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Danger and little democracy in new Trade Agreement with the US

By Thomas Faunce and Ruth Townsend - posted Wednesday, 17 March 2010

When President Obama meets Prime Minister Kevin Rudd next week, near the top of their agenda will be the expanded Trans Pacific Partnership Agreement (TPPA). Negotiations for this regional trade agreement are happening in Melbourne from March 15-19.

Without a feasibility study or widespread public consultation, Australia has already begun working with the United States, Chile, Peru and the P4 group of nations (New Zealand, Singapore, and Brunei Darussalam) to expand the existing Trans-Pacific Strategic Economic Partnership Agreement (TPP) signed in 2005. Of particular concern is the threat that the TPPA will impose a so-called “investor-state” dispute settlement process. This would allow US multinationals to sue Australian state or federal governments when those companies believe that laws (for example protecting the environment or public health) have damaged their investments.

Surveys have consistently shown that most Australians consider the Free Trade Agreement the Howard government signed with the US in 2004 (the AUSFTA) was a bad deal. They’re right. In the period 2007-2008 DFAT statistics show imports from the US continued to increase more substantially than our exports. We didn’t get to export our sugar. Export of lamb and beef was delayed and we were forced to make changes to our Pharmaceutical Benefits Scheme (PBS) (the first time a trade deal so directly altered the health policy of another nation). These PBS changes make it harder to keep down prices of new drugs that aren’t proven to work better than existing products. Lobbying by the US firm Baxter Healthcare also forced AUSFTA provisions that required then Health Minister Tony Abbott to recommend privatisation of blood fractionation to the States (they refused).


Less well known was that the AUSFTA included provisions that loosened restrictions on US companies investing in Australia and required that they be regulated no differently than Australian companies. Exceptions had to be specified: they included social welfare and health, but not water or energy. The result was that when the privatisation of the Snowy Mountains Scheme was debated, the Howard federal government was advised that a plan to restrict US investment to 35 per cent of total shares with management based in Australia would breach the AUSFTA and potentially expose us to trade sanctions in other areas. We comforted ourselves that at least the AUSFTA didn’t include an “investor-state” provision.

So why would any Australian government want another trade deal with the US? Since the AUSFTA, our balance of trade with the US has worsened. Why should we (particularly after the corporate irresponsibility exhibited in the global financial crisis and the growing threat of climate change) let an “investor-state” provision impede the capacity of future Australian governments to regulate water and energy unfettered in the national interest?

US pharmaceutical companies have signalled they want more changes to the PBS. They don’t like the “anti-evergreening” amendments the Australian Labor Party pushed through when it had a majority in the Senate. These importantly proved that Australia interpreted the AUSFTA as not encouraging drug company patent dodges that unreasonably increased medicines prices. US drug companies no doubt also see the TPPA as a way of eroding the capacity of New Zealand’s PHARMAC system to scientifically evaluate an objectively fair price for a new drug. They’ll probably do this in part by requiring New Zealand drug regulators not approve a generic medicine until it’s proven no patent is being breached - an “evergreening” tactic Australia accepted under article 17.10.4 of the AUSFTA.

The PBS has unquestioned democratic legitimacy. It’s one of the few components of our domestic health policy that has the backing of a constitutional referendum. The problem with allowing trade deals to alter our public health and environmental policy is that they then exert (through the threat of trade sanctions in a globalised economy) a type of quasi-sovereignty over the capacity of our democratically-elected parliaments to pass laws in the national interest. No referendum takes place about the benefits of a trade deal.

In the AUSFTA development process Australia’s negotiators ran a defensive approach on health policy. This time they should be more proactive just as the South Koreans were in demanding a PBS-type system in their recent bilateral trade negotiations with the US. Australia, for example, is entitled to request reciprocal changes in US health care and medicines policies.

It’s in our national interest to require the US system have stronger provisions preventing “evergreening” of drug patents and restrict corporate influence over drug safety regulators. We’d benefit if US federal drug purchasing programs (such as Veterans Affairs) were required by the TPPA to recognise that pharmaceutical innovation can be equally based on scientific assessment of its comparative cost effectiveness, as well as the operation of competitive markets (the latter requiring strong anti-monopoly laws).


Australia, likewise, will gain if our TPPA negotiators seek inclusion of a provision requiring the US to continue supporting a federal medicines cost-effectiveness advice agency and remove any legislative inhibitions on its evolution into a PBS-type system. This would create a level playing field for the entry of Australian pharmaceuticals into the US market. Our negotiators should argue for a provision that even if a drug is in patent in Australia it can be manufactured here for sale in other TPPA countries where it’s out of patent.

The TPPA should expand the compulsory licensing exceptions that allow drug patents to be broken (with reasonable compensation) in a public health emergency.

The TPPA should encourage reward of public interest disclosures that reveal fraud in regulatory or funding systems relevant to other provisions in the deal.

Australian negotiators should also demand that the US federal government pass laws reintroducing the research use exemption that allows public-funded university researchers to experiment with the chemistry of drugs that are in patent without having to pay royalties.

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About the Authors

Thomas Faunce is Assoc. Professor at the College of Law and Medical School ANU.

Ruth Townsend is a Lecturer at the College of Law and Medical School ANU.

Other articles by these Authors

All articles by Thomas Faunce
All articles by Ruth Townsend

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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