Cross-post.
George M. Carter

http://www.iht.com/articles/2004/11/16/business/oz.html
Drug pricing endangers U.S.-Australia pact

The New York Times
Elizabeth Becker and Robert Pear
Wednesday, November 17, 2004

WASHINGTON Nine months ago, the United States and Australia completed
negotiations on a landmark trade agreement that won unusually broad
bipartisan support in the U.S. Congress. But a dispute over drugs,
both prescription and generic, is threatening to delay the Jan. 1
effective date.

Prime Minister John Howard of Australia, who sent troops to Iraq, has
become one of President George W. Bush's strongest allies, and the
trade agreement is meant to draw the countries even closer together.

U.S. manufacturers of things from tractors to computers are eager for
the agreement to take effect because it promises $2 billion a year in
new industrial exports, which could create jobs for Americans.

But it has been dogged by disputes over the ability of U.S.
pharmaceutical companies to challenge decisions about which drugs will
be covered, and at what prices, under Australia's national health
insurance program. The pharmaceutical industry insists that the trade
agreement should not go into effect until its concerns are addressed.

In Australia, there has been a loud outcry that the pact could
undermine the popular government program that makes prescription drugs
available to all citizens at subsidized prices.

In the United States, American drug companies have complained for
years about their inability to understand or influence government
decisions about coverage of drugs in Australia, where prices are among
the lowest in the developed world, say officials of both countries.

In August, when the Australian Parliament approved legislation to
carry out the trade agreement, Howard, then running for re-election,
accepted amendments that were demanded by the opposition Labor Party.
Those amendments infuriated American pharmaceutical companies and
helped force trade negotiators back to the table. Both countries say
they are optimistic that they can find a solution, but the agreement
will not take effect unless the United States accepts the Australian
legislation or Australia agrees to change it.

Frank Vargo, vice president of the National Association of
Manufacturers, an American trade group, said: "It's unfortunate that
the Australian Parliament chose to change the terms after the
agreement was signed. We are urging all parties to be as flexible as
possible and to move as quickly as possible to resolve these issues."

A senior trade official said that Washington had raised concerns with
Australia about how its legislation affects American drug products.

"We are not happy with it," said the official, who asked for anonymity
because negotiations over the Australian legislation are continuing.
The United States, she said, is concerned about copyright issues as
well, but feels "very confident we can work this out."

Mark Grayson, a spokesman for the Pharmaceutical Research and
Manufacturers of America, which represents brand-name drug companies,
said the Australian legislation made it more difficult for the
companies to enforce their patent rights.

Under Australian law, drug companies face fines of up to $7.6 million
if they make spurious or "vexatious" patent claims to delay the entry
of cheaper generic drugs to the Australian market.

A brand-name drug maker can ask an Australian court to block the
marketing of a drug that infringes on its patents. But before doing
so, the manufacturer must certify that the proceedings were "commenced
in good faith and have reasonable prospects of success."

If the court finds no reasonable basis for the litigation, it can fine
the brand-name drug maker.

Drug makers are not alone in criticizing the pact. Other critics of
the trade agreement, like Peter Drahos, a law professor at the
Australian National University, said the pact would undermine the
government program that provides medicine to Australians.

"The large pharmaceutical industry has had the program in its sights
for a long time," Drahos said.

For Drahos, the agreement poses a fundamental question: Can trade
agreements trump the domestic laws that underpin a nation's social
contract?

Mark Vaile, the Australian trade minister, discounted those concerns.

"There is nothing in the free trade agreement that would increase drug
prices in Australia or change the way the pharmaceutical benefits
scheme operates," he said.

Americans have long protested that they often have to pay more for
brand-name prescription drugs than people in other industrialized
countries. Rather than reducing prices in the United States, some
pharmaceutical companies are trying to raise the prices they charge
abroad, saying that American consumers bear too much of the cost of
research to create medicines.

Such action has not gone unnoticed in Washington. Representative Tom
Allen, Democrat of Maine, said he worried that the pharmaceutical
industry had "undue influence over trade negotiations" and was trying
to weaken other governments' ability to hold down drug prices.

"The risk is that the brand-name pharmaceutical industry will be able
to write international trade rules that overrule domestic law," Allen
said.

Drug companies contend, though, that the law is inconsistent with
Australia's obligations under international trade agreements.

Eric Noehrenberg, a trade specialist at the International Federation
of Pharmaceutical Manufacturers Associations, based in Geneva, said
the Australian legislation would reduce the incentives for patent
owners to introduce new drugs in Australia.

As a result, he said, Australian patients will have less access to new
and improved treatments.

Noehrenberg and Grayson, the spokesman for the American pharmaceutical
group, allege that the Australian law discriminates against the drug
industry, in violation of international trade agreements.

The Bush administration appears to agree. Richard Mills, the spokesman
for the U.S. trade representative, said that the Australian
legislation had to conform with international agreements protecting
intellectual property, like patents, before the trade agreement could
take effect.

But Dr. Ken Harvey, a senior lecturer on public health at La Trobe
University in Melbourne, said that drug companies were complaining too
loudly.

The trade agreement, he said, already gives American drug companies
new leverage in the Australian market, and it could ultimately lead to
"higher drug prices and less generic competition."

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