While PhRMA members strongly support the initiation of Free Trade Agreement (FTA) negotiations between the United States and Morocco, we remain concerned by the failure of Morocco to meet both current obligations under the World Trade Organization (WTO) Agreement on Trade Related Intellectual Property Rights (TRIPS), as well as basic GATT 1994 requirements such as national treatment. The key issues affecting U.S. research based pharmaceutical companies in Morocco can be grouped into 2 areas: (1) inadequate protection of intellectual property rights (IPR), and (2) industrial policy and legal Issues that form market access barriers to good reliant on intellectual property protection. Given the increasing gravity of some of these concerns and the opportunity posed by FTA talks to resolve the issues, PhRMA recommends that Morocco be included on the 2003 “Special 301” Priority Watch List. We urge U.S. FTA negotiators to ensure that Morocco not gain benefits in the FTA merely for meeting current obligations or remedying current IP or market access violations.
Intellectual Property Protection
PhRMA members still await implementation of Morocco’s new patent law, published in March 2000. When implemented, this patent law should allow for the protection of pharmaceutical products in compliance with TRIPS. Unfortunately, more than two years later, implementing regulations have still not been issued and this new patent law is still not in force. Thus we face a situation where Morocco has not yet provided basic patent protection for pharmaceutical products. PhRMA recommends that, as a precondition for initiating FTA negotiations, the U.S. Government seek Morocco’s publication of the patent law implementing regulations so that the Patent Law can enter into force and the Moroccan Patent Office (OMPIC) can start issuing patents for pharmaceutical products.
While the Government of Morocco provided de facto patent protection for PhRMA member products until recently, it has now implemented a policy to encourage the filing of marketing applications of patented products. As a result, a growing number of copy products is now appearing in the market. Again, PhRMA urges that as a precondition for initiating the FTA negotiations, Morocco should freeze or suspend marketing approval for any unauthorized copy products made in the interim period between announcement of intention to start FTA negotiations and the present.
In addition, PhRMA members are concerned by the absence of data exclusivity in Morocco, which means that there is no effective protection for the commercially valuable and proprietary undisclosed data associated with applications for marketing approval. The considerable effort that research-based pharmaceutical companies undertake to gain marketing registration of their innovative pharmaceutical products is recognized by the TRIPS Agreement, which requires its Member countries, including Morocco, to provide data exclusivity. TRIPS Article 39.3 requires WTO members to provide a period of data exclusivity during which all proprietary information submitted to a regulatory body is to be protected from unfair commercial use. As with the patent law rules, Morocco should implement effective data exclusivity as a condition of FTA negotiations, and should not gain any additional benefit as a result of meeting current obligations.
Lack of Linkage between Regulatory and Industrial Property Officials
Another issue of concern is that health authorities often fail to coordinate with patent officials and inappropriately issue sanitary registrations for products already under patent, whose patent application is pending, or whose period of data exclusivity has not expired. The adoption of “linkage” regulations (i.e., establishing a formal link between health and patent authorities) would help to ameliorate this situation, requiring that “second applicants” (i.e., generic, or in some cases, “pirate” applicants) demonstrate that the product for which they are requesting market approval is not the subject of a valid patent or pending application. “Linkage” exists in the United States, Europe and Japan, and is crucial to maintaining the integrity of the intellectual property and patent system. U.S. negotiators should ensure that Morocco provides this linkage as part of its commitments under the pending FTA.
We strongly support inclusion of a chapter in the FTA that establishes adequate and effective standards for intellectual property protection, and which would facilitate the granting and enforcement of rights. The essential elements of such a chapter include measures that build upon and enhance the standards established by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and recent bilateral agreements between the United States and other countries.
Of critical importance to such a chapter are:
The inclusion of a chapter that addresses these points is necessary to bring the intellectual property systems of Morocco up to levels that approximate the standards of protection available in the United States. We also note that Morocco still does not comply with the minimum standards established by the TRIPS Agreement. Negotiations with Morocco should be conducted in a manner that ensures that necessary changes to conform to the TRIPS requirements are made prior to the conclusion of a new agreement.
Beyond the intellectual property area, PhRMA members also confront two problems that appear rooted in industrial policy relating to local manufacturing or investment and local ownership legal requirements.
Market Access Barriers
Industrial Policy and Legal Issues:
In order to become a pharmaceutical company in Morocco, a company must build a local manufacturing plant, regardless of the economics (small volumes means that one year consumption can be manufactured in one month) and the fact that local industry only utilize 30-40% of total current manufacturing capacity. This requirement is aimed at imposing on foreign pharmaceutical companies a local brick and mortar investment. This local manufacturing requirement fails to see (a) the over capacity problem that is plaguing the local industry and hurting the viability of local companies, and (b) the reality of the investment made by the research-based pharmaceutical industry in hiring and training hundreds of medical representatives to disseminate scientific information to the medical community. Medical representatives also represent a highly trained and well-paid work force that should be of greater value to Morocco than a few additional factory workers.
PhRMA requests that USTR seek the agreement of the Government of Morocco to amend the Law of 1960 in order to allow foreign companies to retain full ownership of their local investment and be entitled to register their products under their name in Morocco regardless of (i) capital structure and (ii) local manufacturing capabilities4. Other countries like Jordan have shown that there are other and better ways to create a strong pharmaceutical industry and to ensure that pharmaceutical products are safely manufactured and marketed in the best interests of the public.
A second onerous condition of doing business as a pharmaceutical company in Morocco is the requirement that a majority interest in the company must be owned by an actual pharmacist. This also exacerbates the negative impact of current requirements of investment in bricks and mortar facilities.
Under Moroccan Law 1-59-367 of February 19, 1960 (the "Law"), only companies that are controlled and majority-owned by individual pharmacists (half of which must be licensed to practice in Morocco, i.e., Moroccan pharmacists) can be licensed to be "pharmaceutical companies" in Morocco. Failing to meet such criteria, a company (i) cannot manufacture, import and market pharmaceuticals; and (ii) cannot have any official contacts with health authorities, even about its own products that are sold by a local distributor.
As a result of this ownership requirement, an American company wanting to invest in Morocco has few good choices. The company can transfer 51% of its local investment to individual pharmacists (half of which have to be Moroccan pharmacists) in order to benefit from the rights granted to local pharmaceutical companies, or stop becoming a pharmaceutical company in Morocco, and register all its products through a third party owned local company. The local company would then enjoy quasiownership rights in Morocco over the U.S. company's products, and the local company would be deemed by the Ministry of Health to be the "owner" of the products.
This aspect of the Law of 1960 is also criticized by local companies, which are prevented from seeking capital infusions from outside investors (either companies or non-pharmacists). This greatly limits their expansion potential. Local pharmacists are also hurt because they are unable to transfer ownership of their company to their nonpharmacist heirs.4
Accordingly, PhRMA requests that USTR seek Morocco's agreement to amend the definition of a pharmaceutical company in the Law of 1960 to modernize the Moroccan legal environment for the benefit of both local companies, which will be able to attract much needed capital, and foreign companies, which will be able to own 100% of their local investment.
Import License Restrictions
Only products that are specifically life saving, of small volume, or cannot be produced technically in Morocco, qualify technically as such for import licenses and this after considerable review. Furthermore, to import finished products, the Government requires a local production facility to be maintained. Although this is not a provision in the patent law itself, it has same effect. U.S. negotiators should ensure that Morocco dismantle this requirement.
Custom duties applicable to U.S.-origin pharmaceutical products are much higher than those duties applicable to EU-origin pharmaceutical products. In addition, since March 2000, EU-origin products enjoy a progressive reduction of custom duties in the amount of 25% every year. As a result, EU products will be subjected to 0% duty as of April 2003, thus making comparable competitive U.S. products much more expensive to Moroccan patients.
It is therefore of utmost importance that a Free Trade Agreement provide for the removal of custom duties applicable to U.S.-origin pharmaceutical products, as such duties that currently deprive U.S. companies from competing on a level-playing field with EU companies.
PhRMA is concerned that the processes for New Drug Registration require major work and clarification of key issues impacting the administrative process. These span from the lead times related to their completion and the costs involved in the application processes themselves, to the specific guidelines and requirements. It is hoped that the lead-times to registration can be effectively reduced.
Moroccan law severely limits unilateral termination of distribution agreements. Termination of distribution agreements is only possible by mutual consent or through the award of unreasonable indemnification rights due to the subjective criteria specified by local distributors. Local distributors have no incentive to pursue aggressive distribution of the goods they represent, since a poor performance on their part does not put at risk their distribution agreement.
The Law Regarding the Distribution of Shares
The Moroccan pharmaceutical law of 1960 is very restrictive and gives no flexibility for foreign investors.
Pharmaceutical Law / 1960
We do not yet have an estimate of damages relating to the new practice of the Ministry of Health to approval locally manufactured copies of PhRMA member products patented in other markets. PhRMA members also suffer in Morocco from the absence of (i) formal implementation of the patent law, and (ii) data exclusivity. Both of these issues create a major risk to new, innovative products at a time when the health authorities in Morocco are shifting their priorities and are looking increasingly at the authorization of copies of still patented products.
4 Per the request of the Trade Policy Staff Committee (TPSC) PhRMA is evaluating draft legislation aimed at ammeding the law of 1960 and will provide this analysis as soon as possible. We have learned thus far that local manufacturers are now being encouraged by the Ministry of Health to launch their copies of major innovative products without permission or authorization by the right holder. Local company Galenica has launched a generic of Pfizer's Zithromax last month (November 2002), and at least three other local copy-cat versions of Zithromax are currently under regulatory review. At least two copies of Pfizer's Norvasc, an anti-hypertension treatment, are under regulatory review as well. Both Zithromax and Norvasc are protected by patent until 2007-2008 in major markets.
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