Healthy Skepticism Library item: 878

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Publication type: news

Faunce T.
It's time - for a bipartisan stand-firm
Sydney Morning Herald 2004 Sep 28

Full text:

Australia can still ensure cheap medicine prices under the free trade
deal with the US, writes Tom Faunce.

In late October, with the election over, representatives of Australia
and the United States will exchange final letters signifying the start
of the free trade agreement between the two countries. The text of the
agreement contains many highly contentious ambiguities related to the
Pharmaceutical Benefits Scheme, which comes as little surprise, given
the protracted and difficult negotiations.

One area of ambiguity is whether drug companies will be able to
“evergreen” their patents, enabling them to keep cheaper generic drugs
off the market; another is whether the phrase “independent review
process” will enable a drug company to seek to overturn a decision of
the PBS advisory committee not to allow partial government funding for
an innovative drug.

There are likely to be disputes as to whether the agreement allows
pharmaceutical companies to advertise directly to consumers and whether
the interpretive principles covering pharmaceuticals will be construed
to cover “universal access to affordable, essential medicines”, which is
the first – and primary – principle of our national medicines policy.

It is not unusual for both sides to claim victory following difficult
negotiations, as both countries seek domestic political kudos. That the
US negotiators believe they succeeded in achieving the strategies
necessary to begin “eliminating” our PBS is undeniable.

The Prime Minister, John Howard, admitted on July 29 that “some of the
American drug companies did try and get in under the radar” on the PBS.

But there was very little subterfuge in the agenda of the US
pharmaceutical multinationals to dismantle our PBS since the US Trade
Act of 2002, obliging US negotiators to eliminate government measures
that seek to “reference” drug price against competitors for overall
community value, that is to control drug prices. A committee of several
US drug company representatives, the independent trade advisory
committee covering chemicals, pharmaceuticals and health sciences worked
closely with the US negotiators.

And when the deal was presented to Capitol Hill, there was no indication
that the US had failed to achieve its objectives. In fact, Senator Jon
Kyl told the US Senate on July 15 that the free trade agreement with
Australia was the first time a US trade deal had “addressed the
worldwide problem of prescription drug price controls”.

Both countries had “recognised the importance of innovative
pharmaceuticals in delivering high-quality health care”, he said. To do
this they had “agreed to set pharmaceutical prices based on the
objectively demonstrated therapeutic significance of the pharmaceutical”.

There is a significant divergence of opinion between that US statement
and Australian views, as expressed by Howard on November 21 last year,
that the “essential character” of the PBS would be protected.

Under the National Health Act, the “essential character” of the scheme
is that drug prices are set, not based on how “innovative” the drug is
or how much research and development was involved in its development,
which is what the US would like to impose, but based on whether it
offers benefit to the whole community when compared with an existing
product and its price.

Textual ambiguities in the free trade agreement could become a major
concern for Australia because the agreement includes a so-called
“non-violation nullification of benefits provision”. Despised in the
world of international trade law, this provision enables the US to start
dispute proceedings and threaten trade sanctions where the US is
deprived of a commercial benefit it would otherwise have expected under
the free trade agreement, even if there has been no violation of any
specific part of the agreement.

The recent “evergreening” legislative amendments to the free trade
agreement will be interpreted in any dispute hearing as having eroded
what the US can claim to be its legitimate expectations in this area.

Given the central place of the PBS in providing low medicine prices,
making doubly sure that our position is protected makes sense.

So, in the national interest both major political parties should make a
commitment now that whichever side is in power after the election, it
will put on record a unilateral interpretive declaration which would
clarify Australia’s position on the most ambiguous aspects of the
agreement relating to the PBS and also other items of national interest
such as quarantine and local content.

Making this declaration should be given bipartisan support.

Australia regularly enters treaties following prolonged negotiations,
which include interpretive declarations to safeguard our future
negotiating position. This was the case recently with the European
Science and Technology Agreement, for example.

Including an interpretive declaration does not affect the legal status
of the trade agreement, nor would we need the permission of the US to
introduce it. Along with the recent evergreening amendments, it may
prove an invaluable asset in the inevitable subsequent trade disputes
with the US.

US companies will continue to pursue their agenda of “eliminating” the
restriction on medicine prices imposed on them by our PBS. Multiple
strategies are needed if we are to secure continued low medicine prices
for future generations.