Intellectual property rights, TRIPS and free trade agreements

Malaysia first introduced a patent registration system through the Patents Act 1983, since amended several times. This Act provides for the granting of patents for all products, including pharmaceuticals. A patent office was established prior to 1983. It was initially placed under the Ministry of Trade and Industry but shifted to the Ministry of Domestic Trade and Consumer Affairs in 1990. The Patents (Amendment) Act 2000 provides for full compliance with the requirements of the TRIPS Agreement. Coming into force on 1 August 2001, it extended the patent term from 15 to 20 years from date of filing (Azmi and Alavi, 2001).

While continuing to give priority to the multilateral trading system under the WTO, Malaysia has also been pursuing bilateral and regional FTAs (Rasiah, 2005). Their remit includes investment, trade facilitation and IPR, as well as economic cooperation in a wide variety of areas. Malaysia has concluded, signed or implemented bilateral FTAs with Japan, Pakistan, New Zealand and Chile. At the regional level, Malaysia and fellow member states of ASEAN (the Association of South-East Asian Nations) have established the ASEAN Free Trade Area. ASEAN has also concluded FTAs with China, Japan, Korea and India, as well as Australia and New Zealand. Free trade agreements still under negotiation at the time of writing include those between Malaysia and Turkey, Malaysia and Australia, the Trade Preferential System and the Organization of Islamic Conference, the Developing-Eight, the Preferential Tariff Agreement and the Trans-Pacific Partnership Agreement (TPP) (Ministry of International Trade and Industry, 2010).

Many of these FTAs extend the scope of IPR protection beyond what is required under TRIPS through so-called TRIPS-plus provisions. These provisions make it more difficult for developing countries like Malaysia to supply their population with essential medicines and for local generics firms to prosper. In particular, extended IPR protection through TRIPS-plus provisions enables patent-owning multinationals to enjoy monopoly pricing for a longer period, to the detriment of the availability of affordable drugs and the cost of healthcare. Extension of the period of monopoly supply delays the market entry of generics and discourages small- and medium-sized enterprises from producing generic drugs (Smith et al., 2009). Developing countries generate little intellectual property of their own, and so stronger patents rights result in an increase in the outflow of royalties. The net outflow of royalties for Malaysia in 2005 was estimated to be US$1.7 billion (Smith, 2008).

The FTAs Malaysia has signed with Pakistan and India do not seem to jeopardize the local pharmaceutical industry or supply of affordable drugs. The TPP—a proposed regional trade pact involving Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the US—and the possible EU-Malaysia FTA, however, would have serious consequences for consumers of medicines in Malaysia. Both agreements are considered significant FTAs from the perspective of the EU and the US, in the sense that they include stringent requirements with respect to government procurement and extended intellectual property protection. If implemented, these FTAs will have a serious impact on the local drug industry and healthcare costs.

Ongoing TPP talks appear to have superseded earlier negotiations on a bilateral US-Malaysia FTA. The American Malaysian Chamber of Commerce, which includes multinational companies with drug patents in Malaysia, had claimed that the proposed USMFTA would not affect pricing of medicines or the generics industry (AMCHAM, 2006). But this contention has been challenged by the Malaysian generics manufacturers represented by MOPI. It will take at least 15 years for the full impact of a US-Malaysia FTA, with its stronger IPR protection, to take effect, because extended patents would only apply to new medicines. Under the US-Malaysia FTA—and, by extension, the TPP—local generics manufacturers will struggle to compete with multinational firms and, consequently, Malaysians are likely to continue to pay higher prices for medicines (Third World Network, 2008).

We have already noted Malaysia's keenness to engage in FTAs. Through FTAs, bilateral investment treaties and other agreements, however, partner countries are being compelled by the US and EU to adopt US and European standards of IPR protection and enforcement. An example of the impact of such IPR protection is Malaysia's use of pharmacists to curtail the volume of generics coming from elsewhere (especially from India and Europe) and supplied to primary healthcare practitioners and private hospitals. This trade was affecting proprietary drug distributors' sales, and one way of stemming it was to allow only a limited quantity to be brought in on a prescription-only basis (pharmacists ensure that the drugs match the prescription).

In 2010, following complaints from US companies that unauthorized copies of pharmaceutical products were being granted marketing approval, Malaysia was placed on the US Trade Representative's 'Special 301 Watch List' (Flynn, 2010). This resulted in mounting pressure to adopt more stringent IPR standards. In March 2011 the Malaysian government responded by introducing rules covering data exclusivity under the Control of Drugs and Cosmetics Regulations. The Director of Pharmaceutical Services introduced data exclusivity of five years for new products containing a new chemical entity and three for second indications of a registered drug product (National Pharmaceutical Control Bureau, 2011).

Data exclusivity is not a requirement under TRIPS, yet the Malaysian government has yielded to pressure from foreign drug companies seeking to protect their investments, thereby further delaying the appearance of generics in the market. Data protection is provided only for data that has been obtained through 'a considerable effort', but it is investment that is being protected rather than new medicines. It must also be remembered that under the TRIPS Agreement only new chemical entities require protection, while new dosage types or new uses of a known product do not. The US Trade Representative's arm-twisting tactics, evident in the use of the Special 301 programme, limit access to medicines and are in violation of international human rights and the right to health. It would be fair to say that, if Malaysia concludes the FTAs with the US (under the TPP) and the EU, data exclusivity will continue to be highly contentious. In fact, the EU FTA might require data exclusivity for up to 11 years (Flynn, 2010).