America drops attempt to repeal law curbing the cost of Aids drugs

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In the second serious blow to the global drugs industry in two months, America has halted its attempt to stop Brazil overriding patents on Aids medication.

The move came as the United Nations General Assembly was embarking on an unprecedented special session in New York on Monday on how to combat the Aids pandemic.

Facing a public outcry in April, 38 drug companies including GlaxoSmithKline and Bristol-Myers abandoned their legal challenge to a South African law that sought to provide access to cheaper drugs.

Now, in an embarrassing climbdown, America has dropped its complaint to the World Trade Organisation over a law Brazil uses to keep down the costs of Aids drugs, which requires drug giants who sell their products in the country to manufacture the products there as well.

Raymond Offenheiser, president of Oxfam America, said yesterday: "Aids activists won in South Africa. We won in Brazil, and now we need full funding of treatment and prevention."

The Brazilian law gives the government the right to license a company's manufacturing rights to another producer if it doesn't make its product in Brazil.

The country produces cheap generic drugs and provides an anti-Aids "cocktail" free to anyone who needs it – a medical programme much lauded by doctors worldwide.

The climbdown could encourage other developing countries to rethink how they apply the WTO's rules on intellectual property, known as Trips, making it easier for them to produce cheap drugs.

Michael Bailey, senior policy adviser on trade at Oxfam, said: "This will certainly strengthen the hand of the developing countries. It shows the US is backing away from those quite high-profile controversies."

Jose Alfredo Graca Lima, a Brazilian trade negotiator, said the two countries had "come to an understanding" over the law. "It is a victory for both sides, a victory for common sense."

The American trade representative Robert Zoellick praised Brazil's "bold and effective programme". He said "With this positive step, we will be able to harness our common energy toward our shared goal of combating the spread of this dangerous virus."

Brazil has agreed with Washington that it would give 10 days' notice before licensing a company's manufacturing rights to another company.

* South Africa's leading Aids activist group said yesterday it was preparing to take President Thabo Mbeki's government to court for denying HIV-positive pregnant women drugs that cut the risk of transmitting the disease to their newborn.