In Search of the Least-Bad Threshold for Differential Treatment for TPP Obligations on Intellectual Property and Access to Medicines

USTR has proposed a differential treatment approach to the Trans Pacific Partnership intellectual property negotiations.  The text would continue to include numerous TRIPS-Plus obligations favorable to branded pharmaceutical companies that restrict countries’ ability to craft laws and execute policies intended to maximize access to generic medicines. Analyses of the provisions found in the most recently leaked draft are available at infojustice.org/tpp-leak-analysis. USTR’s differential treatment proposal would exempt countries that do not meet the “high income” classification as defined by the World Bank – currently $12,616 GNI per capita – from three (not all) of these provisions. Malaysia, Mexico, Peru, and Vietnam do not meet the High Income threshold; though it has been pointed out that Malaysia and Mexico (both “Upper Middle Income” countries) are approaching it.

The high income threshold was set at $6,000 in 1989, and it has been periodically adjusted using the average rate of inflation in the U.S., UK, Japan and Euro Zone, thus arriving at $12,616.  In terms of relative income, the threshold has fallen, so greater proportion of countries has become classified as “high income.” An IMF working paper by Lynge Nielsen notes that 16% of countries were classified as high income in 1990, and 26% were classified as high income in 2010. To address, this, James Love has proposed a relative measurement for differential treatment in which the median income of the five wealthiest countries (with a population over 1 million) could serves as a benchmark for the setting of a threshold for differential treatment.

TRIPS-plus intellectual property rules are not necessarily in the best interest of any of the countries negotiating the TPP, even high income countries.[1]  A better approach to intellectual property in the TPP would be to reaffirm TRIPS and the flexibilities that protect countries’ rights to protect health.  However, if one is to consider a threshold above which countries would be bound by TRIPS-Plus obligations; one ought to consider other options.  Why?  Because the World Bank “high income” classification is a poor indicator of a country’s ability to pay higher prices for brand name medicines.

It is important to consider that a country’s ability to meet its health needs, including the purchase of medicines, is not determined by income alone.  Other factors matter, including some measurement of demand.  Countries with a higher disease burden or an aging population will require a greater quantity of medicines in order to meet the needs of their populations.  Countries with greater inequality face further problems related to pharmaceutical pricing incentives that favor high-cost/ low volume pricing. In this blog I propose three ways that one could try to take these things into account.  The exact metrics are less important than the general ideas that 1) a least-bad threshold would try to account for the ability of countries to provide needed medicines, and 2) income alone doesn’t meet this standard.

GNI Per Capita Adjusted for Health Demand

The first proposed metric is based on data on wealth and a proxy for disease burden.  For wealth, I used the 2012 World Bank’s GNI per capita data (though for Brunei and New Zealand, the most recent data was for a year earlier).  I sought a measurement of disease burden to act as a proxy for the amount of medicine needed, and found WHO data on the number of deaths of adults (aged 30-70) per 100,000 people, also for the year 2012. This seemed the most relevant indicator in the 2012 Compendium of World Health Statistics.  I am interested in feedback on this metric, or ideas for alternatives.

Wealth divided by disease burden is a measurement that begins to capture the ability of nations to meet their health needs.  It gives a score that can rise in one of two ways – as a country becomes wealthier, or as its disease burden falls.  Here is how the countries score using 2012 data:

Nation	Early Fatalities	GNI per capita	GNI per capita/ Early Fatalities
Australia	278	59,360	214
Japan	281	47,880	170
Canada	320	50,970	159
Singapore	326	47,210	145
United States	460	52,340	114
New Zealand	312	30,640	98
Brunei	480	31,590	66
Chile	414	14,310	35
Mexico	570	9,640	17
Malaysia	663	9,820	15
Peru	478	6,060	13
Vietnam	685	1,550	2

 

With this list there is no popularly accepted arbitrary grouping like “High Income Country” as determined by the World Bank.  Therefore, it makes sense to borrow James Love’s idea to establish a relative threshold based on the experience of other TPP countries. With 2012 data, average (mean) GNI per capita / Early Fatalities would be 87.  The median would be 82, the midpoint between New Zealand and Brunei.  Setting the threshold at 50% of the median of the top five countries gives us a score of 79.5.  Using any of these thresholds based on the GNI per capita / Early Fatalities metric would mean that Australia, Japan, Canada, Singapore, the U.S., and New Zealand would accept the tougher IP rules in the TPP.  Brunei, Chile, Mexico, Malaysia, Peru, and Vietnam would not.

Another metric to consider as a driver of demand for medicines is the age of the nation’s population. Overall demand will increase as the proportion of a country’s population over a certain age increases.  The table below presents the metric of GNI per capita divided by the proportion of each nation’s population over 54, using age data taken from the CIA World Factbook.

Nation	Population 55 or older	GNI per capita	GNI p.c./ Pop. 55 or Older
Brunei	11.1	31,590	2846
Singapore	18.0	47,210	2623
Australia	26.5	59,360	2240
United States	26.2	52,340	1998
Canada	30.1	50,970	1693
Japan	38.6	47,880	1240
New Zealand	25.3	30,640	1211
Malaysia	12.7	9,820	773
Chile	19.3	14,310	741
Mexico	13.8	9,640	699
Peru	13.8	6,060	439
Vietnam	12.6	1,550	123

 

This metric is affected by the fact that wealthier societies tend to have a higher proportion of older people, a worldwide trend that is apparent in the data below.  For instance, Japan is below the average (mean) score of 1386 because a large proportion of its population is old, increasing the denominator of the metric.

If we were to use the median GNI per capita / Proportion of population 55 or older as the threshold, it would equal 1225.5 and Brunei, Singapore, Australia, United States, Canada, and Japan would fall above it.  New Zealand would fall just below the threshold.  If we were to use 50% of the median of the top 5 highest scores, the threshold would equal 1120, and New Zealand would fall above it as well.

Relative Inequality-Adjusted GNI per capita

Another reason that the World Bank’s High Income classification fails to capture countries’ ability to pay high prices for medicines is that it does not take into account income inequality.  In countries with highly unequal income, pharmaceutical companies will maximize profits by selling at a high price that only the wealthiest can afford.  The price cut necessary to reach the next segment of the population is too large to be made up for by the extra volume of sales.  (For a more detailed explanation, see this 2009 paper by Sean Flynn, Aidan Hollis and myself.)

Therefore, it may make sense to adjust GNI per capita for inequality when considering a threshold for differential treatment. The best way to examine income distribution is find the share of income captured by each quintile or decile of the population, and then multiply the overall GNI per capita by each share.  However, I was unable to find this data is not available for most of the TPP counties.  Instead, I’ve devised a metric that adjusts GNI per capita based on relative gini coefficients.  The gini coefficient is a measurement of inequality that lies between 0 (perfect equality) and 1 (perfect inequality). The CIA World Factbook provides gini coefficients for eleven of the twelve TPP countries.  Australia is the most equal (gini=0.303), Chile is the least equal (gini=0.521), and there is no data for Brunei. The U.S. has the median gini coefficient, which is 0.450.  By dividing each country’s gini coefficient by the median, you get a relative inequality score you can use to adjust the raw GNI per capita for inequality.  The result is shown in the column labels “GNI per capita / relative gini coefficient” in the table below.  This metric will be greater than the raw GNI per capita if a country has greater than average inequality, and lower than the raw GNI per capita if a country has a lower than average inequality.

Nation	Gini Coefficient	GNI per capita	GNI p.c. / Rel. inequality
Australia	0.303	59,360	88,158
Canada	0.321	50,970	71,453
Japan	0.373	47,880	57,764
United States	0.450	52,340	52,340
Singapore	0.478	47,210	44,445
New Zealand	0.362	30,640	38,088
Chile	0.521	14,310	12,360
Malaysia	0.462	9,820	9,565
Mexico	0.483	9,640	8,981
Peru	0.481	6,060	5,669
Vietnam	0.376	1,550	1,855
Brunei	No data	31,590	No data

 

Using the relative-inequality-adjusted GNI per capita and setting the threshold at the World Bank high income definition of $12,616 puts Australia, Canada, Japan, United States, Singapore, and New Zealand  above the threshold, and the other countries under the threshold (except for Brunei, for which there is no inequality data).  Chile is right underneath this threshold, so it would be likely to pass it soon.  If you set the threshold at the median value (which is New Zealand’s relative inequality adjusted GNI per capita of $38,088), then the same countries would fall above and below the threshold, but all of the countries below the threshold have more ground to make up before passing it.  If we were to set the threshold at the median of the top five scores, the threshold would equal $28,882, and the same countries would lie above and below the threshold.

The World Trade Organization’s Non-Threshold Approach

The World Trade Organization provides differential treatment to developing country Members, but it does so without a threshold.  Under the WTO system, any country can announce that it is a developing country and will take advantage of the differential treatment provisions in the WTO agreements.  Other WTO Members are able to challenge that country’s self-identification as a developing country, but the issue is negotiated within the framework of the Committee on Trade and Development.  TPP negotiators could consider a similar system, though there are a couple of things that would be necessary for such a system to work:

1. Countries that self-identify as developing, but are then challenged on this self-identification, should be able to take advantage the differential treatment provisions while the challenge proceeds
2. Such a challenge should take place in a transparent forum where all of the TPP Members are able to participate.

Conclusion

In closing, I would like to re-emphasize that the best outcome for the TPP intellectual property negotiations, from a public health point of view, would be for the chapter to reassert TRIPS, including the flexibilities found within it, and to leave out anything else. The inclusion of TRIPS-Plus rules benefit branded pharmaceutical firms at the expense of consumers and public health systems.  Even if a threshold is put in place that allows some countries the ability to delay or waive some of these TRIPS-Plus provisions, other countries will lose flexibilities guaranteed by the WTO.  Furthermore, the existence of TRIPS-Plus provisions in the TPP would contribute to the ongoing rising of IP norms around the world.

If TPP negotiators do adopt a plan that includes differential treatment based on a threshold under which countries would be exempt from some of the TRIPS-Plus provisions, then the use of the World Bank’s High Income classification is not optimal.  A better metric would include not only income, but some measurement(s) of each country’s ability to meet its health needs.  This post proposed some ideas, but there are other avenues to be explored.  Other factors to consider include the prices of medicines and the amount and type of insurance coverage each country.  Income is not the only metric that matters.

Summary of Proposed Thresholds

Method of establishing threshold	Countries above	Countries below
World Bank High Income CountriesThreshold is GNI per capita = $12,616	Australia Brunei Canada Chile Japan New Zealand Singapore United States	Malaysia Mexico Peru Vietnam
GNI per capita / Early Fatalities (proxy for health demand)Threshold = Median TPP Country Score	Australia Canada Japan New Zealand Singapore United States	Brunei Chile Mexico Malaysia Peru Vietnam
GNI per capita / population aged 55 and olderThreshold = Median TPP Country Score	Australia Brunei Canada Japan Singapore United States	Chile Mexico Malaysia New Zeeland Peru Vietnam
GNI per capita / Relative inequality metricThreshold = $12,616(no gini data for Brunei)	Australia Canada Japan New Zealand Singapore United States	Chile Malaysia Mexico Peru Vietnam
50% of median income of five highest income TPP members with population over 1,000,000(KEI metric, described in detail here)	Australia Canada Japan New Zealand Singapore United States	Chile Mexico Malaysia Peru Vietnam