Why Bangladesh’s Burgeoning Pharmaceutical Sector is on a Collision Course with Global Trade and Investment Rules

By Rachel Thrasher

In 2018, Bangladesh met the necessary criteria for graduation from Least Developed Country (LDC) status and is now slated to graduate by 2026.

Bangladesh’s pharmaceutical industry has played a critical role in this possible graduation. Exploring this connection, a new working paper from the Boston University Global Development Policy Center demonstrates the potential for industrial policy to promote access to medicines and economic growth and development.

While global supply chains for medicines are highly concentrated in a few countries, such as India, China, Japan and a few other high-income countries, Bangladesh’s pharmaceutical industry has grown remarkably in the past 40 years. This is due in large part to a vast array of public health, industrial, investment and trade policies focused on that sector – and it has paid off. In addition to supplying 95 percent of the domestic market, Bangladesh’s pharmaceutical companies have begun to make modest gains in the export market, even exporting to some high-income countries.

Bangladesh has been able to deploy this complex mix of policies in the context of almost complete freedom from international trade and investment rules. As an LDC, Bangladesh has been unbound by rules at the World Trade Organization (WTO) requiring non-discrimination in international trade and investment and 20 years of patent protection. Moreover, Bangladesh has taken significant advantage of the 2001 Doha Declaration on TRIPS and Public Health granting a specific transition period for pharmaceutical patenting until 2016, which WTO Members have subsequently extended to 2033.

Upon graduation, however, Bangladesh will need to begin bringing its policy landscape into compliance with WTO trade and intellectual property rules. Doing so will set Bangladesh up for a potential collision course, as the country has already put in place a plan to expand its expertise into the upstream sector of active pharmaceutical ingredients and reagents to strengthen medicines manufacturing. These policies, if allowed to continue, would create scaffolding in the form of subsidies, export performance requirements, special tax treatment and other benefits for firms investing in this sector.

While the evidence clearly shows that these kinds of industrial policies have worked in the past and as the working paper shows, have specifically contributed to the growth of Bangladesh’s pharmaceutical industry, existing trade rules under the WTO and other regional trade agreement would place obstacles in front of this plan and similar efforts.

Bangladesh’s implementation of the 2018 Active Pharmaceutical Ingredients (API) and Reagents Policy involves providing access to preferred finance for API and reagent producers and tax benefits, as well as cash incentives contingent on percentages of domestic value-added. The new API and Reagents Industrial Park offers, among other benefits, priority plot allocation and removal of government “red tape” in special economic zones for those same producers. Each of these policies may run into conflict with WTO rules on subsidies, investment performance requirements and national treatment standards for goods, services and investment when Bangladesh graduates out of LDC status.

Moreover, previous trade policies of excluding imports of goods sufficiently produced by Bangladesh firms would violate rules prohibiting quantitative restrictions on goods, as well as investment rules under the WTO’s Agreement on Trade-Related Investment Measures. Bangladesh may also experience pressure to join regional trade and investment initiatives, which would put even greater constraints on its policy space.

This reality has implications for both Bangladesh and other LDCs who might be headed toward graduation.

First, what has worked in the past – a vast array of industrial policies aimed at building up a domestic generic pharmaceutical industry – will no longer be available to them. Even planned policies to build on and expand the existing sector, such as the API and Reagents Industrial Park, could be permanently stalled, or at least have a smaller impact than predicted, due to the policy limitations of trade treaty rules.

Second, other LDCs on the verge of, or pursuing, graduation through industrial policies to diversify their economies will be limited in how long they can implement them, given that LDC graduation will put the brakes on that policy flexibility. Low- and middle-income countries already face these constraints and will do so all the more as they sign onto new bilateral and regional trade agreements.

Importantly, the LDC Group at the WTO submitted a request to the TRIPS Council in October 2020 to extend TRIPS flexibilities for LDCs, as well as recent graduates of LDC status, until December 2032. In April 2021, the Boston University Global Development Policy Center organized an expert sign-on letter of support of this proposal, noting that LDCs require long-term policy strategies to develop their own industry and a viable technology base to overcome capacity constraints. Moreover, these challenges do not disappear as soon as a country graduates, as the need for on-going development persists.

The overall findings of the working paper first pinpoint challenges for current WTO and other trade and investment treaty members who would seek to build domestic productive capacity in the pharmaceutical sector. The pandemic itself has exacerbated economic inequalities due to the special impacts on low-income countries – declining remittances, disrupted global supply chains and the virtual disappearance of tourism – as well as inequalities in access to treatments and vaccinations.

The findings, however, also offer an initial guide for low- and middle-income countries in both policymaking and treaty negotiations, with the hope that they are able to preserve their policymaking flexibility to the maximum extent.

If and when Bangladesh graduates, its policymakers will likely face an unfamiliar landscape of international commitments with the potential to slow down or undermine much of the progress Bangladesh has made in the past 40 years.

These lessons won’t only apply to Bangladesh – they will also extend to fellow LDCs who will follow them on the path to graduation.

Read the Working Paper