1. US FTA may collapse as US excludes sugar from deal
2. No FTA is better than a bad FTA, Sydney Morning Herald January 27, 2004
3. Three US drug firms' bitter trade pill, Sydney Morning Herald January 27, 2004
4. USFTA seminars, Sydney and Orange, January 29

1. US FTA may collapse as US excludes Sugar from deal

As confirmed by Australian media reports on the weekend, US Trade Representative Zoellick did a radio interview last week in North Dakota promising sugar farmers that sugar would be excluded from the deal, i.e. no increases in sugar imports and no reductions in sugar tariffs. This is the result of pre-election lobbying by sugar farmers. US Dairy Farmers have also been pressing for dairy products to be excluded.

Australian Farmers' lobby groups have made public statements that there should be no deal without sugar and significantly improved access in dairy and beef. They are also saying a bad deal would be worse than no deal because it would set a bad precedent for multilateral negotiations.

Prime Minister Howard and Trade Minister Vaile have now admitted publicly that the deal may fall through if sugar is excluded. However Vaile is meeting with Zoellick now and Howard has said he may talk with Bush to try to stitch up a deal. The danger is that they will make concessions in unpopular areas like the price of medicines and Australian content in film and TV for something token in agriculture. But this would also be politically risky for them, because of the state election in the sugar state of Queensland and the Federal election later this year.

Below is an editorial from the Sydney Morning Herald which says the deal is not worth having, and another oped piece about the price of medicines.

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2. No FTA is better than a bad FTA
Sydney Morning Herald, Main Editorial January 27, 2004

What began hopefully on John Howard's September 2001 visit to the United States now looks like ending badly. A free trade agreement, floated more than two years ago and under discussion in earnest since May last year, looks increasingly unlikely to eventuate. Unless there is a surprising breakthrough, the negotiators will be shifting their efforts from real issues to making the best of a bad thing, and saving face. The Prime Minister's frank admission yesterday ("Unless we get concessions on the agricultural front, then the free trade agreement is not worth signing") says it all.

True, discussions are continuing this week. Yet no one seriously expects the Americans will budge from the position, very publicly signalled by President George Bush last week, that American sugar, beef and dairy products will continue to be protected. It was always the case that unless such concessions were settled before the US moved into election mode, they never would be in this Administration's term.

As the Australian negotiators face the prospect of no agreement, or no worthwhile agreement, old questions reassert themselves, not least whether the whole effort was doomed from the start. There were plenty who thought so. Almost a year ago the former National Party leader, Tim Fischer, was airing his doubts about whether the Florida sugar mafia or the mid-western beef mafia would allow the US Government to negotiate away their lavish protection from imports.

Others have questioned whether an FTA, even with new concessions for Australian agriculture, would be worth it. A good agreement, it has been said, would be worth several billion dollars a year. There have always been concerns, though, about possible trade diversion, in particular, the possible negative impact from an increase in trade with the US on Australia's growing markets in Asia, which now account for most Australian exports. For example, Ross Garnaut, an ANU economics professor, warned last year that an FTA with the US would amount to Australia practising "systematic trade discrimination" against Asian economies and that it would be "naive in the extreme" to think that affected Asian economies would not retaliate by reducing their imports of Australian goods.

A corollary to such warnings has been the concern that efforts spent pursuing the impossible dream of a fair FTA with no negative impacts divert Australia from more important tasks, such as developing multilateral trade policies through the World Trade Organisation, or unilateral reduction of trade barriers, to which Australia is committed under the 1994 Asia Pacific Economic Co-operation forum's Bogor declaration.

After raising such hopes, Mr Howard is bound to lose face to some extent if no plainly beneficial agreement materialises. The negotiations have, however, exposed a host of potential problems. The Americans have pressed for changes not only in predictable items affecting trade, but also in more broadly politically sensitive areas, such as the Pharmaceutical Benefits Scheme and local content rules on Australian television. On balance, Mr Howard may well be more relieved than disappointed when the whole business is in the past.

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3. Why US drug firms want us to swallow their bitter trade pill
Sydney Morning Herald January 27, 2004

Australians are being pressured to cough up in order to protect an unhealthy cartel, write David Henry and Evan Doran.

Twelve days ago Nancy Pelosi, Democrat leader in the United States Congress, and eight House Democrats wrote to President George Bush expressing concern about his Administration's "effort to modify Australia's national pharmaceutical reimbursement program". Writing in The Guardian, David Fickling warned that "US pharmaceutical firms are using Australia's public medicine supply scheme for target practice". As we slumber through an Australian summer, it sounds as though they are trying to tell us something. Our Pharmaceutical Benefits Scheme (PBS) is still on the negotiating table at talks for a free trade agreement. The talks are reported to be at risk of collapse.

What proposals have been made by the US trade representative? Well, that's a secret, but the details have been seen by the US congressmen and they sound worried. The US demands appear to be the same as those made by the drug companies; the Democrats warn the proposal is "likely to raise [drug] costs both for the Australian Government and its citizens". (Adoption of US prices in Australia would increase the existing drug bill by about $1 billion a year.) They worry that a number of elements in the proposal will raise drug prices in the US if applied there. Remember this is the country that already has the highest prices and poorest access in the developed world. So why are the international drug companies, with an annual turnover of about $520 billion, keen to undermine the PBS, which represents only 1 per cent of their market?

There are probably two main reasons. The drug companies view the Australian system of reference pricing of drugs as a significant threat, and if they can win concessions from the Australian Government it will set a precedent for future trade deals the US negotiates with other countries. The latter is important, as the drug companies have not got everything they desired from recent World Trade Organisation negotiations and they want the US Government to use its muscle on their behalf in forthcoming bilateral trade deals. In making recommendations to the minister about whether a new drug should be listed on the PBS, the Pharmaceutical Benefits Advisory Committee (PBAC) considers its efficacy, safety and cost relative to other drugs already listed for the relevant clinical indication. If the new drug offers no clinical advantage it can be listed, but usually at the same (or lower) price as the "reference" product. If the research data shows that a new drug is superior, it may be offered at a higher price if the clinical gains justify the higher costs; in other words, if it offers value for money.

The drug companies consider this a restrictive practice and want the freedom to set higher prices to recoup their development costs. They argue that Australia is not paying its fair share of drug development costs and is free riding on the backs of American taxpayers. They are also worried that the US Medicare, which provides health care for the over-60s and in future will include pharmaceutical benefits, may some day adopt a version of the Australian pricing scheme.

There are a number of problems with these arguments. It is silly to dissociate drug prices from clinical performance. A drug may be expensive to develop but perform poorly. If the price is high, money will be wasted that would be better spent on other more effective or cheaper treatments. Second, drug development costs are not as high as the companies claim and are no greater than those borne by some other industries. Pharmaceutical manufacturers are enormously profitable, consistently ranking at the top of the Fortune and Global 500 lists. Actual manufacturing costs of drugs are estimated to be less than 10 per cent of the selling prices, and this has allowed the industry to make lazy profits and spend huge sums lobbying politicians. Protected by their profits, they are inefficient, with high administration and marketing costs, double what they spend on research and development. True competition is rare and international companies have featured prominently in court cases, usually for anti competitive behaviour. Their profitability has been accompanied by considerable aggression and they have been quick to take legal action, for instance against members of the PBAC and the South African Government , when they did not get their way.

So the demands from the US trade negotiators are part of a concerted campaign by the drug industry to maintain unhealthy profits and avoid true competition. While recent reports suggest there are still significant obstacles to overcome in the FTA negotiations, there is a continuing risk to the public medicine schemes. We can only hope that the Australian negotiators see through these spurious arguments and do not trade an essential part of our public health system for a few tonnes of sugar.

David Henry, a professor of clinical pharmacology at Newcastle University, is a member of the South African drug pricing committee and former member of Australia's Pharmaceutical Benefits Advisory Committee. Evan Doran is a researcher at Newcastle University.

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This is a fringe event for the ALP Conference but you do not have to be attending the conference to come to this free seminar. All are welcome to discuss the impact of trade agreements like the USFTA and the WTO.

It will be on Thursday 29 January from7.45am to 9am on the Ground Floor, Labour Council Building, 377-383 Sussex Street, Sydney NSW 2000.

Speakers:

• Senator Stephen Conroy, Shadow Minister for Trade

• Dr Patricia Ranald, Convenor of Australian Fair Trade and Investment Network

• Ted Murphy, Assistant National Secretary, National Tertiary Education Union

• Andrew Hewett, Executive Director of Oxfam / CAA

For further information please contact Peter Jennings at Union Aid Abroad APHEDA on (02) 9264 9343 or by email at pjennings@apheda.org.au

4b) USFTA Forum: Thursday 29 January at 7pm at the Kenna Hall in Hill St Orange

Speakers: Alan Sisley, Orange Regional Gallery Director, Orange Friends of the ABC, and Jeremy Buckingham, NSW Greens party senate candidate, Member of various local agricultural and environmental organisations

When: Thursday January 29 at 7pm

Where: Kenna Hall, on Hill street next to St Josephs Church, on the corner of Hill street and Byng Street.

For more information contact John Holik by email at jhol8710@mail.usyd.edu.au

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