Fake Drugs and Failed Governance

by Julian Harris & Philip Stevens
20 January 2009

The World Health Organization met in Geneva on Monday 19 January 2009 to decide new measures against the exploding global trade in counterfeit medicines--up to a third of all medicines in Africa and a quarter in developing countries overall. While the WHO wrangled over an international treaty and how to define the term “counterfeit,” it is not addressing the real causes, including the failures of dysfunctional governments which prevent genuine manufacturers from protecting their brands.

Interpol co-ordinated some 200 raids and seized more than $6.65 million of counterfeit medicines in November across Cambodia, China, Laos, Myanmar, Singapore, Thailand and Vietnam: the second massive strike in the area in three years. Malaysia has pretty good regulation but is surrounded by peddlers of fakes: one estimate puts counterfeit drugs at 8% of the most popular medicines in Malaysia. Governments in developing countries frequently promise “crackdowns,” enact new laws, propose stricter punishments and so on--yet counterfeits remain widespread.

Developed countries, by contrast, have counterfeit levels below one per cent. Some suggest this is due to strong regulators such as the US Food and Drug Administration (FDA) yet millions of drug consignments pass through US customs every year to 9,000 wholesalers. The FDA does not and cannot monitor all this, so why don’t more counterfeits slip into such a lucrative market?

Part of the answer lies in the foundations that underpin the economies of richer countries such as strong protection for trademarks, which allows consumers to be confident of the origin of products.

Some claim that brands are only important to expensive, patented medicines. The opposite is true. Most medicines consumed in poor and wealthy countries alike are “generics,” drugs whose patents have expired, which should create a thriving market of branded generics, competing not just on price but on quality too. But a lack of respect for trademarks in developing countries means that patients can rarely be certain that the generics they buy are the genuine item: off-patent drugs are among the most commonly counterfeited medicines.

Rich countries’ civil liability law, meanwhile, ensures that injured consumers can obtain redress through the courts, discouraging the production of fakes and those who peddle them.

This can only happen with efficient legal systems,free of corruption or political influence. Sadly, the courts and police of most developing countries are a long way from this ideal and they allow criminals to bribe their way out of trouble, making new laws futile.

Extra laws often simply create extra layers of bureaucracy which then create further opportunities for corruption. Drugs passing through customs, for example, face myriad regulations and tariffs, inevitably leading to “informal” payments to speed up the process. If the market is small, as in many African countries, many suppliers of legitimate medicines find the obstacles too expensive and do not bother supplying at all. Counterfeiters, unconcerned by regulations, gain even greater advantage.

A free media is also crucial to improving standards and defending citizens against fakes. In China melamine contamination killed four infants (and harmed thousands), yet the government banned news reporting. All three cases filed against the producer have been rejected by the courts. The same happens with medicines.

Additionally, many governments impose high taxes and tariffs as well as complicated regulations on imported medical products, adding an average of 68.6% to the final price in developing countries, according to a WHO study in 2003: taxes or tariffs alone are often around 20% - from 14% sales tax in South Africa to a combined 30% in Brazil and more than 50% in India for imports (and at least 19% on local drugs). This makes real drugs more expensive, creating yet more opportunities for counterfeiters to undercut them.

Athough strengthening the rule of law is vital for tackling fake drugs, as well as for general economic development, such reforms are lengthy and difficult. In the short-term, technology can help manufacturers of genuine products protect their brands. In Ghana, a new service called MPedigree allows people to send serial numbers (embedded under a scratch-pad on drug packets they have bought) by text message: they then get a message back telling them if the item is genuine. Many similar schemes are under development.

The WHO and its International Medical Products Anti-Counterfeiting Taskforce (IMPACT) are doing good work in publicising the threat and pushing governments to react but the private sector has to be at the forefront of solutions: after all, it has a far better grip on drug production, storage and distribution. Governments can help by interfering less, taxing less and focussing on what would really help, like strengthening the rule of law.

---------------

Julian Harris and Philip Stevens, contributing authors to www.WauBebas.org, are analysts at International Policy Network, London.