NCPA - National Center for Policy Analysis

Subsidizing Drug Costs for Poor Countries

March 16, 2001

Oxfam and other aid organizations concerned about the affordability of drugs for HIV treatment in developing countries are demanding that pharmaceutical companies give up their intellectual property rights -- in the form of patents -- and allow these drugs to be produced cheaply by generic manufacturers.

But economists and other experts argue that intellectual property law exists to generate global public benefits.

  • They emphasize that intellectual property legislation and the World Trade Organization's current rules -- the trade related aspects of property rights (TRIPS) agreement -- were created to defend the interests of the entire world community in continuing investment in research and innovation.
  • Without patents, medicines such as today's AIDS treatments would not have been developed by privately financed organizations.

Furthermore, aid is necessarily a function of governments and nonprofit organizations -- whereas profit making companies would not exist for long if they operated like charities. Instead, policymakers should find ways of providing very poor populations with cheap access to patented essential medicines in ways that do not permit "leak back" sales of such products to richer countries and so undermine research for the future.

One way is for governments in developed countries to create purchasing funds to subsidize patented medicines supplied at low cost to poor populations -- while restraining government price negotiators for medicines in prosperous countries from demanding savings to match those offered to the poorest.

Another helpful action would be tax credits to encourage pharmaceutical research into diseases prevalent in developing countries.

Source: David Taylor (School of Pharmacy, University of London), "Poor world health and rich world wealth," British Medical Journal, March 17, 2001.

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