Nepal: Public Health under WTO Shiv Raj Bhatt

Background:
Nepal has joined the WTO to integrate its economy with the global mainstream and capitalize on the benefits of market access opportunities. As an instrument of globalization, the WTO has opened tremendous economic opportunities for Nepal, but turning them into reality in a sustained way is challenging. Its implications for various segments of people like farmers and women, and various sectors of economy like agriculture and industry have yet to be assessed. While many international health policy commentators argue that the WTO is one of the most influential international agencies on health, in Nepal the likely impact on health has not been given much attention.

The WTO, as an instrument of trade liberalization, can affect public health in multiple ways, both positively and negatively. It can affect the public health situation directly -- for example, a disease crosses a border together with traded goods) and/or indirectly - for example, reducing tariffs may lead to lower prices for medical equipment and health related products, or changing international rules concerning patent protection may affect the prices of medicines and vaccines. Moreover, there is a positive link between freer trade and economic growth, which can lead to reduced poverty and higher standards of living, including better health. However, WTO's implications on health can be case specific, depending on the existing level of development, availability and access to health facilities, the country's pharmaceutical production capacity, availability of human resources and research and development (R&D) capacity among others. Against this backdrop, this paper analyzes the public health implications of Nepal's WTO membership, particularly the TRIPS agreement.

Diseases and Drug Consumption in Nepal: An Overview
The annual report of the Department of Health shows that in Nepal, the top 10 diseases accounting for morbidity are skin diseases, diarrhea diseases, acute respiratory infection, intestinal worms, pyrexia of unknown origin, gastritis, ear infection, chronic bronchitis, abdominal pain and sore eye. Similarly, delivery cases remain the most common cause of hospital admission, followed by diarrhea and gastroenteritis. Most of these diseases can be cured by very primary out patented drugs.

Various studies are available that analyze the drug prescribing practices in Nepal. Despite the limited coverage, these studies provide a general overview of the drug prescribing practices in country. One study1 finds that 2.1 drugs were prescribed on average in the Kathmandu valley and prescriptions contained 43 percent of antibiotics on average. The study further shows that 86 percent of the prescribed drugs were from the essential drug list. Another study2 also shows that antibacterial, vitamins/minerals and analgesic/antipyretics were the most commonly used classes of drugs and prescription contained 49 percent antibacterial. Another study3 conducted for prescribing habits in private practitioners also found that the average number of drugs per patient was 3.9 and 80 percent of prescription contained one or more antibacterial.

In Nepal, the total drug consumption in the fiscal year 1999/2000 was Rs. 5907 million, of which 26 percent is met by national industries and the rest (74 percent) from imports. The annual increment of drug consumption has been recorded at 18.8 percent. Amoxycillin was the highest selling drug from the domestic industries; vitamins were the highest selling imported drugs.

The top 15 selling drugs4 from domestic manufacturers are amoxyllin, vitamines, cough preparations, ciprofloxacin, ibuprufen + paracetamol, ampicillin + cloxacilln, iron preparations, Oral dehydration solutions (ORS), paracetamol, metronidazole, albendazole, cotrimoxazole, metronidazole + diloxanide, cold preparations, tetracycline. Altogether, these 15 drugs constitute a 52.8 percent share in total drug consumption from domestic manufacturers. Similarly, the top 15 selling imported drugs5 are vitamins, cephalosporins, cough preparations, ciprofloxacine, antacids, ampicillin + cloxacillin, enzyemes, calcium preparations, diclifenac, ranitidine, cold preparations, povidon iodine and cotrimoxazole. These 15 imported drugs account for 35.7 percent share in the total drug consumption from international manufacturers.

A total of 5264 domestic pharmaceutical products were registered for production upto the fiscal year 1999/2000 (4108 allopathic and 1156 traditional). Data show people themselves pay more than 70 per cent of their healthcare expenditures, irrespective of their financial circumstances. A total of 65 (39 allopathic and 26 traditional) domestic drug industries are in operation as of the year 2003/04.

Table (1) shows the huge differentials in drug consumption in Nepal. Only 2.07 percent of total drugs were consumed by the mountain region, where 7.3 percent of total population resides. Similarly, the Far Western development region, where 9.47 percent of total population resides, consumed only 4.88 percent of drugs. In contrast, 34.69 percent population that resides in central development region consumed 50.23 percent of country's total drugs. The drug consumption pattern shows that out of the total consumption of drugs worth Rs 60079 million, the highest consumption was 50.23 percent in the central development region. The Kathmandu Valley alone consumed 26.3 percent of the total drug consumed in the country [DDA, 2001].

1. Main WTO Agreements Related to the Public Health
Certainly, WTO membership is going to significantly affect our economy and lifestyle. However, its role in public health is far from clear. The main WTO agreements related to health are the Agreements on: Technical Barriers to Trade (TBT), Sanitary and Phytosanitary Measures (SPS), Trade Related Intellectual Property Rights (TRIPS), Trade in Services (GATS) and Agriculture (AoA). It also refers to the fundamental WTO principle of non-discrimination (most-favoredFAVORED-nation treatment) and national treatment, which guide the actual implementation of the agreements inter alia as they relate to health issues [WTO & WHO, 2002].

The most-favoured nation (MFN) treatment states that all members of the WTO are bound to grant any advantage, favor, privilege or immunity granted in the application and administration of import and export duties and charges to any product originating in or destined for any other country immediately and unconditionally to the like product originating in or destined for the territories of all member countries (GATT 1994, Article I: 1). In other words, all members are treated equally and are required to share the benefits of any move towards lower trade barriers. Similarly, the national treatment rule prohibits member countries from discriminating between imported products and equivalent domestically produced products, both in the levy of internal taxes and charges and in the application of regulation requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions (GATT 1994, Article III).

There are, however, some exceptions to the rules. For example, Article XX (b) of GATT guarantees members' right to taking measures to restrict imports and export of products necessary to protect the health of humans, animals and plants. This and similar provisions in WTO Agreements recognize that there are cases where members may wish to subordinate trade-related considerations to other legitimate policy objectives and constraints, such as health. WTO jurisprudence, on several occasions, has confirmed that WTO members have the right to determine the level of health protection they deem appropriate. Human health has been recognized by the WTO as being "important in the highest degree." [WTO & WHO, 2002]. Moreover, recognizing the trade, financial and development needs of the least developed countries provisions of differential and special treatment or positive discrimination have been made in almost all of the GATT agreements, legal instruments and ministerial declarations.

The WTO agreements that may affect public health situation can be outlined as below.

1.1 TBT and SPS
Both the Agreement on Technical Barriers to Trade (TBT) and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) allow countries to restrain trade for legitimate reasons, including health, but they also require that such measures should not unnecessarily restrict trade. The SPS Agreement is related to the protection of human, animal and plant health and it contains specific rules for countries that want to restrict trade to ensure food safety and the protection of human life from plant- or animal-carried diseases. Similarly, the members are allowed to prepare, adopt and apply technical regulations for protection of human health or safety, animal or plant life or health, or the environment (TBT: Article 2). The TBT Agreement deals with production, labeling, packaging and quality standard of pharmaceuticals, foodstuffs and other technology assessments relating to health and nutrition. Though the TBT agreement has a broader scope of application, but it requires taking available scientific information into account, whereas in the SPS Agreement it is a fundamental requirement that members have a scientific basis to justify trade measures aimed at mitigating a health risk. If available scientific evidence is not sufficient, the SPS Agreement permits the adoption of provisional measures.

1.2 GATS
Recognizing the growing importance of trade in services for the growth and development of the world economy, WTO members agreed to implement the General Agreement on Trade in Services (GATS) in 1995. The GATS provides a framework for liberalizing trade in services. It consists of (i) a set of general rules and principles which apply across all sectors to measures affecting trade in services, and (ii) specific commitments on market access and national treatment which apply only to those activities which are listed in a country's schedule in accordance with inscribed limitations and qualifying conditions. The impact of GATS depends mainly on the specific commitments while the horizontal GATS disciplines are important in determining the coverage and efficacy of these commitments, underpinning the specific commitments.

For the GATS, trade in services is defined as the supply of a service through any modes of supply (cross boarder, consumption abroad, commercial presence and presence of natural persons). Cross border supply refers to the supply of a service from the territory of one member into the territory of any other member (for example a patient in Nepal gets advice of a medical practitioner located in France through internet and pays fees through tele-banking); consumption abroad refers to the supply of a service in the territory of one member to the service consumer of any other member (for example, a Nepalese patient admitted in a hospital of Bangkok for treatment); commercial presence refers to the supply of a service by a service supplier of one member, through commercial presence in the territory of any other member (for example a hospital/medical college established in Nepal with foreign equity participation-joint venture); and the presence of natural person refers to the supply of a service by a service supplier of one member, through the presence of natural persons of a member in the territory of any other members (for example, a foreign doctor allowed to practice in Nepal for certain time, say one year).

These modes of supplies have significant bearing on the availability of health services in a country. The GATS imposes only very limited general obligations on the members who are free to choose; which service sectors to open up and which modes of service to liberalize. Exempt from the GATS are any services supplied in the exercise of governmental authority. Market access and national treatment in the GATS represent conditional (and negotiable) obligations, which may be made subject to conditions or qualifications that members inscribe in their schedules. This possibility, as well as the continued right to regulate for domestic policy purposes, provides substantial scope for national policy-making, including to health regulations.

In Nepal's schedule of specific commitments in the services sector, two sectors, the health services and the insurance services, are important that may affect the access to health services in the country. Although Nepal has scheduled health services, its commitments are rather restrictive. According to the Nepal's schedule of specific commitments, Nepal has committed to allowing commercial presence (mode 3) through incorporation in Nepal and with maximum foreign equity capital of 51 percent. Since greater openness to foreign direct investment in the health sector would yield benefits of improved technology and standards, and greater availability of health services, Nepal's commitment in this mode should signal such considerations. In mode 1 (cross border supply) and mode 2 (consumption abroad), Nepal has made no binding sectoral commitments. Similarly, the commitment for the presence of natural persons (according to Nepal's schedule of specific commitments, medical experts can work with the permission of Nepal Medical Council for a maximum of one year in Nepal) may also help to narrow the gap between need and availability of health workers/experts in the country.

1.3 Agreement on Agriculture (AoA)
The Agreement on Agriculture (AoA) sets out a framework for progressive liberalization of trade in agriculture goods. This Agreement is very important in determining food security of the countries6. Food consumption is the single most important determinant of good health and it ensures and sustains life and development7. There are three main areas of commitment, namely market access, domestic support (support by government to domestic producers) and export subsidies (support by government to exporters) under AoA that have widespread implications for public health (through its impact on availability, access and affordability of food stuffs). It is argued that under AoA, Third World Countries have to reduce their domestic support and their export subsidies to their farmers over a 10-year period; they have to open up their markets to the agricultural products and services of other nations as well. These measures (import liberalization, reduction of domestic support and export subsidies) will have serious implications for Third World countries [Hong, 2000]. However, empirical studies by some international organizations have shown that no substantial change in the food security situation is likely to occur as a result of the Agreement on Agriculture [Ghimire, 2001]. Moreover, the ongoing WTO negotiations on agriculture represent an opportunity to advance the agricultural trade and food security agenda, and developing countries have participated actively in these negotiations. All these may ultimately help to secure food for all and promote health status of people in developing countries.

3.4 TRIPS
The Agreement on Trade-Related Aspects of Intellectual Property8 Rights (the TRIPS Agreement) that aimed at establishing minimum standard of intellectual property rights is the most debated agreement with respect to public health. It is claimed that the agreement by providing or strengthening the protection of pharmaceutical products with intellectual property rights has posed a special challenge to many developing countries, worsening the opportunities for access to medicines, particularly for the poor [Sun, 2003]. However, protection of intellectual property rights is essential for future innovation and for the discovery and protection of new drugs [Hepburn, 2001], particularly in the advanced countries [Correa, 2000]. Therefore, to make the TRIPS agreement public health friendly, a balance between creating incentives for innovation and consumers' interest in both developed as well as developing countries is most desirable.

TRIPS may have significant implications for public health in Nepal. Its supporters argue that the protection of pharmaceuticals by patents should lead to an increase in the flow of technology transfer and foreign direct investment in developing countries like Nepal will result in the development of new drugs more suited to their needs (patents being regarded as a stimulant to innovation, encouraging inventors to divulge and to market their inventions). It also helps to end the "brain drain" from developing to industrialized countries caused by the absence of protection for their inventions in their home countries. Moreover, availability of wider range of better quality products, including medicines will improve the welfare of general population. On the other hand many others, less optimistic, opposed the Agreement. They argue that the prices of patented drugs and the amount of patent royalties will increase with the strengthening and prolongation of the patent holders' monopoly and multinational firms will be free to export finished or semi-finished products rather than transferring technology or foreign investment directly to developing countries.

The agreement contains several provisions that enable governments to implement their intellectual property regimes in a manner, which takes account of immediate and longer-term public health considerations. It also provides for some flexibility in the implementation of the Agreement by allowing countries, under certain conditions, to limit patent owners' exclusive rights, for instance, by granting compulsory licenses and allowing parallel importation of patented products.

Establishing a minimum standard of intellectual property rights is the main aim of the Agreement. Member countries agree to provide a minimum standard of protection for all intellectual property applied to all technologies in products and processes. Article 7 of the TRIPS sets out the objectives of the agreement as: “The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conductive to social and economic welfare, and to a balance of rights and obligations”. Article 8.1 states that: “Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provision of this Agreement”. Articles 27-34 of the TRIPS Agreement deal with patents and are particularly relevant for public health.

Similarly, the Doha Declaration, an important milestone in the TRIPS debate, paves the way for a more public health-friendly interpretation of TRIPS by explicitly recognizing that intellectual property rights (IPRs) are subservient to public health concern. It reaffirms the right of developing countries to interpret the TRIPS Agreement through a public health perspective. The declaration states that 'the TRIPS Agreement does not and should not prevent members from taking measures to protect public health' and explicitly recognizes the flexibility within TRIPS to grant compulsory licenses and the right of countries to determine the ground on which these are granted. Paragraph 6 of the declaration also recognizes the problems for countries with 'insufficient or no manufacturing capacity in the pharmaceutical sector' and instructs the Council to find a solution regarding compulsory licensing for them 'expeditiously' (by the end of 2002).

The objectives and the principle in Articles 7 and 8 of the TRIPS Agreement and Doha Declaration affirm that IPRs should be conductive to social and economic welfare' and members may adopt measures needed to 'protect public health and nutrition -- provided [that they] are consistent with the provisions of the Agreement' [UNDP, 2003].

Pharmaceutical companies argue that there is no general acknowledgment of a connection between TRIPS and health. However, many governments, public health organizations, civil society and researchers consider that TRIPS has a negative impact on access to drugs, as it may: increase patent protection and monopoly position, leading to higher drug prices, limits competition, affect local manufacturing capacity, make reverse engineering impossible, and provide no incentives for R&D for neglected disease [Jonathan Hepburn, 2001].

Public health implications of TRIPS agreement can be summarized as follows:
i. Increasing Prices:
Though determined by various factors, access to health services and medicine are highly affected by prices. A few governments, basically of the developed countries, and research-based pharmaceutical companies have the view that cheap medicines are not an answer to the problem. However, for life saving drugs, each price reduction will affect whether people can buy them or not. Every incremental reduction will lead to more people being able to purchase the drug [Jonathan, 2001]. In this context, price of medicine is very important factor that determines accessibility to medicines, especially for the poor. Patented drugs are substantially more expensive than generic versions. It is argued that patent protection would almost certainly lead to medicines doubling or tripling in price in developing countries [Jonathan, 2001]. However, research-based pharmaceutical companies argue that the TRIPS and patents are not an issue. They claim that competition in the pharmaceutical industry is highly effective in reducing prices. They say that there are no patents on over 90 percent of the drugs on the WHO's Essential Drugs List, which are off-patent, and therefore, can be copied cheaply. They argue that patents are essential for future innovation and for the discovery and production of new drugs. Nevertheless, affordability of drugs also needs to be considered, alongside other issues.

It is difficult to precisely predict how far the prices of patented drugs might increase after the product-patent law becomes effective. However, some people claim that the TRIPS agreement is likely to lower world welfare, although it may improve the profits of the pharmaceutical multinationals slightly (at a higher cost to the poor in developing countries [Agrawal & Saibaba, 2001]. Table (4) below throws some light on the issue.

Table (2) shows dramatic differences in prices in India, Pakistan, UK and USA. On average, the prices of four drugs of mass consumption were 9.9 times higher in Pakistan, 17.5 times higher in the UK and 37.3 times higher in the USA. Although the data is for a small number of drugs, it is representative of the general trend in drug prices across these countries. The prices of drugs can be expected to increase sharply once the new patent laws confirming to the TRIPS agreement are in place.

However, more than 90 percent of the drugs on the WHO's Essential Drugs List are off-patent, therefore can be copied cheaply [Jonathan Hepburn, 2001]. A study conducted for drug prescribing practices in Nepal also show that 86 percent of prescribed drugs were from the essential drug list [INRUD Nepal, 2004]. Since, most of the drugs consumed in Nepal are from the essential drug list and are off-patent; it would not be appropriate to conclude that patent regime will negatively affect the public health situation through availability, access and affordability of drugs in Nepal. However, this will not be the case for new (more advanced) drugs for existing (known) diseases like HIV/AIDS, stem cell research and genetically specific medicines as well as for the new (emerging) diseases. Therefore, future considerations should be addressed while making the law for protection of intellectual property rights in Nepal.

By the year 2016 (or earlier) Nepal will have to grant legal protection by patents to pharmaceutical products. Such a monopoly situation could lead to an increase in drug prices. So, Nepal should make the fullest use of the periods of transition granted by WTO to LDCs to transcribe the provisions of the TRIPS Agreement into their domestic law. However, as a member state of the WTO, Nepal has an obligation to integrate into its patent legislation the minimal standards established by the TRIPS Agreement (patents for 20 years, no differential treatment between nationals and foreigners, reversal of the burden of proof), but the Agreement leaves certain margins of freedom that can be used to limit the adverse effects on prices and access to technology.

ii. Producing Generic Versions:
Some developing countries have the technical capacity to produce generic versions of drugs and some have the capacity to produce formulations but no active ingredients. Nepal has shown tremendous potential in the production of modern drugs in the last two decades. There are more than three dozen pharmaceutical industries in operation in Nepal. A study showed that drugs worth Rs. 5907 million were consumed in the fiscal year 1999/2000 and 26 percent of the total consumption was met by national industries [DDA, 2001]. However, the share of imported drugs is still very high. For countries with production capacity of generic medicines, TRIPS restricts reverse engineering and increases the waiting time for generic versions of patented drugs to the length of protection (20 years). For countries like Nepal that rely mostly on imports of patented drugs, the implications are yet unclear.

iii. Fuelling Research:
Patents have clearly fuelled the pharmaceutical industry in the developed world, creating incentives for further research. The manufacturers of USA estimated the research cost at US$ 30.3 billion for 2001, compared to US$ 8.4 billion in 1990 and US$ 1.97 billion in 1980. In the developing world, some countries are also beginning to develop research-based pharmaceutical industries, but private research is driven by the promise of patent rents. The Global Health Forum (2001) estimates that out of the US$ 70 billion spent globally on health research, less than 10 percent is spent on disease that comprise 90 percent of the world's health burden though most of the poorest countries of Africa have offered patent protection since at least 1984 and, in some cases, since 1977. In the last 25 years, scientists have developed only two new drugs for tuberculosis, while research outlays for malaria are only US$ 100 million. There are many serious diseases for which little research takes place, because they mainly affect people who cannot afford expensive patented drugs (examples of these 'neglected diseases' include human trypsomaniasis, leishmaniasis and Chagas disease). Of the 1393 new drugs developed between 1975 and 1999, only 13 were for tropical diseases [see http://www.Geneva.quno.info]. So, patent systems like TRIPS do not ensure pioneering research into the diseases afflicting the poor.

Therefore, the introduction and strengthening of patents regime for pharmaceutical products will certainly not lead to an increase in R&D investment by enterprises in developing countries, which have to contend with a lack of technical infrastructure, and financial and human resources. Likewise, the non-patentability of pharmaceutical products existing prior to the TRIPS gave developing countries the opportunity to acquire basic technology through reverse engineering before being able to invest in R&D.

1. Conclusions and Recommendations
Implications of Nepal's WTO membership may be both positive and negative. If managed well, it may produce good public health outcomes in the country. It all depends on Nepal's policies and efforts. Being a member state of the WTO, Nepal now has an obligation to integrate into its patent legislation the minimum standards established by the TRIPS agreement. By the year 2016 (or prior) Nepal will have to grant legal protection by patents to pharmaceutical products. A new international economic and social context, created by the new world trade regime is likely to have an important effect on the equitable access of populations to health and to drugs. Protection of intellectual property may increase the dependence of Nepal and may also have serious implications for Nepal's pharmaceutical sector.

Following are the recommendations to seize the benefits of WTO membership, particularly in the context of public health and patent protection:

i. Need for Health and Trade Policy Coherence
To reap the benefits of WTO membership, greater interaction between trade and health policy makers and practitioners and greater mutual awareness of trade and health policies is needed. The rules and provisions of the WTO Agreements most relevant to health generally permit countries to manage trade in goods and services to achieve their national health objectives, as long as health measures respect basic trade principles such as non-discrimination [WTO & WHO, 2002]. However, some observers claim that WTO rules could constitute a threat to sound public health policies. Therefore, a constructive way to address such concerns is to view them as opportunities for finding a common ground. Minimizing possible conflicts between trade and health, and maximizing their mutual benefits, is an example of policy coherence [ibid].

The importance of trade and health inter-linkages and the need for a greater coherence between trade and health policies was strongly endorsed by the international community at the Doha Ministerial Conference. The Doha Declaration on the TRIPS Agreements and Public Health and paragraph 6 of the Doha Ministerial Declaration made it clear that WTO rules and health policies could go hand in hand, public health considerations were important in implementing WTO rules, and that trade and health policies could be made mutually supportive.

ii. Encouraging Research and Development
The various WTO agreements including TRIPS are beneficial for the countries that have the capacity to produce quality product at a competitive price. Protection of intellectual property benefits the persons who can innovate. Innovative capacities mostly depend the availability of human resources and the level of infrastructure needed for the innovation. Therefore, without improving the infrastructure and the level of human development Nepal cannot seize the benefits of WTO membership and protection of intellectual property rights.

iii. Improving the Capacity of Pharmaceutical Production
Though the number of pharmaceutical companies and products increased significantly in the past decades, Nepal is heavily dependent on the imported drugs. Even very essential drugs that can be produced within the country with very limited resources are imported from India and other countries. Therefore, policies directed towards improving and strengthening the capacity of pharmaceutical production must be introduced.

iv. Improving the availability of health services
The Nepalese government formulated and implemented various health plans and programmes to improve the health status of people by delivering high quality health services. Donor agencies, the private sector and NGOs are supporting the government in this endeavor. However, the health facilities are still far from satisfactory not only in rural and remote areas but in the urban areas too. So, various primary diseases such as diarrhea, respiratory infection, intestinal worms that may be cured by little resources and efforts are still killing many people every year in Nepal, mostly in its remote districts because of the absence of primary health care facilities. Therefore, availability of health services throughout the country is required to improve the health status of people.

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Shiv Raj Bhatt is an expert on development issues

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End Notes

1. Kafle KK, et al. Drug Use in PHC facilities of Kathmandu, J Inst. Med 14:318:326, 1992 (as quoted in INRUD Nepal, 2004).
2. Kafle KK, Khanal DP, Pediatric Prescribing: In Patient Care in Nepal, NEPAS Sovenir 1 (1) 1993 (as quoted in INRUD Nepal 2004).
3. Kafle KK, Khanal DP, Prescribing Practices at Private Sectors in Nepal, J Inst Med. 17:147-148, 1995 (as quoted in INRUD Nepal 2004).
4. From Consumption and Quantification of Modern Drugs for Human use in Nepal, Department of Drug Administration (DDA), Ministry of Health/HMG-N, 2001.
5. Ibid
6. For more detail, see Adhikari Ratnakar, 2000 and Ghimire .H., 2001.
7. hrestha MP and Shrestha Indira, 2001.
8. Intellectual property includes copyrights, trademarks, geographical identifications, industrial designs, layout-designs of integrated circuits, patent, and trade secrets.