The European Union and developing countries clashed on Tuesday over the treatment of generic drugs, with Brazil accusing Brussels of trying to undermine special public health rules for poor countries.

But the European Union said it had the right to inspect generic drugs in transit, to protect EU citizens and people in developing countries from the risk of fake medicine.

The argument involved the detention last December by Dutch customs authorities of an Indian generic drug to treat high blood pressure while in transit in the Netherlands for Brazil.

It touches on one of the most sensitive issues between rich and poor countries -- access to affordable medicine -- and has been cited by developing countries as an example of rising protectionism in the economic crisis.

Brazil's envoy to the World Trade Organisation told a WTO meeting on the trade in intellectual property agreement TRIPS that the Dutch move was part of a pattern by rich countries to try and claw back special treatment for poor countries.

"Not only is this a violation of the WTO disciplines but it runs counter to the spirit of everything developing countries negotiated under TRIPS to get the flexibilities that would allow public health concerns of developing countries to be taken into consideration, to be protected," Roberto Azevedo told reporters after the meeting.

Azevedo, whose arguments were echoed by India and backed by another dozen developing countries, said the detained cargo of 570 kilos of Losartan Potassium, an ingredient used to make an arterial hypertension drug, had been enough to treat 300,000 Brazilian patients for one month.

The drugs were held to investigate an alleged violation of IP rights, not to safeguard health in poor countries, he said.

He said there were similar examples, and Brazil was now investigating more than a dozen seizures of drugs in the Netherlands in 2008 intended for seven Latin American and African countries.

FORMAL TRADE DISPUTE

Azevedo said Brazil did not rule out launching a formal trade dispute at the WTO over the Losartan case.

But the head of the EU delegation to the TRIPS meeting, Luc Devigne, said there was no legal basis for a dispute, and added that Brazil had not raised any of the other cases with Brussels.

"We remain fully committed to a policy of access for medicine," he told reporters, noting that Europe was one of the world's biggest producers of generic drugs in any case.

But he said the TRIPS agreement allowed WTO members to inspect goods in transit, including generic medicines.

Fake medicine in the EU rose by half between 2006 and 2007, with one third coming from India, and a two-month action in late 2008, known as MEDI-FAKE, resulted in the seizure of 34 million illegal medicines, he said.

"Many countries actually should be grateful to European customs who most likely have saved lives and certainly in developing countries, because fake medicines are more spread in developing countries than developed countries," he said.

In this case Dutch customs held the cargo at the request of a company holding Dutch patent rights, he said.

After a settlement between the patent-holder and the exporter, India's Dr Reddys Laboratories Ltd, customs returned them to Dr Reddys, who flew them back to India rather than continuing the shipment to Brazil, he said, adding that 21 companies in Brazil also manufactured the drug.

Devigne declined to name the patent-holder, but trade officials said it was U.S. company Merck & Co <MRK.N>, under the name Merck Sharp & Dohme. Losartan is the generic name for the drug Cozaar developed jointly by Merck and E I du Pont de Nemours & Co (Dupont).