International Business: South Africa
Will the AIDS Plague Change U.S. Trade Policy?
Pretoria may be permitted to use knockoff drugs
When South African President Thabo Mbeki travels to the U.S. in late September, he will start at the top--and stay there. The just-elected leader expects to meet both President Clinton and Vice-President Al Gore, address the U.N., and schmooze with business and financial execs. But there's more to Mbeki's trip than pomp and pressing flesh. Mbeki wants Washington to sign off on a controversial trade policy that pits copyright and patent protection against the devastating consequences of an end-of-century tragedy.
A rampant AIDS epidemic is ripping through South Africa, and few victims can afford the costly drugs devised to keep the virus at bay. In a law passed two years ago, Pretoria claims the right to parallel imports--cheap knockoffs of patented medicines often made by countries that are not signatories to international copyrighting agreements. The health minister can also require that multinationals license local drugmakers to produce drugs patented by the likes of Merck & Co. and Glaxo Wellcome PLC, a practice called compulsory licensing.LEGAL LIMBO. The big pharmaceutical companies fear that South Africa could inspire other nations to violate patents. Some 40 companies have sued in South African courts to get the law thrown out. So far, Pretoria has suspended implementation of the law to avoid pariah status as a trading partner. Nonetheless, South Africa maintains its right to extraordinary measures. "We understand they want to make a profit," Health Minister Manto Tshabalala-Msimang says of the pharmaceutical companies. "But we as South Africans must help our people."
Which way Washington tips its hand is crucial. Drugmakers think U.S. Trade Representative Charlene Barshefsky should defend the global trading order--and their patents. She has--so far. But the moral and political implications are lost on no one. Vice-President Al Gore, who chairs a bilateral commission on U.S.-South African relations, is already a target of U.S. AIDS activists, who claim Washington's official stance is a sellout to the drug companies. If that charge sticks, it could damage Gore's Presidential campaign.
The Administration is divided on the issue but Gore's staff is pushing for a compromise. As Mbeki's visit approaches, there are signs the Administration may present him with a solution allowing Pretoria to pursue its plans without prompting trade retaliation.FUZZY WORDING. One key to the solution resides in South Africa's vaguely worded law. U.S. trade officials suggest that in filling in the details, South Africa could comply with intellectual-property agreements even while seeking cheaper AIDS drugs. If Pretoria delivers on this point, a deal is possible. "Their policies seem designed to find ways to provide good health care and affordable medicines, and we fully support that," says one U.S. official. Even some drug-industry executives now think the Administration may reverse itself.
Mbeki needs a deal urgently. Medical experts estimate that 16% of South African adults--3.2 million of a population of 40 million--are HIV-positive. The plague isn't expected to peak for at least five years. Most AIDS sufferers won't get more than a broad-spectrum antibiotic and vitamins before they die. The economic impact is severe. In the mining industry, heavily reliant upon migrant workers, the infection rate is estimated as high as 45%. Says Wayne Myslik, head of consulting at Lifeworks, a Johannesburg health-care provider: "It's the single greatest burden on the economy for the next generation."
Tshabalala-Msimang says South Africa is "held at ransom," since the multinationals won't cut prices enough for AIDS sufferers. The Pharmaceutical Manufacturers Assn. of South Africa says local companies aren't set up to produce these drugs. The industry has offered to sell some AIDS drugs at discounts, but Pretoria says they aren't big enough. PMA CEO Mirryena Deeb adds that since the 1997 law was passed, members have made no new investments in South Africa. Grim stuff: When Mbeki hits Washington, he and Al Gore will have a lot to talk about.By Kathy Chenault in Johannesburg, with John Carey and Paul Magnusson in Washington