E-drug: What you don't know, but should, about the Australian-US FTA
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[The Australian Senate report on the AUSFTA is available at:
http://www.aph.gov.au/Senate/committee/freetrade_ctte/
A more colorful commentary, "The FTA and the PBS: Public Health &
Consumer Concerns" is available at:
http://users.bigpond.net.au/medreach/downloads.htm\]
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What you don't know but should about the FTA . . . It's a Mickey Mouse
agreement
Author: Brian Toohey
Publication: Australian Financial Review, Page: 25
Both political parties seem unable to face up to the very real problems
with the Free Trade Agreement negotiated with the US. A Senate committee
has spotted them, however.
The content of the senate committee report on the US/Australia Free
Trade Agreement does not make pleasant reading for those who look
forward to large overall benefits from the agreement. The report
highlights how the agreement - despite small gains in traditional trade
areas - is bristling with potential problems for Australian business and
consumers. Nor does a reading of the report suggest the most important
problems have been rectified by Labor's two amendments to the enabling
legislation for the agreement.
When announcing on August 2 that Labor would insist on the amendments,
its leader Mark Latham said this justified its decision to wait for the
Senate report before deciding how to respond. He also said the report
showed the Senate committee system was working well. But Labor
parliamentarians, let alone the public, were not able to read the final
report at the time Latham made this claim. The report was not even
posted on the parliamentary website until August 6. Printed copies were
not available until the following week.
Nor is it clear that the Labor leadership wanted the Senate committee
(which was dominated by Labor and minor parties) to come to any
conclusions which stood in the way of a decision to endorse the text of
the FTA. Even Latham's decision to move two amendments to the enabling
legislation which don't alter obligations imposed by the text came as a
shock to shadow ministers who had expected him to give the FTA an
unambiguous tick to avoid government criticism of being anti-American.
According to a source close to the committee, the Labor leadership team
did not want it to arrive at any conclusions which would require the
text of the FTA to be re-negotiated. This helps explain the remarkable
dearth of formal conclusions in the report a point noted by a minority
Liberal senator on the committee, George Brandis.
One influential Labor insider says off the record: "The standard trade
stuff in the FTA is pretty unexceptional. But the contents of the report
show we should have pushed for two core changes to the rest of the deal
if we were really serious about supporting free trade and protecting the
PBS [Pharmaceutical Benefits Scheme]."
He says one change would have been to "reject the erection of a new
barrier to trade in the FTA in the form of the extension of copyright
from 50 years to 70 years after the death of a creator". The other would
have been to insist on a sentence which stated that nothing in the
agreement "required a future Australian government to increase the price
of prescription drugs".
The senate report does not see a lot of problems with the sections of
the FTA dealing with traditional trade issues. Nevertheless, it makes an
understandable criticism that the US did not grant Australia Most
Favoured Nation status for agriculture unlike investment and trade in
services. The upshot is that the US does not have to give the same
market access for Australian rural exports that it grants to countries
in Latin America and elsewhere.
However, the report's most critical sections involve intellectual
property (IP) and drug pricing. The body of the report says it
"considers the evidence expressing opposition to copyright extension to
be extremely valid". The underlying reason is the standard economic
argument that extending copyright until 70 years after the death of a
creator involves a restraint on trade well beyond anything justified by
the incentive needed to produce new computer software, movies, music,
books and so on.
As a net importer of IP, the report says Australia will be the loser.
The winners will be the big US corporations which dominate ownership of
IP and want the FTA to act as a template for extending their monopoly
rights around the world. According to the report, Hollywood lobbied hard
for the extension, particularly Disney, whose copyright on Mickey Mouse
was about to expire.
A number of associated problems are highlighted in the body of the
report and in an appendix written by the parliamentary library's
research service. One concern is that the FTA's references to "take down
notices" issued to internet service providers could be open to abuse
from competitors or from people who want to censor material. Examples
are given of the problems created by the use of robots which scour the
internet and automatically issue tens of thousands of take down notices
which are extraordinarily costly to deal with, regardless of their
validity.
Another difficulty relates to provisions about technological devices to
prevent pirating of software, DVDs and CDs which can result in a
criminal offence being committed even if no infringement of copyright
occurs. Although some defences are available, the report outlines
concerns in areas such as copying for educational purposes.
The biggest worry is that this technology will allow copyright holders
to impose their own bans on parallel importing. This would let them
segment the world into separate markets with differing prices for the
same product and prevent consumers in one segment importing something
from a cheaper segment.
The parliamentary library appendix says: "It does seem incongruous that
a 'free trade' agreement, purportedly intended to liberalise trade,
should assist copyright holders to establish their own trade barriers."
Although government witnesses said most of these concerns could be
overcome, advocates of the "open source" computer software Linux were
not convinced in their evidence to the committee.
A further difficulty involves the use of encryption technology to create
"serial monopolies" where products, which would otherwise be compatible,
are prevented from operating together. Examples already include printers
which won't work with generic ink jets. The report quotes analysts who
say serial monopolies will result in price gouging and a reduction in
competition across broad swatches of the economy.
The more general criticism in the appendix is that Australia has agreed
to tougher US provisions to enforce copyright without adopting other
aspects of US domestic law which provide a wider range of exemptions and
remedies to allow "fair use" of intellectual property.
Labor's amendments to the enabling legislation are designed to
strengthen the protection for Australian content on television and to
make it harder for drug companies to misuse patent laws to delay the
introduction of rival generic drugs. But the amendments do nothing to
reverse the major new trade barriers created by the IP provisions which
comprise the longest chapter in the FTA. Nor do they address other
avenues for increasing the cost of drugs listed on the PBS.
The senate committee chairman, Labor's Peter Cook, has publicly
criticised the inclusion of wording in the FTA which focuses on the
importance of R&D expenditure on drugs but excludes the usual World
Trade Organisation language which recognises the right of governments to
take social considerations into account for pricing decisions. The
committee's report discloses that US negotiators refused to include the
WTO wording despite Australian requests. If the US insistence on the
wording about the importance of R&D doesn't matter in a dispute about
interpreting the FTA's language, the report asks why was it included at
all?
At present, the decision on what price will be paid for a drug listed on
the PBS does not include any consideration of how much was spent on R&D
all that matters is whether the product offers value for money. This
follows the normal consumer decision-making process buyers do not
usually decide what a car is worth and then add some more to help the
manufacturer recover R&D costs.
The issue of how to interpret the FTA's wording will be critical if the
US, as expected, complains under the agreement's dispute resolution
process that Australia has failed to meet an implicit obligation to
increase drug prices in order to pay its share of R&D costs. If the US
convinces a panel of international trade lawyers that its interpretation
is correct, then stiff penalties could be imposed on Australia.
As was noted by the Labor insider quoted above, this outcome could never
have arisen if the FTA included a sentence clearly stating that no price
rises were required from the Australian government. But it is most
unlikely that US trade negotiators would have accepted such a sentence
the senate report says bluntly that their goal is "to drive up
pharmaceutical prices worldwide".
The report also notes that the FTA precludes parallel importing for
drugs something future Australian governments might want to endorse to
help keep downward pressure on the cost of the PBS.
If the government proves to be wrong in its assurances that the price of
drugs won't go up as an eventual result of the FTA, the budgetary cost
could easily swamp the $53 million a year in economic gains from the
agreement as estimated in modelling work commissioned by the senate
committee. If prices for drugs in Australia matched those in the US, the
current cost of the PBS would double to around $10 billion.
Just why Australian negotiators agreed to include the PBS in the FTA is
unclear. The senate report quotes Senator Ian Campbell, representing the
Health Minister, as saying in parliament last December, "The Prime
Minister and the Minister for Trade have both made it very clear that
the PBS is not on the table . . . The US has made no proposals to
Australia regarding the PBS". However the report says that Australia's
chief negotiator, Stephen Deady, told the committee that discussions on
the PBS had begun during the first round of negotiations in March 2003.
At least one US congressman agrees that it would have been better if the
PBS was never put on the table. The report quotes Tom Allen as telling
Congress, "Domestic health care policy should not be decided in trade
agreements. It is wrong for us to interfere with another country's
domestic health policy, particularly when it comes to the affordability
of medicines . . . This is special interest policy making at its worst."
Given the content of the Senate report the latter point could be applied
with equal force to the pressure exerted by US IP corporations to extend
the term of their monopoly rights.
Perhaps if Latham had given Labor parliamentarians time to read the
report they might have agreed with Allen's sentiments about the undue
role played by special interests in the FTA.
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