Pharma industry needs to prepare for headwinds

Bangladesh faces a challenging paradox: it is set to graduate from its 'least developed country' (LDC) status in 2026, but upon graduation, it will lose the flexibility in international trades rules that has allowed it to nurture a burgeoning pharmaceutical industry and establish a strong foothold in the global medicines market.

In 1971, the United Nations created the LDC category to provide support for counties with especially low incomes and particular challenges to economic growth. 

Under this framework, LDCs have access to international support measures (ISMs) in the areas of trade, finance, technical assistance, and participation in international fora. 

The WTO is one such international institution that recognises the LDC category and has put in place special rules (or, more accurately, exemptions) for those countries. 

Bangladesh is not alone in facing the looming implications of graduation: Bhutan is scheduled to graduate in 2023; Sao Tome and Principe, the Solomon Islands, Angola, Kiribati and Tuvalu in 2024 and Nepal with Bangladesh in 2026. 

In the next few years, graduating LDCs must carve out a path for continued industrialisation after graduation. How can Bangladeshi policymakers become compliant with World Trade Organisation (WTO) rules, without losing the economic success that has allowed it to graduate from LDC status in the first place?

Over the past four decades, Bangladesh has leveraged its allowances as an LDC to build an incredible domestic pharmaceutical industry that now caters to nearly 97 percent of the country's domestic demand and exports to the global market. 

Notable WTO flexibilities include a prolonged transition period for implementing the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS) and a specific waiver from the requirement to provide patent protection for pharmaceutical products. 

The LDC waiver for pharmaceuticals allows Bangladesh to produce branded generic pharmaceuticals without complying with patent and license requirements. 

This makes medicines highly affordable compared to the patented versions sold elsewhere in the world.

When Bangladesh graduates, it will no longer enjoy the benefits of the waiver and will be required to make changes to current laws and policies. 

Our recent research seeks to provide insight into this momentous shift by sketching the policy space landscape for Bangladesh and highlighting the unintended consequences of graduation, including potentially skyrocketing prices for essential medicines.

Despite Bangladesh's success in building up a domestic pharmaceutical industry, it continues to rely predominantly on imports for its active pharmaceutical ingredients (API), or the raw inputs for most pharmaceutical products. 

To counteract this, the country has already developed a policy to produce and export API domestically, including plans for an API industrial park. However, some of the policies and incentives in place are likely to contradict global trade and investment rules, stymying efforts to limit API imports. 

Additionally, one of the adverse implications of this change will be higher prices for essential medicines, especially for newly innovated medicines under patent protection. 

Becoming compliant with the WTO's intellectual property rules requires providing exclusive marketing rights only to innovators of patented medicines. This implies monopolisation of the market for essential medicines, which will lead to a sharp jump in the prices of patented medicines.

For example, insulin, a life-saving medicine for people with diabetes, could cost as much as 11 times the current price. For medicines like insulin where demand is mostly unresponsive to price increases, the higher prices lead to other negative welfare impacts and increasing poverty, especially for households needing insulin. 

Other new patent-protected drug families, like cancer treatments, will face similar impacts. 

Already, the poorest one-fifth of households are spending more than 10 percent of their income on out-of-pocket medicines expenditure. As medicine prices increase, those households will face a difficult tradeoff between life-saving medicines and other basic needs, such as food, shelter and education. 

In the recent past, Chad and other LDCs floated a proposal to extend the general LDC transition period for the TRIPS Agreement in perpetuity, along with a 12-year transition period for countries graduating from the group. 

A 13-year extension was granted in 2021, but the full proposal failed to get traction at the recently held 12th WTO Ministerial Conference in Geneva. 

Bangladesh's geo-strategic location will likely play a key role in determining the country's future path to industrialisation. 

The China-led Regional Comprehensive Economic Partnership has substantial membership overlap with the Comprehensive and Progressive Trans-Pacific Partnership. 

Meanwhile, the new US-led Indo-Pacific Economic Framework is making an attempt to move into this region. 

Bangladesh is likely to consider joining these and other regional groupings whose rules may further constrain its policymaking.

For Bangladeshi decision-makers, we have two recommendations. 

First, they must continue to advocate at the WTO and other trade negotiating forums for policy flexibility for LDCs and transition periods for countries graduating from LDC status. 

Second, they must continue to implement policies that expand the backward and forward linkages in its pharmaceutical sector, as planned under the National API and Laboratory Reagents Production and Export Policy. 

Ultimately, however, the difficulty faced by graduating LDCs calls for a broader reimagining of the global network of trade and investment rules, as they come increasingly into conflict with domestic policy space. 

Without these efforts, Bangladesh, and ultimately other LDCs, will face growing tensions with the WTO and risk undoing the economic progress that was the cause of their success in the first place.

Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue (CPD), Dhaka, Bangladesh.

M. Deen Islam, Assistant Professor of Economics, University of Dhaka, Bangladesh. 

Rachel Thrasher, Researcher, Global Economic Governance Initiative, Boston University Global Development Policy Center.