When the TRIPS Agreement was adopted in 1995, there were several countries that were not making patent protection available for pharmaceutical product inventions. These countries were granted a transition period until 1 January 2005 to change their laws and make patent protection available for pharmaceutical product inventions (Article 65.4 of the TRIPS Agreement). The use of the transition period was based on two conditions.
Countries not providing pharmaceutical product patents had to allow the filing of such patents between 1995 and 2005 in order for the pharmaceutical companies to establish priority of claims over each pharmaceutical product invention (Article 70.8 of the TRIPS Agreement). Such filing is known as “mailbox”
procedure, since patents were not examined or granted during the transition period. At the end of the transition period in January 2005, the countries had to open the mailbox and provide patent protection for the remainder of the patent term, counted from the filing date, for applications that meet the patentability criteria as defined in Article 27.1 of the TRIPS Agreement.
Also during the transition period, exclusive marketing rights had to be granted for a period of 5 years after obtaining marketing approval or until a product patent was granted or rejected, whichever is shorter. This was conditional on a patent being granted and marketing approval obtained in another WTO Member (Article 70.9 of the TRIPS Agreement).35
The mailbox procedure can be applicable to LDCs during the (extended) transition period before 2016,36 provided that they were among the countries that were not making pharmaceutical product patents available on 1 January 1995 (i.e. the date of entry into force of the TRIPS Agreement). This appears to be the case in Bangladesh.
Source: UNCTAD, 2011
35 An exception applies to LDCs, which have been exempted from the obligation to provide for exclusive marketing rights for pharmaceutical products until 1 January 2016 (see above).
36 The mailbox obligation already applied to LDCs during the original transition period (i.e.
up to 1 January 2006). This follows from TRIPS Article 70.8(a), which obligates all WTO Members to apply the mailbox, “notwithstanding the provisions of Part VI” of TRIPS. The provisions of Part VI contain precisely the LDC transition period under Article 66.1. Under the 2013 and 2016 extension decisions, this same transition period under Article 66.1 was extended into 2013 (i.e. on the implementation of TRIPS obligations in general) and 2016 (i.e. on the implementation of TRIPS provisions on patents and the protection of undisclosed information in the area of pharmaceutical products). The extension decisions expressly refer to the LDC transition period “under Article 66.1” of the Agreement, i.e. the transition period under which LDCs had to respect the mailbox obligation under Article 70.8(a). This reference has to be understood as carrying over into 2013/2016 the original mailbox obligation under the original transition period. Although the 2013 decision refers only to TRIPS Articles 3–5 as remaining obligations for LDCs, it makes clear in its heading that what is extended is the transition period as subject to the mailbox obligation.
An update of the patent regime that took into account the flexibilities of the TRIPS Agreement was proposed under the draft Patent Act of 2007, prepared by the Bangladesh Law Commission. The draft Patent Act of 2007 was delayed due to a few observations of the Ministry of Law and Parliamentary Affairs on a couple of clauses that were conflicting in the law, which were then reconciled through detailed stakeholder consultations (Gehl Sampath, 2010b). The draft Act, which dealt with both patents and designs, has now been separated into a Patent Act and a Designs Act in accordance with World Intellectual Property Organization advice. According to all Ministry officials interviewed in March 2010, the new draft Patent Act 2010, which contains several changes to the earlier draft Patent Act of 2007, was supposed to be enacted during 2010.
However, as of March 2011, this does not appear to be the case.37
The legislature is to enact the draft as a law no later than the date set by the TRIPS Agreement (WTO, 2006). This date could be 1 July 2013, although there could be a specific exclusion from patentability of pharmaceutical products until 1 January 2016. The draft incorporates the mailbox application procedure that will be operational until 2016 with respect to pharmaceutical products (Law Commission, 2006). In this regard, in the case of a further extension of the LDC transition period, the mailbox system would have to be extended for the same period. During interviews, many of the companies and BAPI consider the WTO flexibilities as an important factor for their successes. Companies interested in investing in the country profile Bangladesh as an LDC benefiting from TRIPS flexibilities with significant pharmaceutical production capacity (Hassan, 2009).
In 2010, Bangladesh submitted to the WTO Council for TRIPS a communication on its priority needs for technical and financial cooperation in order to implement the TRIPS Agreement by 2013 (WTO, 2010). The submission provides an overview of the current state of play of intellectual property rights legislation in Bangladesh and highlights some of the work outstanding (WTO, 2010, Annex I). Importantly, it refers to the need to incorporate in domestic patent law a provision regarding the exportation of pharmaceutical products made under compulsory license, in line with the 2005 Decision by the WTO General Council to amend the TRIPS Agreement (WTO, 2005). Such exportation could potentially provide important opportunities to the domestic pharmaceutical industry after the introduction of full patent protection in Bangladesh. This is because the 2005 Decision waives the requirement, under Article 31(f) of the TRIPS Agreement, to reserve the predominant share of the production under a compulsory license to the domestic market of the exporting country.
In addition, the submission also illustrates that TRIPS implementation is not only about legal transposition of rights and obligations resulting from an international treaty into domestic legislation; it also includes thorough consideration of the manner in which such implementation can best benefit
37 The World Intellectual Property Organization’s WIPO Lex website, which contains domestic intellectual property laws enacted in WIPO Member states, still refers to the Bangladesh Patents and Designs Act of 1911 (see http://www.wipo.int/wipolex/en/results.
jsp?countries=BD&cat_id=3).
domestic development objectives, including, in particular, public health and the role of the pharmaceutical sector, which has been identified as a priority in Bangladesh. The submission puts particular emphasis on the vital role of technology transfer for the area of pharmaceuticals and the need to further enhance such transfer.38
5.3 Industrial and investment policies
The industrial and investment policies of Bangladesh aim at increasing the contribution by the industrial sector to GDP and employment. The policy aspiration includes that the manufacturing sector, which includes pharmaceutical production, will account for 30% of GDP and about 20%
of employment in the economy by 2021. The 2009 Industrial Policy lists pharmaceutical goods as one of the “thrust sectors” for the first time (Ministry of Industries, 2008). The thrust sectors are considered as export-oriented and receive various fiscal incentives and investment facilities and as preferences for allocation of land.
In terms of investment in pharmaceutical production, the key policies are found in the National Drug Policy of Bangladesh adopted in 1982 and revised in 2005, as explained above. Additionally, the 2009 Industry Policy of Bangladesh targets foreign investment to bring about technology transfer, management and marketing skills and to facilitate access to export markets (Ministry of Industries, 2008).39 However, the participation of multinational corporations is limited to production for export markets under the 2005 National Drug Policy of Bangladesh. An Indian pharmaceutical company, Sun Pharmaceuticals, began its operations in Bangladesh in a “green field” investment in 2007.
Interviews revealed that there is not full agreement on opening the market for essential medicines to foreign companies. Some question the wisdom of this policy while the domestic industry is still at a nascent stage, while others think that the Bangladeshi companies have built their capacity and can face competition from foreign companies.
Financing of the investment and operation of pharmaceutical manufacturing in Bangladesh is primarily through bank loans at commercial rates, and trading on the domestic capital market. During the field mission, the pharmaceutical companies stated that there are no facilities for bank loans at low interest rates and long-term repayment terms. Both Square and BPL are trading on the Chittagong Stock Exchange and Dhaka Stock Exchange. Use of supplier credit to finance acquisition of technology or importation of raw materials is highly regulated by the Bangladeshi Bank (the central bank).40 The industrial and
38 See Paragraph 8 of the submission of 23 March 2010.
39 The Bangladesh Government envisages admitting research and development expenses for tax rebate, facilitates need-based industrial technology studies at universities, and facilitates patenting of innovations and taking adequate measures to comply with the TRIPS agreement of the WTO.
40 The Bangladesh Bank (1996) states that industrial enterprises in the private sector may, with prior approval from the Board of Investment, enter into supplier’s credit and other foreign currency loan contracts with lenders abroad if the effective rate of interest does not exceed the London interbank offered rate (LIBOR) +4%, the repayment period is not less than 7 years, and the down payment is not more than 10%.
investment policies of Bangladesh related to pharmaceutical production are further supplemented by tariff concessions and import policy, fiscal incentives for investment, and export policy.
5.3.1 Income tax holiday for reinvestment
Tax holidays are available for 5 or 7 years, depending on the location of the industrial enterprise.41 BPL and Square benefited from tax holidays for each new investment facility and subsidiary. Square, for example, enjoyed a tax holiday for 5 years for its Dhaka Unit, with effect from April 2002 (Square, 2006).
The tax holidays are conditional on creating a reserve for profit acquired from the tax holiday. BPL had a 442 354 953 taka (approximately US$ 6.5 million) tax holiday reserve in 2007 that expired the following year (BPL, 2008). Square maintained a 1 101 935 237 taka (approximately US$ 15.9 million) tax holiday reserve as of March 2009 (Square, 2009). Companies are required to invest their benefits from the tax holidays within 2 years from the end of the tax holiday in the same undertaking or in any new industrial undertaking, or in stocks and shares of listed companies, or in government bonds or securities, or for other purposes as required by the Income Tax Ordinance of 1984. Hence, BPL and Square acquired capacity to expand and improve productive capacity by using tax holidays.
5.3.2 Tariff regime and import policy
The Bangladeshi import regime consists of banned items, restricted items and free importable items. Pharmaceuticals are classified as either restricted items or freely importable items under the Import Policy Ordinance of Bangladesh for 2009–2012. Importation of final products of medicines and vaccines is based on a list of importable items published in the government gazette by the DGDA. The importation of raw materials and packaging materials for the pharmaceutical industry takes place at tariff rates that are much lower than the most-favoured-nations rate of 100% for export. The procedures for importation are further facilitated by creating a “block list” of imports for each recognized pharmaceutical company approved by the Director of the DGDA. The block list provides the description of the raw material and packaging material, value and quantity according to the annual production plans of the pharmaceutical companies. The list is usually prepared as part of product registration. Companies importing raw materials have to present an import invoice and analysis report of the quality, value and quantity for each import. The analysis report of the raw materials must be certified by the DGDA or be prepared by a government-approved pre-shipment inspection agent (Bangladesh Ministry of Commerce, 2007).
5.3.3 Export policy
The export policy of Bangladesh has included the pharmaceutical sector in the highest priority sector category since 2006. With exports emerging as a new direction for growth and competitiveness of the industry, BLP, Square and many other pharmaceutical companies are extensively upgrading their
41 See http://www.nbr-bd.org/incometax.html.
facilities and products, leading to export-led quality improvement. The main incentives available for pharmaceutical export include up to 50% income tax exemption for export earnings, duty-free import of capital machinery for export-oriented facilities and 10% of spare parts of capital machinery every 2 years, a tax holiday and duty-drawback scheme, and up to 15% retention of foreign currency for reuse (Export Promotion Bureau, 2009). However, during interviews, Square, BPL, Aristopharma and Advanced Chemicals Industries complained about the inadequacy of foreign currency allocation for export operations of pharmaceutical companies. Unlike other exports, pharmaceutical exports entail huge operational expenses in relation to representatives or agents in export markets, and registration of products.
Companies’ activities in Bangladesh are rendered more difficult by the country’s unsatisfactory infrastructure, which is prone to frequent flooding.
The electricity supply per head is very low, power generation being primarily from abundant natural gas reserves (Economic Intelligence Unit, 2008).
All industries in Bangladesh, including pharmaceuticals, rely on their own generators, because of the irregular supply of electricity. Pharmaceutical companies complain about the insufficiency and unreliability of gas-generated electricity, and the related costs (field interviews). Where the pharmaceutical companies are not enjoying a tax holiday, they enjoy accelerated depreciation allowances for their investment capital. Given that the pharmaceutical sector is now a priority sector according to the Industrial Policy of 2009, this might mean that new incentives to address infrastructure deficits might be introduced.
5.4 Science, technology and innovation policy
Bangladesh adopted its National Science and Technology Policy in 1986. The Policy builds on the prevailing thought at the time of focusing on self-reliance and import substitution, while stressing the need to coordinate science and technology with the socioeconomic, cultural, educational, agricultural and industrial policies of the country. Bangladesh is currently reviewing the policy.
The revision as of February 2010 proposes a bottom-up approach in which specific science and technology policies are developed for each sector under the overall objectives of the policy. The policy proposes increased collaboration among research institutions and with the private sector, including international cooperation. The pharmaceutical sector is proposed to be covered under the larger group of “large-scale industries including engineering and metal industries”. This, in addition to the new Industrial Policy of 2009, creates a policy framework for the provision of all key elements required by the sector to build API capacity – human resources (that are technically competent in chemistry, biochemistry and advanced areas of clinical chemistry and biotechnology), improved physical infrastructure and common scientific infrastructure, such as the API park and advanced testing laboratories within the country.
The revision proposes various institutional mechanisms for coordination and linkage. The Science and Technology Policy is also complemented by the National Information and Communication Technology Policy (2002), which
outlines action plans for human resources development, ICT infrastructure, research and development, and the ICT industry.
5.5 Education
In 2007, only 7% of the population of tertiary age was in tertiary education, which is lower than the regional average estimated at 12%. In all primary, secondary and tertiary levels of education, Bangladesh performs below the regional average (UIS, 2007). In 2007, the government spent 15.8% of its total expenditure on education (UIS, 2007).
Public and private higher education facilities train pharmacists and chemists.
About 15 institutions provide a diploma in pharmacy, and another 6 public universities and 21 private universities provide graduate and postgraduate programmes, according to the Pharmacy Council of Bangladesh. The pharmacy graduates are mainly trained to work in the pharmaceutical industry as formulation scientists and manufacturing experts. The clinical aspects of the training and courses on biomedical sciences have been insufficient (Habib &
Ahmed, 2007).
According to Article 13(a) of the National Drug Act of 1982, pharmaceutical companies are required to maintain at least two qualified people: one of them must be a graduate pharmacist from a recognized university in Bangladesh, but the other may be a graduate in pharmacy, chemistry, biochemistry or microbiology. The companies can satisfy this legal requirement from the local labour market. Going beyond the legal requirements, field interviews revealed that there are various problems in maintaining an adequate supply of skilled labour in Bangladesh. The pharmacy schools are training students for marketing and do not have incentives to upgrade their scientific curriculum.
Furthermore, there is an inadequate supply of engineering staff.
Companies such as BPL and Square demonstrated a preference for graduates from the School of Pharmacy at the University of Dhaka. The School, however, produces only 70 graduates per year. During interviews with the School, it was noted that its 15 or 16 faculty members undertake research under collaborations established by the School with universities and research centres in the United States, United Kingdom and Japan. The School is undertaking continuous curriculum reviews to meet international standards, including meeting the United States requirements for pharmacy education, publishing periodicals and inviting visiting professors from collaborating institutions, including its graduates working in different parts of the world.
5.6 Good governance
Bangladesh enjoys significantly better peace and security compared with many other countries in the South Asian region, according to the Global Peace Index ranking for 2009. However, this has not translated into improving domestic institutions in terms of ensuring regulatory quality and dealing with corruption. Bangladesh scored poorly in 2008 in regulatory quality and
controlling corruption according to the World Bank governance indicator.42 Government effectiveness, the rule of law and accountability also stand at significantly lower rates than in other countries in the region (Table 1).