterated, and contaminated drugs impede patient recovery, undermine disease control and prevention, increase drug resistance, and, if toxic, sicken or kill patients. All counterfeit drugs may not be substandard, adulterated, or contaminated.  Deliberately and fraudulently misidentified shipments or mislabeled products, however, thwart customs and regulatory systems designed to protect patients and monitor drug safety, efficacy, and quality. In doing so, counterfeit medicines pose a twofold public health risk to developed and developing countries alike. First, the counterfeit medicines themselves pose greater health risks than products that have been screened by regulatory and customs systems. Second, the trade in counterfeit medicines undermines rule of law and the integrity of regulatory and customs systems generally, which poses systemic risks for patients and health governance.

Putting the Emphasis Back on Global Health
An important first step to rebuilding the international consensus on combating the trade in counterfeit medicines would be to stop conflating intellectual property enforcement with public health anti-counterfeiting efforts.  Owners of intellectual property have legitimate interest in enforcing their rights; governments have legitimate interest in ensuring protection of property and the rule of law. Enforcement of intellectual property rights over goods in transshipment may very well be consistent with international trade and intellectual property law. It is, however, neither correct as a legal matter nor helpful to the cause of global health to equate patent enforcement with a public health effort to stop the flow of counterfeit medicines.

The uses of the term counterfeiting are not the same in intellectual property law and food & drug regulation. As a matter of intellectual property law, counterfeiting generally refers to the unauthorized use of a trademark which is the same as or similar to the trademark of another. Definitions of counterfeit drugs vary somewhat in different countries’ food & drug laws, but are uniformly not limited to IPR violations.  The WHO has defined counterfeit medicines to be those that are “deliberately and fraudulently mislabeled with respect to identity and/or source” and may include “both branded and generic products.”

Conflating IPR enforcement with public health anti-counterfeiting efforts is problematic for three reasons. 

First, intellectual property enforcement is both an over and under-inclusive criterion for stopping the trade in counterfeit medicines. It would capture many drugs that do not qualify as counterfeit, such as apparently some or all of these Indian drug shipments, but leave out counterfeit drugs, such as deliberately mislabeled shipments, that do not infringe intellectual property rights. 

Second, conflating intellectual property enforcement with public health efforts on anti-counterfeiting fuels the suspicions of exporting developing countries, such as Brazil and India, that potentially important international public health initiatives like IMPACT are, at bottom, mercantilist. Those suspicions, in turn, drive developing countries to assert their own industrial policy interests in these fora, further undermining the international consensus necessary to make progress on anti-counterfeiting. 

Third, it is important not to promote perceptions of a link between legitimate generic products and unsafe counterfeit drugs. A recent Wall Street Journal article, discussed in this blog, cited allegations that multinational firms may be marketing drugs to the working poor in emerging markets with suggestions that generic drugs are of inferior quality and untrustworthy. If true, such efforts undermine patients’ confidence in generic drugs and may result in less sustainable drug access in developing countries.