Australia Institute Report: Pharmaceutical prices under the USFTA

The Australia Institute has released a report discussing the US's targeting of Australia's intellectual property laws as part of the USFTA, and the impact this would have on pharmaceutical prices. The report is available at www.tai.org.au/WhatsNew_Files/WhatsNew/Patents.pdf

The Australia Institute media release and an article from The Australian Financial Review about the report are copied below.

US FTA negotiators seek backdoor to higher medicine prices: Australia Institute Media release, 3 December 2003 (http://www.tai.org.au/MediaReleases_Files/MediaReleases/PRpatents.pdf)

According to a report released today Australians will pay an additional $1 billion for essential medicines if the US achieves changes to Australia intellectual property laws covering drug patents as part of an FTA.

"While it appears that the frontal attack on the PBS by the US negotiators has stalled, they are now trying to change Australia’s patent laws as a backdoor means of driving up the price of essential medicines," said Richard Denniss, Senior Research Fellow at The Australia Institute (www.tai.org.au).

The report entitled 'A backdoor to higher medicine prices? Intellectual property and the Australia-US FTA' provides the first costings of the potential impact of changes to intellectual property laws on the price of medicines in Australia.

"By changing patent laws, drug companies will be able to keep the producers of cheaper generic brand medicines out of the market for longer. Australians spend more than $2 million dollars a day on cholesterol lowering drugs. The longer the drug companies can keep the competition out of the market the more money they will make," said Mr Denniss.

The report also considers a previously undiscussed implication of the FTA, its impact on the cost of the ‘over-the-counter’ pharmaceutical products that are outside of the PBS subsidy scheme. Over the counter medications do not require a script and are used for treating hay fever, asthma, colds, and arthritis.

"Millions of Australians will have to pay more for the over-the-counter drugs they rely on to treat themselves for ailments such as hay fever. We estimate that the popular hayfever drug Claratyne could cost a family more than $200 per year extra if the FTA goes ahead," said Mr Denniss.

"And when it comes to over-the-counter drugs it is important to remember that there is no government subsidies or safety nets. The entire cost will be paid by Australian families straight to the US drug companies.

"The Government must rule out any changes as part of the Australia-US FTA that will lead to any increase in the price that Australian consumers or taxpayers pay for medicine," concluded Mr Denniss.

Farm lobby heads FTA off at the pass

Australian Financial Review, December 3
Tony Walker

Gregg Doud, chief economist of the National Cattlemen's Beef Association, has a colourful way of describing the difference between Australia and the United States in the beef trade.

"Australia exports $US850 million worth of beef to the US, while its imports of US beef would fit into the trunk of a car," he says in a southern drawl. Well, not quite, unless the car's boot can take up to 100 tonnes of beef. But Doud's point is that Australia's beef quota to the US is quite adequate and it does not need more.

Furthermore, with little likelihood of the US boosting its negligible beef exports to Australia, there would be "no net benefit" to US cattle farmers of a free-trade agreement that increases Australia's share of the US market.

Indeed, Doud, representing the world's biggest cattle industry, would contend there is only downside. In this judgement he is far from alone among US agricultural producers' representatives, who are lining up against a US-Australia FTA as what are hoped will be final negotiations get under way in Washington.

In 2002-2003, Australian beef exports to the US reached $1.343 billion - the biggest single item - out of total exports of $10.369 billion. Australia's total imports from the US amounted to $22.496 billion, leaving a trade deficit of $12.126 billion.

If the clamour from agricultural representatives and from those speaking on behalf of drug companies interviewed this week by The Australian Financial Review is indicative of the opposition to an FTA that will materialise once a draft agreement surfaces, then gaining congressional support will not be a cakewalk.

Indeed, Lewis Cohen, a consultant with Hogan and Hartson, a prominent Washington law firm that specialises in trade issues, rates the chances of success of an agreement that includes significant concessions on agriculture as "less than 50-50, especially in an election year where trade is an issue".

But Cohen's perspective is not necessarily a consensus view, even among opponents such as Doud, who observes simply that "the President of the United States has said he wants a free-trade agreement with Australia".

In other words, if Bush wants an FTA, chances are he will get it. The question is whether it will be worth the paper it is written on from an Australian perspective, after being subjected to fierce lobbying by special interests. And it's not just any old special interests, but some of the most powerful lobbying groups in the US - the farmers.

Take the views of the sugar industry, represented by Jack Roney, director of economics and policy analysis at the American Sugar Alliance. He says his organisation will "go to the mat" in Congress over any agreement that threatens US sugar producers.

"If the parties insist on including sugar (in an FTA) we'll oppose it with all our resources and we would certainly expect to significantly diminish the chances an FTA would pass," he says. "This is a life-and-death issue where there are potential marginal export gains for major import dislocation."

Australia, Roney warns, with exports of about 4 million tonnes, has the capacity to swamp the local market, which imports about 1.5 million tonnes annually. Australia's sugar quota of 87,000 tonnes now ranks it fourth behind the Dominican Republic, Brazil and the Philippines as suppliers of tariff-free sugar to the US market.

Not far behind sugar in its strident objection to an FTA is the dairy industry which, through the National Milk Producers Federation, represents 73,000 dairy farmers in every state in the union, including Hawaii and Alaska, but especially in the so-called "swing" states of California, Wisconsin, Pennsylvania and New York.

According to NMPF spokesman Chris Galen, his organisation will not hesitate to use its muscle in Congress and with the administration. "We don't see any benefits, but only potential harm. We want no concessions," he says.

But Galen also concedes that the situation is potentially fluid. "When you've got an immovable object and an unstoppable force, who knows what's going to happen," he says.

James Miller, chief economist of the National Farmers Union - the second largest farmers' organisation in the US behind the American Farm Bureau - says simply that one of the main reasons farmers' organisations object so strongly to an FTA with Australia is that it will create "precedents".

"Nearly every other country would want to get matching benefits," Miller says.

As to the question of Australia's support for the US over Iraq and other issues in the war on terrorism, Miller's response reflects a general view among agricultural lobbyists. "What's in it for us becomes a decision based on economic realities and perceptions, rather than whether we like you."

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