U. S. GOVERNMENT EFFORTS TO NEGOTIATE THE REPEAL, TERMINATION OR WITHDRAWAL OF ARTICLE 15(C) OF THE SOUTH AFRICAN MEDICINES AND RELATED SUBSTANCES ACT OF 1965
United States Department of State Washington, D. C. 20520 February 5, 1999 Dear Mr. XXXXXXX: On behalf of the Secretary, I am herewith submitting a revised report on steps taken by the United States Government to work with the Government of the Republic of South Africa to negotiate the repeal, suspension, or termination of section 15(C) of South Africa s Medicines and Related Substances Control Amendment Act No. 90 of 1997 required by the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999 (P.L. 105 277) I hope you find this report useful to you. If I can be of further assistance, please do not hesitate to contact me. Sincerely, Barbara Larkin Assistant Secretary Legislative Affairs Enclosure: As Stated The Honorable XXX XXXXX, Committee on XXXXXXXXX XXXXXXXX, House of Representatives. U. S. GOVERNMENT EFFORTS TO NEGOTIATE THE REPEAL, TERMINATION OR WITHDRAWAL OF ARTICLE 15(C) OF THE SOUTH AFRICAN MEDICINES AND RELATED SUBSTANCES ACT OF 1965 The intellectual property rights protection issue surrounding Article 15(c) of the December 1997 amendments to the South African Medicines and Related Substances Act of 1965 ("Medicines Act") is a top priority for the United States Government s (USG s) economic relations with the Republic of South Africa. Resolving this bilateral trade conflict has been and remains a vital component of our bilateral commercial relationship. All relevant agencies of the U.S. Government -- the Department of State together with the Department of Commerce, its U.S. Patent and Trademark Office (USPTO), the Office of the United States Trade Representative (USTR), the National Security Council (NSC) and the Office of the Vice President (OVP) - have been engaged in an assiduous, concerted campaign to persuade the Government of South Africa (SAG) to withdraw or modify the provisions of Article 15(c) that we believe are inconsistent with South Africa s obligations and commitments under the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) The Administration understands the South African Government s wish to fulfill its commitment to make medicines more affordable for its people. Although Article 15(c), as it now stands, would authorize abrogation of pharmaceutical patents and would permit parallel imports, both WTO inconsistent actions, the South African Government to date has not allowed parallel importation of a U.S. patented pharmaceutical nor has it suspended any patents or other intellectual property rights held by U.S. pharmaceutical producers. The U.S. Government has nonetheless made clear that it will defend the legitimate interests and rights of U.S. pharmaceutical firms. In our multi level, broad based discussions with the SAG, USG officials have explained that abrogating intellectual property rights of pharmaceutical firms is not a viable means of accomplishing SAG objectives to make medicines more affordable for South Africans. We have often reiterated that such action on the SAG s part will have a long term deleterious impact on the development of new, critically important drugs and on the availability of these drugs in South Africa. Until and unless the South African 2 Government addresses our concerns, our efforts will continue on several fronts. Preempting Adoption of the Amendments Even before the South African parliament adopted the 1997 amendments, the State Department with the full support of USTR, Commerce/USPTO and pharmaceutical industry representatives, instructed the Embassy in Pretoria to deliver strong demarches opposing the undermining of patent protection and potential abrogation of South Africa s international commitments and obligations. In June 1997, the Embassy in Pretoria, echoing testimony by U.S. pharmaceutical companies operating in South Africa, presented USG views at a parliamentary hearing on the proposed amendments to the Medicines Act. Embassy officials stressed the position that the USG would never abide abrogation of patent protection or acquiesce in parallel importation of patented medicines. U.S. Ambassador James Joseph has made frequent public statements and multiple private demarches to high- ranking South African officials against the legalization of parallel imports since mid 1997. Ambassador Joseph met with the members of the parliamentary Health Committee during their consideration of this draft of the amendments to the Medicines Act. The parliamentarians listened intently to his arguments for why the bill would be problematic. As a result, the legislators withdrew the proposed amendments from parliamentary consideration with the intent of modifying them. During the July 1997 U.S.-South Africa Binational Commission meeting, Secretary of Commerce Daley again voiced opposition to the proposed amendments to South African Trade and Industry Minister Erwin. Minister Erwin assured Secretary Daley that U.S. concerns would be alleviated by a "revision" of the bill that would be presented to parliament later in 1997. They agreed to establish an ad hoc working group on intellectual property issues to resolve the controversy raised by the proposed amendments to the Medicines Act and obligations set forth TRIPS Article 39. While the objectionable language contained in the original proposed amendments was removed as promised, the 3 South African Government s revised amendments, which parliament ultimately passed in October 1997 and President Mandela signed into law in December 1997, contained a new provision, Article 15(c), that is so ambiguous as to make the new bill worse than the earlier version. Article 15(c) seems to permit the South African Minister of Health to abrogate pharmaceutical patent rights and/or permit parallel importation of patented pharmaceutical products. Introduction of "New" Amendment When U.S. Government officials in Washington and Embassy staff repeatedly requested clarification on the impact of Article 15(c), during early 1998, South African Government officials gave their assurances that there was no intention to use the authority of 15(c) to abrogate patents. South African Health Minister Zuma and her senior staff have stated repeatedly that the SAG has no intention of using the powers conferred by the bill to abrogate patent rights. Nevertheless, U.S. Government experts determined that provisions of 15(c) authorize action clearly inconsistent with South Africa s obligations under TRIPS. At the State Department s instruction, the Embassy in Pretoria has, over the past year, disseminated widely within the South African Government the U.S. Government view that 15(c) authorizes conduct that would violate TRIPS. On the parallel import issue, however, U.S. Government attorneys note that under the terms of the TRIPS agreement, disputes related to parallel importation are not subject to WTO dispute settlement procedures. Since the passage of the offending amendments in December 1997, U.S. Government agencies have been engaged in a full court press with South African officials from the Departments of Trade and Industry, Foreign Affairs, and Health, to convince the South African Government to withdraw or amend the offending provisions of the law, or at the very least, to ensure that the law is implemented in a manner fully consistent with South Africa s TRIPS obligations. During early 1998, Embassy officials and the Assistant U.S. Trade Representative for African Affairs made repeated requests to review the implementing regulations for Article 15(c) in order to ensure that application of the amendment would be consistent with South Africa s TRIPS obligations 4 and commitments. However, the regulations for 15(c) have never been shared with the U.S. Government, nor have they ever been formally published and implemented. South African officials said a pending legal challenge of the amendments by pharmaceutical manufacturers precludes them from providing the USG with documents which could prejudice the case. An International Effort In early 1998, the Embassy in Pretoria approached the Swiss and EU member embassies in South Africa to suggest a joint effort to protest the provisions of Article 15(c) since European pharmaceutical companies could be adversely affected by the amendments, and some are party to the pending litigation. Although European Governments preferred to let the U.S. Government take the lead in demarching the South African Government on pharmaceutical patent protection, French President Chirac raised France s concerns during his July 1998 state visit to South Africa and the Swiss and German presidents also raised the issue privately with Deputy President Mbeki. The United States Government Makes its Case Assistant U.S. Trade Representative for Africa Rosa Whitaker traveled to South Africa in the Spring of 1998 and raised U.S. Government concerns with both the Minister of Health and the Minister of Trade and Industry. She reiterated our request to review the draft implementing regulations. Her personal intervention reinforced the Embassy s clear message to the South African Government that the United States would not abide actions inconsistent with WTO obligations. The ad hoc working group on intellectual property created at the July 1997 BNC held its first meeting in March 1998. The two hour conference call meeting did allow the U.S. delegation - including representatives of the Departments of State, Commerce, the U.S. Patent and Trademark Office and the Office of the U.S. Trade Representative -- to eliminate several lingering misunderstandings and clarify once more U.S. Government views. However, since only officials of the South African Department of Trade and Industry attended the conference 5 call, the South African delegation was not in a position to answer questions on the Medicines Act authoritatively nor were they empowered to negotiate on matters related to the amendments to the Act, since the Medicines Act is the bailiwick of the South African Department of Health. Special 301 Watch List On April 30, 1998, with the full endorsement and support of the Department of State, the United States Trade Representative designated South Africa a Special 301 "Watch List" country during USTR s annual worldwide review of intellectual property rights protection. This designation was based largely on the potential impact of Article 15(c), not only in the South African market but also due to its global precedent and the undermining of WTO principles. The State Department joined with other USG agencies with trade responsibility to insist on this designation in the hope that this special attention would spur South Africa to change or withdraw Article 15(c) Withholding GSP The Department of State, USTR, and the Department of Commerce developed an Administration decision to withhold preferential tariff treatment from certain South African exports in the early summer of 1998. On June 30, the White House announced that four items, for which South Africa had requested preferential tariff treatment under the Generalized System of Preferences (GSP) program, would be held in abeyance pending adequate progress on intellectual property rights protection in South Africa. This action was widely reported in the South African press, but SAG reaction was muted. Securing South African Assurances In March 1998, Secretary of Commerce Daley met with South African Health Minister Zuma to underline USG resolve to ensure South Africa would not use the provisions in 15(c) to undermine pharmaceutical patent rights or allow parallel imports. 6 Dr. Ian Roberts, a senior official from the South African Department of Health, visited Washington in May 1998 and met with U.S. Government patent experts and congressional staff, and attended a USTR-chaired U.S. Government interagency meeting attended by State Department officials. At this meeting, U.S. Government officials reiterated the U.S. demand that South Africa comply with its international obligations to ensure adequate and effective protection to pharmaceutical patents. Dr. Roberts repeated South African Health Minister Zuma s pledge that it was not the SAG s intention to use Article 15(c) to abrogate patents or open the floodgates to parallel imports. Repeated Efforts to Resolve the Issue An Embassy official traveled to Midrand, South Africa to speak at the June 1998 "Pharmecon SA 98" pharmaceutical industry conference. The official s remarks reinforced in a public forum the strong negative U.S. views on Article 15(c) and made clear the possible ramifications of the Article s implementation, including trade sanctions. In July 1998, Assistant U.S. Trade Representative for African Affairs Rosa Whitaker met with the South African Charge d Affaires in Washington to stress once again the U.S. Government s concerns about pharmaceutical patent protection and parallel importation in South Africa. She also repeated the U.S. Government s position that South Africa s requests for preferential tariff treatment on four key exports would be held in abeyance pending adequate progress on intellectual property rights protection. During his September 1998 trip to South Africa, Commerce Secretary Daley made pharmaceutical patent protection a key item in his discussions with South African Trade and Industry Minister Alec Erwin. Daley reemphasized the U.S. Government position on Article 15(c) and reminded Minister Erwin of South Africa's s obligations under the TRIPS agreement. The Vice President s Plan for a Negotiated Solution During the August 1998 U.S.-South Africa Binational Commission meetings in Washington, Vice President Gore made the issue of intellectual property rights protection, and 7 pharmaceutical patents in particular, a central focus of his discussions with Deputy President Mbeki. They agreed on a basis for a mutually satisfactory, Government-to-Government negotiated solution to the impasse. Suspended GSP benefits would be restored as progress was made in these negotiations. This basis was developed and unanimously supported by all interested U.S. Government agencies. USTR was identified to lead the U.S. Government s negotiation efforts. Initial discussion between the Assistant U.S. Trade Representative for Services, Investment and Intellectual Property and the Deputy President s legal advisor took place in September 1998 and follow-on talks were conducted in November. During these discussions, the South African officials attempted to persuade the U.S. Government to intervene with the U.S. pharmaceutical industry to suspend or terminate its pending legal challenge to the offending provisions of the South African Medicines Act. The State Department, together with the Commerce Department and USTR, decided that such an action might undermine the leverage that U.S. companies were exerting through their legal challenge. U.S. officials told the South Africans that since the U.S. Government is not a party to the litigation, the USG was unable to agree to this request. A subsequent round of face-to-face negotiations between USTR officials and Deputy President Mbeki s advisors is tentatively scheduled to be held in Cape Town just prior to the February 1999 Binational Commission meeting. A "New" Medicines Law Meanwhile, during the fall of 1998, the South African parliament drafted and considered a new medicines law that would replace the existing Medicines Act, including the offending amendments. The State Department s Economic Minister Counselor in Pretoria met with a key Mbeki advisor in September 1998 to advocate the removal of Article 15(c) provisions from the new proposed law. In October 1998, at the State Department s suggestion, the Embassy dispatched an economic officer to Cape Town to monitor the committee and full chamber debates. He forcefully advocated the U.S. position and advised parliamentarians that the new law should not include provisions that jeopardize patent rights. Despite these strenuous efforts, a new medicines 8 bill was passed including provisions identical to Article 15(c), in November 1998. Health Minister Opens Negotiations with Industry Shortly after the new law was passed, South African Health Minister Zuma began discussions with pharmaceutical industry executives. Their dialogue has offered hope for an eventual settlement of the pending litigation and satisfactory resolution of the pharmaceutical patent protection issue. On December 4, 1998, the Assistant U.S. Trade Representative for Services, Investment, and Intellectual Property sent a letter to Deputy President Mbeki s legal advisor Mojanku Gumbi noting the USG s interest that the discussions lead to a mutually agreeable settlement. As a way of spurring the discussions, he informed Gumbi that the USC would be prepared to release a significant portion of the withheld GSP benefits should such a settlement be reached. Progress has been slow, but we understand talks are continuing. In November 1998, the State Department s Economic Minister Counselor in Pretoria met with South African Department of Foreign Affairs officials to discuss resolution of the pharmaceutical patent controversy. The South Africans were eager to find a satisfactory solution to the ongoing dispute before the upcoming February 1999 Binational Commission meeting. Embassy officials reiterated the U.S. position and noted that USTR officials talks with Mbeki advisors were the appropriate venue for seeking a negotiated settlement. Secretary Daley paid a return visit to South Africa in December 1998. In his meetings with Deputy President Mbeki and Trade and Industry Minister Erwin during that visit, pharmaceutical patent protection was the most important bilateral issue under discussion. Deputy President Mbeki was hopeful that recent discussions between the pharmaceutical manufacturers and the South African Minister of Health would yield a solution. Secretary Daley noted the possibility of negative consequences should progress on resolving this most important issue stall. The Embassy closely monitored the Zuma-pharmaceutical industry discussions, which continued through December 1998. Pharmaceutical industry officials have indicated 9 that these talks have reached a sensitive stage and that further U.S. Government efforts at this time could be counterproductive. The Embassy and Washington agencies have therefore deferred to the U.S. pharmaceutical industry to take the lead. In mid January, the Assistant U.S. Trade Representative for Services, Investment and Intellectual Property sent a letter to Legal Advisor Gumbi suggesting that specific discussion of pharmaceutical patents and Article 15(c) be put aside while Health Minister Zuma negotiates with the interested pharmaceutical manufacturers. The pharmaceutical companies' discussions with Minister Zuma continue and their constitutional court challenge in South Africa remains pending. USTR officials and Mbeki s advisors plan to meet in February 1999. Latest Efforts In January 1999, in the context of preparing for the February 1999 U.S.-South Africa Binational Commission, the State Department s Economic Minister Counselor in Pretoria raised the pharmaceutical patent protection issue with Deputy President Mbeki s economic advisor. Despite the Minister Counselor s reiteration of the U.S. position, as well as a description of the ramifications of the suspension of aid to South Africa in the USG s FY 1999 appropriations law, Mbeki s advisor said the SAG was not considering repeal of the offending language in the either the Medicines Act or the new bill. As indicated in previous sections, several adversely affected U.S. pharmaceutical manufacturers have filed a constitutional court challenge to the amendments to the Medicines Act in South African courts. While the case remains pending, the South African Government is adamant that government-to-government discussions not prejudice the outcome. U.S. Government attorneys share this view. Thus, our efforts are, in part, circumscribed by the ongoing litigation as well as a desire to be responsive to U.S. industry s request to allow its current efforts time and opportunity to be effective. We hope the State Department s and other agencies efforts to convince the South African Government to fulfill its international obligations and commitments on intellectual property rights together with a domestic legal challenge will provide sufficient incentive to achieve the suspension or removal of Article 15(c). -10- Next Steps The State Department, its Embassy in Pretoria, the Commerce Department and USTR will monitor closely the ongoing discussions between the pharmaceutical industry and the South African Minister of Health. We will continue our unflagging efforts to convince the South African Government to either repeal Article 15(c) or make it consistent with the TRIPS agreement, and thus eliminate the possibility that any abrogation of U.S. pharmaceutical patent rights in South Africa. Should there be an actual violation of any U.S. pharmaceutical patent right (e.g., patent abrogation) this Administration will respond forcefully in accordance with appropriate trade remedy legislation.
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