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3. AFTINET Media Release 4 May 2004
Government study on US Free Trade Agreement exaggerates gains and ignores costs, say
public interest groups to Senate Inquiry
"The CIE study commissioned by the government about the economic impact of the
proposed Free Trade Agreement is based on dubious assumptions that exaggerate possible
gains and ignore costs," Dr Patricia Ranald, Principal Policy Officer at the Public
Interest Advocacy Centre said today.
Dr Ranald convenes the Australian Fair Trade and Investment Network of 85 community
organisations concerned about the impact of trade agreements on social policies. She will
give evidence at 10.30 am today in Sydney at the Senate Select Committee into the USFTA at
123 Pitt Street. There will be a rally at 1pm outside the hearing where Senators Conroy
(ALP), Ridgeway (Democrats) and Nettle (Greens) will speak.
"The study admits that economic gains from the USFTA are reduced because of far
less than expected access to US agricultural markets. It tries to make up for these losses
by assuming huge gains from investment liberalisation, based on what it admits is a 'back
of the envelope' calculation," said Dr Ranald.
"Where the study admits there would be economic costs to Australia, such as delays
in entry of generic medicines onto the market and greater copyright costs, these costs are
not quantified and are effectively ignored," Dr Ranald explained.
"The study is simply wrong in asserting there will be no costs from changes to the
Pharmaceutical Benefits Scheme which give drug companies the right to seek reviews of
decisions," said Dr Ranald. "US Trade negotiator Robert Zoellick has told a US
Senate Committee that drug companies can expect higher prices as a result of these
changes."
"The study also ignores all the social costs and costs to democracy and culture of
higher prices for medicines, limits on Australian content rules in new media and
restrictions on the right of governments at all levels to make laws and policies on
essential services like water," Dr Ranald added.
"We welcome the fact that the Senate Inquiry into the USFTA is conducting its own
study that will make a more balanced assessment of the economic and social impacts of the
USFTA."
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4. Impact of USFTA on pharmaceuticals in Australia
Submission to the Senate Select Committee on the US Australia Free Trade Agreement from
Professor Deter Drahos, Australian National University, Dr Thomas Faunce, ANU, Professor
David Henry, University of Newcastle and Martyn Goddard, former consumer member of the
Pharmaceutical Benefits Advisory Committee.
The submission can be downloaded in full in PDF format.
EXECUTIVE SUMMARY
HIGHER DRUG PRICES
In a number of statements, government ministers have claimed that the US-Australia Free
Trade Agreement will not have the effect of increasing drug prices and will not contribute
to the long-term financial sustainability pressures on the Pharmaceutical Benefits Scheme.
A close look at the FTA indicates that this is not the most likely outcome. The text of
the Agreement is unbalanced and most of the measures increase the pricing power of US drug
companies operating in Australia. It is inconceivable, based on past practice, that they
will not make use of that new pricing power.
How much will this cost? American consumers, insurers and health programs pay two to
three times as much for many important drugs as their Australian counterparts. Because
most of the measures in the FTA apply to new drugs rather than existing ones, and because
legislation will need to be enacted, regulations changed and new procedures put in place,
there will be a substantial time-lag between the signing of the FTA and its full effect on
prices. The full effect of the FTA on the pharmaceutical market is therefore unlikely to
be felt for about five years.
By that time, however, it is plausible that the gap between US and Australian drug
prices could be cut in half. We estimate, very conservatively, that Australia’s PBS
will have to pay at least one third more for its drugs with the FTA than without it. If
the likely FTA effects are applied to 2003 figures, the extra cost to of the PBS to the
government last year would have been around $1.5 billion for the same drugs at the same
levels of use and with no increase in the health benefit to Australian patients. Similar
pressures would be felt by other buyers of prescription pharmaceuticals, particularly
hospitals.
INTELLECTUAL PROPERTY MEASURES
Under the FTA, Australia is required to go much further in extending intellectual
property rights than is required by our obligations under the existing rules of
international trade. In a substantial number of measures, the previously accepted
boundaries of the World Trade Organisation’s Trade Related Aspects of Intellectual
Property treaty have been pushed forward, greatly strengthening the power of the seller in
the pharmaceutical marketplace.
The FTA concedes to the US standards on intellectual property rights (IPRs) that it
would not have been able to obtain in the WTO or would have had to make considerable
concessions to obtain. The FTA throws away IPRs as a bargaining tool in the WTO with
respect to other countries, most notably Europe and Japan. In other words, Japanese and
European IPR owners also benefit from the IPR chapter.
This agreement aids the US strategy of using FTAs to divide and conquer countries that
are interested in agricultural trade liberalisation. Both Cairns Group members and G-20
members are agreeing to FTAs (in the latter case the price of the FTA is departure from
the group) thereby undermining their effectiveness as collective entities in multilateral
bargaining over agriculture.
A number of other countries have rejected US trade pressure to redefine intellectual
property laws as they affect the American pharmaceutical industry. They have, instead,
sought to protect competition and their own export industries. Canada, for instance, has
legislation before its Parliament to offer generic drug companies export potential for
medicines used in HIV/AIDS. By complying with US-developed standards rather than the
accepted norms of global trade, Australia is throwing away substantial export
opportunities.
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5. US trade deal won't have 'big effect' on investment
The Australian, Tuesday 11 May 2004, page 4
By Christine Wallace
CLAIMS that looser investment rules will lead to big gains for Australia from the US
free trade agreement have been undermined in a report by the Department of Foreign Affairs
and Trade.
Two-thirds of the $6 billion-a-year extra annual output from the deal after a decade in
operation, predicted in government-commissioned modelling by the Centre for International
Economics last month, is expected to come from 'investment liberalisation'.
'By lowering the barriers to foreign direct investment, the equity risk premium
associated with investing in Australia is likely to fall, thereby lowering the cost of
capital in Australia and boosting investment,' the CIE says.
But foreign investment rules have a negligible effect, according to the DFAT analysis.
'Australia's commitments under the agreement with regard to screening of foreign
investment are unlikely to have a major impact on US investment in Australia given the
very few rejections of investment applications outside real estate,' the DFAT assessment
says. It supports comments by trade economist Ross Garnaut last week to a parliamentary
committee that potential gains from the deal had been massively overestimated.
Professor Garnaut singled out the claimed $4 billion gain from investment
liberalisation as being highly unlikely given that investment proposals already had an
easy passage.
Opposition trade spokesman Stephen Conroy said yesterday the DFAT assessment increased
the air of unreality surrounding the $6 billion estimate of the FTA's benefits.
'The Government has rejected its own modelling's assertions that there are going to be
big investment gains for Australia,' Senator Conroy said. 'This reinforces the concerns
about the heroic assumptions made in the CIE report and its claimed benefits for
Australia.
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6. EU woos poor countries with tariff pledges
Financial Times, 4 May 2004
By Tobias Buck in Brussels
The European Union on Tuesday made a fresh attempt to win the support of the world's
poorest countries for a global trade agreement by promising that Brussels would not ask
them to lower their tariffs.
Pascal Lamy, the EU trade commissioner, said the poorest members of the World Trade
Organisation would be able to reap the full benefits of a trade deal even without making a
"significant contribution".
Mr Lamy's comments, in a speech at a trade conference in the Senegalese capital of
Dakar, were intended to bring back to the negotiating table a group of about 90 poor
countries located mainly in Africa, the Caribbean, South Asia and the Pacific.
Collectively known as the G90, these countries emerged as a powerful but volatile force
in the current world trade round - and played an important role in the collapse of the WTO
ministerial meeting in Cancún, Mexico, last September.
The G90 fear that their fragile economies will suffer if they are forced to dismantle
their trade barriers. They are also worried that they will be unable to implement the
technically more complex aspects of an agreement.
Mr Lamy sought to allay such fears on Tuesday by spelling out for the first time what
type of concessions the EU would be looking for. He said that "it is clear that the
countries of the G90 are not in a position to make a significant contribution".
Mr Lamy suggested that the G90 would not have to open their markets any further to
foreign competition. They should merely sign up to an agreement on trade facilitation and
agree to "bind" their import tariffs.
Bound tariffs refer to the level of import duties that a country has formally agreed
not to exceed. Bringing these down to the level at which the tariffs are actually applied
would therefore not lead to a reduction in tariff protection. However, Mr Lamy's request
would prevent developing countries from raising their tariffs in the future and reduce
their room for manoeuvre.
"The countries of the G90 should be able to benefit from all the results of the
current negotiations in all the areas in return for consolidating tariffs and an agreement
on trade facilitation," Mr Lamy said.
Both this request and an agreement on trade facilitation would face opposition from
some developing countries, though the EU's demands had until recently gone much further
and included deals on the protection of foreign investments, competition rules and
transparency in government procurement.
Jaya Cuttaree, the Mauritian minister for foreign affairs and trade and a leading
figure in the G90, welcomed Mr Lamy's comments as a "real step forward" that
would help get the trade round back on track.
Kevin Watkins, research director at the development group Oxfam, agreed Mr Lamy's offer
was "a step in the right direction". But he added that the commissioner had
missed an opportunity to address other problems, for example "rules that make it
difficult for poor countries to gain access to the EU market".
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7. Public Lecture, Sydney 19 May
'Feminism in a neo-liberal age'
Judy Rebick, Canada
Respondent: Eva Cox, UTS
When: 19 May, 6 pm
Where: Gallery Function Centre, Level 6, Tower Building, UTS Broadway
Access: Entry by donation, disabled access
Information: (02) 9514 2714, www.international.activism.uts.edu.au (click on 'new')
Judy Rebick is in Australia to attend the Brisbane Social Forum. Her visit to Sydney is
supported by the Research Initiative on International Activism at UTS.
Judy Rebick is one of Canada’s best-known feminist and socialist thinkers. She is
a regular broadcaster for the Canada public broadcaster, the CBC. For years, she co-hosted
a daily CBC television show called 'Face-off' (a hockey term): a half-hour of debate
between leftists and rightists on current events. She is best known for her commentary on
the status of women, and on alternatives to economic rationalism in Canada. Currently she
publishes the web-based news service
‘Rabble’, a lively forum of critical politics. The magazine brings together a
range of columnists, including Naomi Klein and Michele Landsberg, challenging mainstream
media.
