Proposal for a Council Regulation to avoid trade diversion into the European Union of certain key medicines
Date: 2002-10-30
Institutions: European Commission
Subjects: customs regulations, customs territory (EU), discriminatory price, infectious disease, pharmaceutical legislation, pharmaceutical product

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Proposal for a Council Regulation to avoid trade diversion into the European Union of certain key
medicines

(2003/C 45 E/20)

COM(2002) 592 final — 2002/0257(ACC)

(Submitted by the Commission on 30 October 2002)

EXPLANATORY MEMORANDUM

The Commission presented a policy framework on ‘Accelerated Action targeted at major communicable
diseases within the context of poverty reduction’ in September 2000 (1) on the need for accelerated action
targeted at major communicable diseases within the context of poverty reduction. It explains the issue of
communicable diseases as a burden on the poorest and an obstacle to development, analyses the major
policy issues involved, reports on the rationale for continuous Community involvement and sets out a
framework with three broad areas for targeted action; 1. Reaching optimal impact of existing interventions,
services and commodities targeted at the major communicable diseases affecting the poorest populations.
2.
Increasing affordability of key pharmaceuticals through a comprehensive and synergistic global
approach. 3. Increasing investment in research and development of global goods targeted at the three
major communicable diseases.

Many of the poorest developing countries face severe health crises and are in urgent need of improved access
to affordable essential medicines for treatment of communicable diseases. These countries are, normally,
heavily dependant on imports of medicines as local manufacturing is exceptional. The reasons why this is so
include, but are not limited to, the effects of international and national pricing policies, tariffs and taxation
and implementation of intellectual property rights agreements. Options to improve access and affordability
include, inter alia, sustainable application of tiered pricing set in a comprehensive global approach.

In February 2001 the Commission adopted a Programme for Action: Accelerated action on HIV/AIDS,
malaria and TB in the context of poverty reduction (2) which establishes a broad and coherent Community
response over the period 2001-2006, to address the global emergency caused by the three major
communicable diseases.

The Programme for Action proposes that manufacturers and exporters offer the lowest possible prices to
the poorest developing countries, as defined in the Programme (3) without profits being threatened in
developed countries. (4) This should build on a volume/price trade off where the poorest countries benefit
from low tiered prices. Price segmentation between developed country markets and the poorest developing
country markets is necessary.

Legislative and regulatory instruments are in place in most developed countries to prevent importation, in
certain circumstances, of pharmaceutical products, but these instruments risk becoming insufficient as
substantial volumes of strongly discounted pharmaceuticals are sold to the poorest developing country
markets and the economic interest in trade diversion into high priced markets therefore may increase
significantly. Effective measures need to be in place to prevent this trade. Such measures should also
encourage the industry to commit itself to offer essential medicines at tiered prices on a sustainable basis.
In future, tiered pricing for the poorest developing countries should no longer be the exception, but the
rule.

(1) Communication (2000)585 of 20.9.2000.
(2) Communication (2001)96 of 21.2.2001.
(3) The Least Developed Countries (presently 49: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso,
Burundi, Cambodia, Cape Verde, Central African republic, Chad, Comoros, Democratic Republic of Congo,
Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea Bissau, Haiti, Kiribati, Lao People's Democratic
Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger,
Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan, Togo, Tuvalu,
Uganda, United Republic of Tanzania, Vanuatu, Yemen, Zambia) as determined by UN and the Low Income
countries (presently 23: Armenia, Azerbaijan, Cameroon, China, Republic of Congo,
Ivory Coast, East Timor,
Ghana, Honduras,
Indonesia, Kenya, Democratic Republic of Korea, Republic of Kyrgyz, Moldova,
Mongolia, Nicaragua, Nigeria, Pakistan, Tajikistan, Turkmenistan, Vietnam, Zimbabwe) as listed by DAC.

India,

(4) Tiered pricing has long been practised in relation to childhood vaccines.

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To achieve the objectives set by the Programme for Action the proposed Regulation is prohibiting the
entering into the Customs territory of the Community (1) of products that have been approved as tiered
priced and subsequently exported to a poor developing country as defined. For a product to qualify as
tiered priced in the meaning of the proposed regulation, it must be included in Annex 1 of the present
Council Regulation. Applications may be submitted, on a voluntary basis, for inclusion in Annex 1 in
accordance with the rules and procedures set out in the Regulation. At this stage the proposed Regulation
is addressing the three major communicable diseases and the poorest developing countries i.e.
it fully
adopts the scope set out in the Programme for Action. The proposed Regulation is, however, providing for
review in the future, with regard to the scope of diseases and recipient countries in light of existing and
future health crises in the developing world as well as of the general criteria for the implementation of
Article 3 depending on the experience gained in terms of increased volumes supplied to the poorest
countries (contained in Annexes 2 to 4).

(1) As defined in article 3 of Council Regulation (EC) No 2913/92.

THE COUNCIL OF THE EUROPEAN UNION,

equitable access to medicines and vaccines at affordable
prices.

Having regard to the Treaty establishing the European
Community, and in particular Article 133 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

Whereas:

(1) The Commission adopted a Communication to the
Council
and the Parliament on accelerated action
targeted at major communicable diseases within the
context of poverty reduction on 21 February 2001,
COM(2001) 96 under which the Commission is instructed
to inter alia establish a global tiered pricing system for key
pharmaceuticals for prevention, diagnosis and treatment
of HIV/AIDS, TB and malaria and related diseases for the
poorest developing countries and to prevent product
diversion of
to other markets by
these products
ensuring that effective safeguards are in place.

(2) The Council in a resolution dated 14 May 2001 on accel-
erated action on HIV, TB and malaria has underlined the
low
need to reinforce safeguards against diversion of
priced pharmaceuticals destined for poor markets and
prevent price erosion in developed countries markets.

(3) On 15 March 2001 a European Parliament Resolution on
access
to drugs for HIV/AIDS victims in developing
countries noted the inclusion of a commitment to tiered
pricing in the Commission's Programme for Action and
countries
called for

system allowing developing

a

(4) Many of the poorest developing countries are in urgent
need of access
for
treatment of communicable diseases. These countries are
heavily dependant on imports of medicines as local manu-
facturing is scarce.

to affordable essential medicines

(5) Price segmentation between developed country markets
and the poorest developing country markets is necessary
the poorest developing countries are
to ensure that
at
supplied with essential pharmaceutical products
strongly reduced prices.

importation,

(6) Legislative and regulatory instruments are in place in most
in certain
developed countries to prevent
these
circumstances, of pharmaceutical products, but
instruments
substantial
risk becoming insufficient as
volumes of strongly discounted pharmaceuticals are sold
to the poorest developing country markets and the
economic interest
in trade diversion into high priced
markets therefore may increase significantly.

(7) There

is

a need to encourage

the pharmaceutical
producers to make available pharmaceutical products at
strongly reduced prices in significantly increased volumes
by ensuring through this Regulation that these products
remain on these markets. Donations of pharmaceutical
products may qualify under this Regulation on equal
conditions, bearing in mind that donations are not
contributing to improve access to these products on a
sustainable basis.

(8) For the purpose of this Regulation,

it
establish a procedure which identifies
countries and diseases covered by this Regulation.

is necessary to
the products,

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(9) The procedure

set out

in this Regulation foresees
prohibition of tiered priced products sold to countries
of destination to be imported in to the Community for
purposes of entry, release for free circulation, re-export,
placing under suspensive procedures or placing in a
free-zone or free warehouse and shall apply as soon as
the merchandise is brought under customs supervision as
foreseen in Article 38 of Council Regulation (EC) 2913/92
of 12 October 1992 establishing the Community Customs
Code (1).

(10) Manufacturers of tiered priced products shall differentiate
the appearance of tiered priced products to facilitate the
task of identifying them.

(11) It will be appropriate to consider

the possibility of
expanding the scope of this Regulation to cover additional
diseases and countries in the light,
the
experience gained from the implementation of this Regu-
lation.

inter alia, of

(12) In accordance with Article 2 of Council Decision
1999/468/EC of 28 June 1999 laying down the
procedures
implementing powers
conferred on the Commission (2), measures
the
implementation of this Regulation should be adopted by
use of the advisory procedure provided for in Article 3 of
that Decision.

the exercise of

for

for

(13) With regard to tiered priced products contained in
travellers' personal
luggage for personal use, the same
rules as set out in Council Regulation 3295/94 of 22
December 1994 laying down measures to prohibit the
release for free circulation, export, re-export or entry for
a
and pirated
goods (3), currently being reviewed, shall apply.

suspensive procedure of

counterfeit

HAS ADOPTED THIS REGULATION:

Article 1

1.

This Regulation shall lay down:

(a) the criteria for establishing what a tiered priced product is;

(b) the conditions under which the customs authorities shall

take action;

(c) the measures which shall be taken by the competent auth-

orities in the Member States.

(1) OJ L 302, 19.11.1992, p. 1.
(2) OJ L 184, 17.7.1999, p. 23.
(3) OJ L 341, 30.12.1994, p. 8.

2.

For the purpose of this Regulation:

(a)

‘A tiered priced product’ means
any pharmaceutical
product used in the prevention, diagnosis and treatment
is priced in
of diseases as set out
accordance with one of the optional price calculations set
out in Article 3 herein, verified by the Commission as
described in Article 4 hereof and entered to the list of
tiered priced products contained in Annex 1.

in Annex 4 that

(b) ‘Countries of destination’ referred to in Article 4 are those

countries listed in Annex 2.

(c)

‘Competent authority’ means the authority designated by a
Member State to determine whether goods suspended by
the customs authorities in the respective Member State are
tiered priced products and to give instructions to either
destroy or release the goods depending on the outcome
of the review.

Article 2

1.
It shall be prohibited to import into the Community
tiered priced products as listed in Annex 1 and marked with
the logo set out in Article 7 of this Regulation for purposes of
entry, release for free circulation, re-export, placing under
suspensive procedures or placing in a free-zone or
free
warehouse.

2.
Transshipments of tiered priced products for purposes of
export to a country defined in Article 1 as duly documented,
shall not fall within the prohibition set out in paragraph 1
above.

Article 3

The tiered price referred to in Article 4(2)(ii) of this Regulation
shall, at the option of the applicant manufacturer or exporter,
be either

(a) no higher than the percentage set out in Annex 3 of the
average ex factory price charged by a manufacturer in
OECD markets for
the time of
application; or, alternatively,

the same product at

by

(b) a manufacturer's direct production costs as verified and
certified
in
independent
agreement between the manufacturer and the Commission,
with the addition of a maximum percentage which is set
out in Annex 3.

appointed

auditor

an

Option (b) could be considered by a manufacturer in cases
where direct production costs for a certain product are high
and therefore the price achieved under option (a) would be
insufficient
to cover production costs. Any information
submitted by a manufacturer to the independent auditor shall
at any time remain confidential.

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Article 4

Article 5

1.
In order for products to benefit from this Regulation,
manufacturers or exporters of pharmaceutical products shall
submit applications to the Commission.

Any application addressed to the Commission shall

2.
contain the following information:

(i) the product name and substance and sufficient information
is preventing, diagnosing or

to verify which disease it
treating;

in Article 3 in sufficient detail

(ii) the price offered in relation to either of the optional price
to
calculations set out
enable verification. In case the alternative set out under
Article 3(b) is chosen by the applicant, only the certificate
on cost of production issued by the independent auditor
and the additional margin allowed for shall be submitted;
and

(iii) country or countries of destination to which the applicant

intends to sell the product concerned.

3.
In accordance with the procedures laid down in Article 5,
the Commission shall determine whether a product fulfils the
criteria set out in this Regulation.

4. Where the requirements set out in this Regulation are
fulfilled, the product shall be added to Annex 1 at the next
following update. The applicant shall be informed of
the
decision of the Commission within 15 days.

5.
In the event an application is not sufficiently detailed for
review of substance, the Commission shall in writing ask the
applicant
In case the
applicant does not complete the application within the time
period set out in that communication, the application shall be
null and void.

to submit such missing information.

In case the Commission finds that the application does
6.
not fulfil the criteria set out in this Regulation, the application
shall be rejected and the applicant be informed within 15 days
from the date of the decision. Nothing shall prevent a manu-
from re-submitting a modified
facturer or
application for the same product.

an exporter

Donations from manufacturers or exporters may be

7.
notified accordingly for approval and insertion in Annex 1.

Annex 1 to this Regulation shall be updated every second

8.
month by the Commission.

representatives of

The Commission shall be assisted by a Committee,
1.
the Member States and
composed of
chaired by the
the Commission. The
advisory procedure laid down in Article 3 of Decision
1999/468/EC shall apply.

representative of

this Regulation,

2. Where applications are submitted in accordance with
Article 4 of
the Commission shall consult
with the Committee referred to in paragraph 1. When deter-
mining whether
the product or products covered by the
application qualify as tiered priced product(s), the Commission
shall take the utmost account of the opinion expressed by the
Committee regarding each application.

3. Where adjustments to Annexes 2, 3 and 4 are necessary,
the advisory procedure referred to in paragraph 1 shall apply.

Article 6

A product which has been approved as a tiered priced product
and entered in Annex 1 shall remain on that list as long as the
conditions set out in Article 4 are fulfilled and annual sales
reports have been submitted to the Commission in accordance
with Article 11 herein. The applicant is obliged to submit
information on any change occurred with respect to scope
or conditions set out under Article 4 to the Commission to
ensure that these requirements are met.

Article 7

1.
Once a product has been approved as a tiered priced
product under this Regulation and added to Annex 1 the
manufacturer and exporter shall affix a logo as set out in
Annex 5 on any packaging or product and any document
used in connection with the approved product sold at tiered
prices to countries defined under Article 1. This obligation
shall apply as long as the tiered priced product remains
listed in Annex 1.

2. Manufacturers and exporters of tiered priced products
sold in the poorest developing countries, may in addition
‘Approved as
identify these products by affixing the text
tiered priced product by EC under Regulation . . .’
in any of
the official
the European Union on any
packaging or by differentiating the product in a way as may
seem fit.

languages of

Any additional

3.
information in terms of means of
transport, trading routes, batch-numbers etc of tiered priced
products exported available to the exporter, should be made
available to the customs authorities to assist them in allocating
and identifying tiered priced products as set out in Article 8
hereof. Where possible, additional technical information related
to the products and their packaging shall also be submitted to
customs authorities to allow for their identification.

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Article 8

Article 10

1.
Customs authorities shall suspend the release of or detain
the tiered priced products listed in Annex 1 and marked with
the logo set out in Article 7 of this Regulation, for purposes set
out in Article 2 during the time necessary to obtain a final
decision of the competent authorities on the character of the
merchandise.

It shall be sufficient reason for the customs authorities to
2.
suspend the release of or detain products if the product is listed
in Annex 1 and there is sufficient information available as set
out in Article 7.3 to consider that the product in question is
tiered priced.

The customs authorities shall

3.
immediately notify the
competent authority in the Member State concerned of the
information
suspended release or detention and forward all
available with respect
suspended taking
account of national provisions on the protection of personal
data, commercial and industrial secrecy and professional and
administrative confidentiality. The importer shall be given
ample opportunity to supply the competent authority with
regarding the
information which he deems
products.

to the products

appropriate

This Regulation shall not apply to goods of a non-commercial
nature contained in travellers' personal luggage for personal use
within the limits laid down in respect of relief from customs
duty.

Article 11

1.
The Commission shall monitor on an annual basis the
volumes of exports of tiered priced products as listed in Annex
1 and exported to the countries as defined in Article 1 on the
basis of information provided to it by pharmaceutical manu-
facturers and exporters. For this purpose a standard form will
be issued by the Commission. Manufacturers and exporters are
obliged to submit such sales reports annually for each tiered
priced product to the Commission on a confidential basis.

2.
The Commission shall periodically report to the Council
on the volumes exported under tiered prices. The report shall
examine the scope of countries and diseases and general
criteria for the implementation of Article 3.

Article 9

Article 12

the

competent

1.
If products which are suspended for release or detained
by customs authorities are recognised by the competent
authority as tiered priced products defined under this Regu-
lation,
a decision
authority
instructing the customs authority to destroy these products
unless the importer is prepared to make the goods available
for humanitarian purposes to the benefit of countries listed in
Annex 2. The destruction is carried out normally at
the
expense of the importer but in any case without cost to the
exchequer.

issue

shall

interfere with procedures

The application of this Regulation shall

in no circum-
1.
stances
laid down in Directive
2001/83 and Council Regulation 2309/93 concerning the
production, use, evaluation and supervision of medicines for
human and veterinary use within the European Union.

This Regulation shall not

2.
property rights or rights of intellectual property owners.

interfere with intellectual

suspended for

2. Where imported products
release or
detained by customs authorities subsequent to further control
by the competent authority are found not to qualify as tiered
priced products as defined in this Regulation, the competent
authority shall
issue a decision to that effect enabling the
customs authority to release the products to the consignee.

Article 13

into force on the third day
This Regulation shall enter
following that of its publication in the Official Journal of the
European Communities.

The competent authority shall inform the Commission of

3.
all decisions adopted under this Regulation.

This Regulation shall be binding in its entirety and directly
applicable in all Member States.

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ANNEX 1

LIST OF TIERED PRICED PRODUCTS

ANNEX 2

COUNTRIES OF DESTINATION

Afghanistan
Angola
Armenia
Azerbaijan
Bangladesh
Benin
Bhutan
Burkina Faso
Burundi
Cambodia
Cameroon
Cape Verde
Central African Republic
Chad
China
Comoros
Congo, Democratic Republic of
Congo, Republic of
Djibouti
East Timor
Equatorial Guinea
Eritrea
Ethiopia
Gambia
Ghana
Guinea
Guinea Bissau
Haiti
Honduras
India
Indonesia
Ivory Coast
Kenya
Kiribati
Korea, Democratic Republic of
Kyrgyz, Republic of

Lao People's Democratic Republic
Lesotho
Liberia
Madagascar
Malawi
Maldives
Mali
Mauritania
Moldova
Mongolia
Mozambique
Myanmar
Nepal
Nicaragua
Niger
Nigeria
Pakistan
Rwanda
Samoa
Sao Tome and Principe
Senegal
Sierra Leone
Solomon Islands
Somalia
Sudan
Tajikistan
Tanzania, United Republic of
Togo
Turkmenistan
Tuvalu
Uganda
Vanuatu
Vietnam
Yemen
Zambia
Zimbabwe

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ANNEX 3

PERCENTAGES REFERRED TO IN ARTICLE 3

Percentage referred to in Article 3(a): 20 %

Percentage referred to in Article 3(b): 10 %

HIV/AIDS, Malaria, TB and related opportunistic diseases

ANNEX 4

SCOPE OF DISEASES

ANNEX 5

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