Under the Uruguay Round Agreement (1995), the jurisdiction of the World Trade Organization was expanded to include the protection of intellectual property rights. The agreement covers a wide range of subjects, including patents, copyrights, and trade secrets. It allows trade sanctions against countries that fail to abide by the agreement. With regard to the protection of pharmaceutical products, the agreement, Trade Related Aspects of Intellectual Property Rights, or TRIPs, attempts to strike a balance between the short-term benefits of proven lifesaving drugs and the long term objective of encouraging technological innovation. TRIPs imposes the following obligations on member countries: (1) protects product or process patents for at least twenty years from the date the patent application was filed; (2) prohibits discrimination between different fields of technology or places of invention and between imported and locally produced products; (3) allows governments to license someone to produce the patent product or process without the consent of the patent owner (a number of conditions must be met: the licensee must have tried unsuccessfully to get a license from the owner under reasonable terms unless there is a national emergency; the patent owner must be adequately remunerated; and the license must be nonexclusive).
Many developing countries were concerned with the potential implications of TRIPs for protecting public health. This issue gained worldwide attention when a number of South African drug companies challenged the legality of the newly enacted legislation, which allowed for compulsory licensing of patented pharmaceuticals. The U.S. government also threatened to issue a compulsory license order against Bayer AG unless the company made significant quantities of capsules available at a reduced price to victims of anthrax. Member countries agreed to interpret the TRIPs agreement in a way that supports public health by promoting access to existing drugs and the creation of new medicines. They also agreed to extend exemptions on pharmaceutical patent protection for the least-developed countries until 2016.
The TRIPs agreement states that compulsory licensing can be used only to supply the domestic market. This means that (a) countries that produce under compulsory license would be unable to export the drug, and b) countries that do not have the manufacturing capability could not import it for domestic consumption. In August 2003, WTO members agreed to make it possible for countries to import cheaper generics made under compulsory licenses if they are unable to manufacture the medicines themselves.
Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.