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International Implications of the Free Trade Agreement between Australia and the United States A Médecins Sans Frontières Briefing Paper The United States Government is systematically undermining countries’ ability to take advantage of generic competition so as to access quality, affordable medicines. It is doing this by prioritising patent rights over patient rights in bilateral or regional trade agreements. Where it hasn’t been able to gain the concessions it has sought in the multilateral negotiating environment of the World Trade Organisation (WTO), the US has sought to use these regional and bilateral trade agreements to implement the kind of intellectual property provisions which best protect its pharmaceutical industry, even to the detriment of the health of the populations of its trading partners. The Free Trade Agreement between the US and Australia represents a model which will set a dangerous precedent for future trade agreements between the US and developing countries. In its present form, the US-Australia Free Trade Agreement contains several provisions that go beyond what is required by the WTO’s Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement. These include several provisions that will restrict access to low-cost medicines. Provisions in the FTA also undermine the principles agreed to by WTO members in Doha, Qatar in 2001. The resulting ‘Doha Declaration’ clearly reinforced members’ rights to prioritise public health over commercial interests. However these principles are now being eroded in FTAs such as the one between the US and Australia. While the impact of these provisions may not be so apparent in Australia, if replicated in trade agreements with developing countries, this could have a devastating impact on the health of developing country populations.

The US Strategy In a testimony to a Senate Subcommittee of the US Congress, the Acting Director of the US Patent and Trademark Office said: “….In order to lower the transaction costs of bilateralism the US has developed models or prototypes of the kind of bilateral treating it wishes to have with other countries. Once a model treaty is ratified by the Senate, US trade negotiators know that if they stick to its terms in other negotiations there is a good chance the treaties flowing from these negotiations will also be approved...”1


In the Asia-Pacific, the US has initiated the “Enterprise for ASEAN Initiative”. Under this initiative, the US Government is working with each ASEAN member to determine if and when they are ready to negotiate a free trade agreement.2 A 2003 press release put out by the US Trade Representative discussed the EAI and talked about trade negotiations at differing stages between the US and Thailand, Malaysia, Indonesia, Philippines, Laos and Vietnam. The US recently concluded an FTA with Singapore and negotiations for an FTA with Thailand have begun.

Dangerous Precedents in the US-Australia FTA The proposed US-Australia FTA contains a number of specific provisions which go beyond what is required in the TRIPS Agreement (‘TRIPS Plus’) and, if replicated in an FTA with a developing country, could have serious implications for access to medicines. These TRIPS-Plus provisions include the following: Longer Patents = Longer Monopolies [Article 17.9.8] The minimum patent term imposed by the TRIPS Agreement is 20 years from the date of filing the patent. The US-Australia FTA provides for extensions of these patents to compensate for “unreasonable” delays in issuing the patent (8.a) or in granting market approval for the patented medicine. There is no requirement for patent extensions because of delays in the patent application or drug registration processes under TRIPS. Such an extension of a patent in a developing country could mean that a drug remains at a high price for a longer period of time, as it is free from any generic competition that could put pressure on the price to decrease (unless a generic is produced under compulsory licence). The high price of medicines caused by patent extensions could mean that large numbers of people are not able to access treatment for that period, which could be years. Data Exclusivity: Blocking Generics Even When Patents Don’t Exist [Article 17.10.1] When a generic medicine needs to be registered in a country, instead of needing to repeat large-scale and costly clinical trials, the generic can make reference to the test data provided by the originator company. In most countries, the generic manufacturer only has to demonstrate to the national drug regulatory authority (NDRA) that its medicine is of quality and therapeutically equivalent to the original version. The US-Australia FTA provides for a 5-year period from the time an originator drug is first registered in the country, during which the NDRA is prevented from relying on the original pharmaceutical test data to approve a generic version of this drug. Generic drugs would only be able to be registered during this 5-year period if they generated their own clinical data to prove the safety and efficacy of the medicine again. Repeating such clinical trials would usually be a lengthy and costly exercise and would also be unethical. Thus, in order to remain commercially viable, generic manufacturers would have to wait for the end of this data exclusivity period before registering their drug.


In the proposed US-Australia FTA, this data exclusivity period could still be enforced even when the originator drug is not registered in the country (17.10.1 c). For example, originator drug X could be registered in the US but not in Australia. A generic manufacturer of drug X must wait for 5 years after the originator drug was registered in the US before the Australian DRA can allow its registration in Australia. These cross-border data exclusivity provisions mean that for this five-year period, neither an originator nor a generic version of drug X may be available in Australia. The 5-year data exclusivity provision already exists in Australian legislation – so why include it in the FTA?3 If the FTA will be used as a model for use by the US in other bilateral trade negotiations then the data exclusivity clause would be a vital part of this model. This would also prevent Australia from revoking data exclusivity. If instigated between the US and a developing country, this provision could have significant impact on the health of a population. In the most extreme case, it is possible that a population could be denied any access to a drug for 5 years – where an originator drug is not registered in a country, but the generic is prevented from being registered due to the cross-border provisions mentioned above. Compulsory Licences: access to affordable medicines eroded [Article 17.9.7] A compulsory licence allows the production or importation of a generic medicine without the consent of the patent holder, who nevertheless, receives adequate compensation. Governments normally issue compulsory licences. The TRIPS Agreement includes no restrictions on the use of compulsory licences and the Doha Declaration explicitly stated that countries have “the freedom to determine the grounds upon which such licences are granted”4. However the US-Australia FTA contains considerable restriction on the use of compulsory licences. If such a provision was included in an FTA with a developing country such as Thailand or India, this could severely curtail the future of generic production in these countries. For example in Thailand, older generic HIV medicines can be produced because of lack of patents for these drugs in Thailand (Thailand only started to grant patents on pharmaceutical products in 1992). This local production of affordable, generic medicines has allowed the Thai Government to rapidly scale-up the number of people on HIV/AIDS treatment. As newer patented HIV/AIDS drugs are needed, the Thai Government will need to turn to compulsory licensing to produce affordable versions of these medicines for its population, as well as for export in the future. However if negotiations between the US and Thailand mirror those of the US-Australia FTA, then people with HIV/AIDS in Thailand and other countries will have little hope of being able to access newer, affordable generic HIV/AIDS medicines. Parallel Importation: shopping around for cheaper prices blocked [Article 17.9.4] Drug companies can sell the same originator drug at different prices in different countries. Parallel importation allows any person to ‘shop around’ for the best price of an originator drug on the global market, without the permission of the patent holder. Parallel importation (also referred to as “exhaustion of rights”) is allowable under


TRIPS. In addition, the Doha Declaration reaffirmed each member’s right “to establish its own regime for such exhaustion without challenge”5. The US-Australian FTA stipulates that parallel importation is possible unless the patent holder specifies otherwise by contract. The inclusion of this provision could have serious implications if replicated in FTAs between the US and developing countries. Parallel importation could represent a significant cost-saving, which if curtailed by the patent holder, could result in a diminished ability of a procurement agency to be able to provide drugs for a certain treatment. Evergreening: stretching patent monopolies further and further [Article 17.10.4] Patents protect ‘inventions’ not medicines. Thus one medicine may have many patents. For example, a medicine may have patents relating to the chemical entities that it is composed of, the process of manufacturing the medicine, a medical indication (ie. the effect of the medicine on the human body), a formulation of the medicine (eg powder, capsule etc) or a specific combination of products. Years after a molecule is discovered, scientists may find that it is effective for treating another disease other than the one for which it was originally patented. Thus another patent could also be issued for this ‘new use’ of the old molecule. In this way, a pharmaceutical company could keep extending their monopoly right over a basic molecule by filing new patents derived from the original patent for ‘new uses’ of the molecule. These ‘new uses’ or inventions, could be composed of any of the dimensions of the medicine listed above, plus many not listed. This process of filing for new patents for ‘new uses’ of the same basic molecule is called ‘evergreening’ and by doing this, companies can, in effect, keep extending their initial patent for a molecule for additional periods of 20 years for each new ‘invention’6. There is no international obligation under the TRIPS Agreement or any other global agreement to accept and grant patents for all these additional inventions7. Indeed countries such as those in the Andean Group and Kenya have specifically excluded ‘new uses’ from patentability in their national patent laws, so as to minimise the number of pharmaceutical patents8. However the US-Australia FTA includes these ‘new use’ provisions. While ‘evergreening’ provisions already exist in Australian law, if such provisions were replicated in FTAs with developing countries, the granting of endless ‘new use’ patents could extend patent monopolies for several decades. This could block generic competition for certain medicines - resulting in these medicines remaining unaffordable and out of reach, with potentially fatal consequences. Such evergreening provisions can also make the determination of a patent violation difficult. This can give originator pharmaceutical companies the means to try to undermine the position of generic competitors, with the constant threat that they may have violated patents.


Conclusion In its current form, the US-Australian Free Trade Agreement should NOT be passed through the Australian Parliament because: It will be used as a model for future FTAs between the US and developing countries, including those in the Asia-Pacific region. It contains several “TRIPS Plus” provisions that will delay the introduction of generic competition. This will mean higher prices for medicines for longer periods of time – potentially denying many people access to vital medicines. While the impact of such provisions will be significant for the Australian population, the implications for developing country populations if this FTA is replicated, could be disastrous. In Thailand, where more than 150 people with AIDS die every day, this delay in access to affordable medicines could mean the difference between life and death9. Therefore, Australia must not pass the US-Australia Free Trade Agreement in its current form, and then must work to exclude all “TRIPS Plus” provisions that extend pharmaceutical patent monopolies and delay the access to generic medicines. The Australian Government has the responsibility to protect the public health of its citizens as well as help ensure the good health of its regional neighbours. The Australian Government should NOT approve a Free Trade Agreement that is contrary to the spirit of the Doha Declaration and should NOT be complicit in the US Government’s unilateral strategy to prioritise patents over public health needs.


Statement of Jon W Dudas. Pirates of the 21st Century: the Curse of the Black Market. Testimony to the United States Senate Subcommittee on Oversight of Government Management. April 20, 2004. 2 Thailand Development Research Institute. Thailand-US Free Trade Agreement. Bangkok, Jan 2004. 3 The Therapeutic Goods Act (Cth) 1989 (Australia) .25A. See also Australia Institute. A backdoor to higher medicine prices? Intellectual Property and the Australia-US Free Trade Agreement. Canberra: Dec 2003. 4 World Trade Organisation. Declaration on the TRIPS Agreement and Public Health. Ministerial Conference; Fourth Session. Doha: 9-14 November 2001. 5 Ibid. 6 Medecins Sans Frontieres. Drug Patents Under the Spotlight – sharing practical knowledge about pharmaceutical patents. Geneva: May 2003. 7 Correa C. Integrating Public Health Concerns into Patent Legislation in Developing Countries. South Centre, 2nd Ed.; Geneva: Sept 2001. 8 Op.cit. (see footnote 6) 9 UNAIDS. 2004 Report on the Global AIDS Epidemic. Geneva: Jun 2004.


International implications of the US-Australia FTA