New Western Hemisphere Trade Pacts Push Back Against Big Pharma

By Thomas Andrew O’Keefe*

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Attempts to limit competition from generics by pharmaceutical giants were called “TRIPS-plus” provisions in USMCA drafts/ Ragesoss/ Wikimedia Commons

Two major trade agreements affecting the Western Hemisphere have recently struck blows against the pharmaceutical industry’s efforts to keep drug prices high by limiting competition from generic medications. Big Pharma tried, but failed, to include provisions in the United States-Mexico-Canada Agreement (USMCA) and the EU-MERCOSUR Association Agreement that would go beyond those expressly permitted by the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

  • Those provisions would have made it extremely difficult for generic manufacturers to enter the market and contain costs. Unaffordable medicines are a large and growing global problem. Many people die of diseases today not because there is no cure, but because they cannot afford the medications.

In the version of USMCA approved by the U.S. Congress and to be signed by U.S. President Trump this week, the Democratic majority in the House of Representatives removed “TRIPS-plus” provisions that would have given “data exclusivity” for new uses of existing pharmaceutical products for up to three years and for so-called “biologics” for ten years. (Biologic drugs are produced from a living organism or contain components of a living organism, including a wide variety of products derived from humans, animals, or microorganisms by using biotechnology.)

  • Data exclusivity would have prevented generic manufacturers from utilizing the original trial results and other test data filed with regulatory health agencies concurrently with the patent application, demonstrating the medication’s safety, quality, and efficacy. Also removed from the USMCA was a provision that would have restricted competition from generic pharmaceutical manufacturers by delaying patent expirations to compensate for “unreasonable” bureaucratic delays in approving the patent. Furthermore, the USMCA now expressly allows generic manufacturers, as per Article 30 of the TRIPS Agreement, to utilize compounds used to make a patented drug in order to develop a generic version in anticipation of that drug’s patent expiration.

Similarly, the IPR chapter in last year’s EU-MERCOSUR agreement does not include TRIPS-plus provisions thanks, in part, to resistance from South American governments concerned about bankrupting their national health care systems because of increasing costs for new medications. The IPR chapter specifically supports World Health Assembly Resolutions on pandemic influenza preparedness and on a global strategy and plan of action on public health, innovation and intellectual property – both of which recognize that “intellectual property rights do not and should not prevent Member States from taking measures to protect public health.”

  • The IPR chapter is consistent with the Doha Declaration on the TRIPS Agreement and Public Health of November 2001. Furthermore, all the signatory states are required to implement articles of the TRIPS Agreement providing the legal basis for WTO members to grant compulsory licenses exclusively for the production and export of affordable generic medicines to other members that cannot domestically produce the needed medicines in sufficient quantities. (The only obligation is for the signatory states to make “best efforts” to adhere to the Patent Cooperation Treaty.)
  • The MERCOSUR countries resisted intense lobbying pressure from European pharmaceutical companies to accept provisions on data exclusivity and to compensate for bureaucratic delays by extending the monopoly on a patented medication beyond the 20-year maximum permitted by TRIPS. The fact that the United Kingdom, home to global pharmaceutical giants such as GlaxoSmithKline and AstraZeneca, was distracted by Brexit undoubtedly contributed to this outcome.

The successful pushback against attempts by the major pharmaceutical multinationals to extend their state-sanctioned monopolies to guarantee a steady flow of profits reflects public outrage over multiple scandals that have ensnared the industry in recent years. This includes not only the massive opioid addiction crisis in the U.S., but firms buying up patents that are about to expire and jacking up their prices in excess of 1000 percent. It makes the traditional industry argument of needing extended monopolies to incentivize innovation and the development of new drugs ring hollow as these speculators incur no research and development costs. As a result of the efforts of MERCOSUR and Democrats in the U.S. House of Representatives, the pharmaceutical industry may be facing a paradigm shift in which it will be forced to develop a new business model for pricing new treatments.

January 28, 2020

Thomas Andrew O’Keefe is the president of Mercosur Consulting Group, Ltd. and a lecturer at Stanford University. He is the author of Bush II, Obama and the Decline of U.S. Hegemony in the Western Hemisphere (Routledge, 2018).

Brexit: Limited Implications for Latin America

By Arturo C. Porzecanski*

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Photo Credit: Elionas2 / Pixabay / Creative Commons

The June 23rd British referendum result – a 52-to-48 percent vote to leave the European Union (EU) – has roiled the world’s leading financial markets, but contrary to many opinions issued in the referendum’s wake, the economic and financial implications of Brexit for Latin America have been either mild or favorable.  Hard line Brexit statements made earlier this month by UK Prime Minister Theresa May, and various rebukes from policymakers on the Continent, have had financial-market repercussions for the pound.  Most notably, sterling has fallen sharply, and it is now down more than 15 percent from its high on the day of the fateful vote, plummeting to three-decade lows against the dollar.

  • The market reaction initially led to a mostly regional (UK and Europe) correction in stock prices. Even this was short-lived: for example, the FTSE 250, an index of domestically focused UK firms, at first dropped by 14 percent but recovered fully by early August – and has since been trading above the pre-referendum level.  Moreover, the UK recession many feared did not materialize, at least not during 3Q16.
  • Financial markets priced in fairly quickly the conclusion that the Brexit shock would lead to greater dovishness among the world’s major central banks. Most relevant to Latin America and the emerging markets (EM) generally, the Brexit helped to persuade the U.S. Federal Reserve to delay its tightening until at least the end of 2016.  While Latin America’s trade and investment ties to Europe are not insignificant, the region’s major economies are far more dependent on the health of the U.S. economy and on the mood in the U.S. financial markets, and secondarily on trends in China.
  • If the UK and the Eurozone had stumbled and were headed for a recession, however, one likely casualty of Brexit would have been a noticeable drop in world commodity prices, with strong implications for the major economies of Latin America. While commodity prices have softened somewhat (non-oil commodities have averaged 2¼ percent lower since the Brexit vote, and oil has traded 7½ percent below), confirmed expectations of loose monetary conditions in the U.S. and Europe during 3Q16 have more than compensated.  This is why most EM stocks, bonds and currencies have rallied, with the parade led by the Brazilian Real (BRL), so far the best-performing of 24 EM currencies tracked by Bloomberg (up about 20 percent year-to-date).

The medium-term implications of Brexit for Latin America will depend on how much “noise” emanates from London, Brussels and other European capitals during the negotiation process (likely, 2Q17-2Q19).  Prime Minister May has now made three statements that define her bargaining position: Article 50 (exit) negotiations will begin by next March; the imposition of migration controls on EU citizens coming to the UK is non-negotiable; and the UK will no longer be under the jurisdiction of the European Court of Justice.  The latter two points mean that Britain cannot remain a member of the single market, and is therefore committed to forging a customized free-trade agreement with the EU, which could sow uncertainty and thus depress economic growth in Europe and beyond.

The most probable scenario – slow and halting Brexit negotiations, with progress hard to achieve until close to the end (in 2019) – will encourage uncertainty and speculation among economic agents and thus will be a drag on economic growth especially in the UK, and much less so in the rest of the EU.  However, it need not generate the kinds of waves that will reach, never mind derail, Latin America’s economic trajectory.  It is much more likely that what does or does not happen in Buenos Aires, Brasilia, Caracas or Mexico City, and above all in Washington, DC – courtesy of the Fed, the White House, and the U.S. Congress, in that order – will overshadow just about any headlines generated by the Brexit negotiations in Europe.  There is room for Latin America to clock higher GDP growth numbers in the years ahead when compared to the disappointing regional averages of 1 percent growth in 2014, zero growth in 2015, and a contraction of about -0.6 percent in the current year (as per IMF estimates).  This assumes that the Fed’s tightening is gradual (namely, no more than 0.25 percent increases in the Fed’s target rate per trimester) and that the UK’s divorce proceedings are not overly hostile.  This scenario foresees that creditworthy governments, banks and corporations in Latin America will retain access to the international capital markets on reasonable terms, despite some initial retraction in investor interest ahead of, and right after, the resumption of the Fed tightening cycle.

 October 17, 2016

*Dr. Porzecanski is Distinguished Economist in Residence at American University and Director of the International Economic Relations Program at its School of International Service.