Nov 272013

sean at podium[Updated Dec 3, 2013]. USTR released a document describing several policy changes in its Trans Pacific Partnership trade agreement proposals on provisions related to the prices of medicines. It is not known whether these changes are related to public pressure that has been mounting on USTR after the leaks of its positions on Wikileaks last week. But there have been reports of increased concern being expressed on Capital Hill and to the White House about the lack of transparency in the negotiating process since the leaks, perhaps prompting this new step towards explaining some of its most controversial positions in public. This note provides some preliminary analysis of what we learn from this new statement. 

May 2007 Access to Medicines Flexibilities

At the heart of the announcement is a new policy to permit “differentiation” in pharmaceutical related intellectual property for the TPP. It states:

We believe the best approach to pharmaceutical IPR issues in the TPP would be one that offers countries flexibility based on their individual circumstances.   That’s why we’ve begun to work with TPP partners to gauge their interest in a “differential approach,” and to identify ways to tailor potential flexibilities based on countries’ existing laws and international obligations.

. . .

This flexible approach is based on precedent: Previous U.S. trade agreements covered by the May 10, 2007 bipartisan agreement.   Under May 10, developing free trade agreement partners (like Peru) were offered greater flexibility relative to more developed trade agreement partners (like Korea).  In TPP, we are seeking to pursue a similar idea, using previous agreements – like those with Peru, Australia, Chile, Korea, and Singapore – as benchmarks, but keeping an open mind as to how these standards can be tailored to reflect the situations of individual partners.

One can thus surmise that the USTR is proposing that wealthier countries in TPP be required to join the standards of Korea, poorer countries with that of Peru.

This is a fairly significant and notable change in US trade policy. For several decades the US has refused to incorporate special and differential treatment for developing countries into trade agreements. It has instead promoted extended transition periods for such countries — but refused to adopt special and differential treatment based on development levels.

The statement does not answer the crucial question of whether the reference to May 2007 and the Peru agreement means that the poorer countries will only benefit from the three flexibilities mentioned in the published version of the May 2007 agreement or rather would receive all of the flexibilities received by Peru. Peru, of course, will demand that it receive all of the benefits of its previous FTA. For example, the US is attempting to demand that all countries adopt patents on new uses of known medicines. TRIPS and the Peru free trade agreement both allow Peru to avoid granting patents for new methods of treatment with known molecules. Is this a flexibility that will be preserved for PEru and the other developing countries in the agreement?

Where Chile will fit in to this mix is a big questions mark. Its current IP chapter with the US is more flexible than the US-Korea FTA (KORUS) but less flexible than the US-Peru FTA. Chile is a comparably wealthy country by some standards. But it has high inequality and its health (and economic) system relies on a fairly well developed generic pharmaceutical manufacturing industry. Politically, it will be difficult for Chile to sign onto KORUS standards on pharmaceutical IP in the TPP.

It is unclear how this announcement will impact the dynamics of the negotiation. Until now, it has been widely reported that the USTR has not had a single taker for its previous “access window” approach which in effect would have removed the flexibility of the May 2007 accord form Peru and denied it to other countries. And it still does not appear that the US is offering enough to convince its current FTA partners — Peru and Chile — to sign onto its proposals. We seem a long way off from agreement still.

Pre-Grant Oppositions

USTR admits that it has changed its TPP position opposing pre-grant opposition procedures on patents, stating the “U.S. now supports patent pre-grant opposition procedures.”

In doing so, it has essentially confirmed the position it took against such opposition procedures in the IP proposals that leaked out last week and previously in 2011. Until now, the USTR had refused to confirm that it had offered those proposals in fact, reflecting its policy to refuse to comment on leaked texts. But each of those leaked texts showed that the USTR was taking a new position not included in any prior free trade agreement negotiation that would ban the US and other counties from instituting administrative procedures to allow interested parties to challenge patent applications before the patent was granted — so called pre-grant oppositions. Such procedures have been used to great positive effect in India – defeating many patents based on submissions of evidence, including of prior art, that may not have been put in the record absent such proceedings.

12 Years of Data Exlusivity

USTR also admits in the document that has made a proposal for 12 years of data exclusivity for biologics. While noting that “opinions vary on the best term of patent protection for biologics,” it states that “traditionally, the U.S. approach to trade negotiations has been to base proposals on existing U.S. law, where the current standard is 12 years.”

Of course the USTR has not traditionally attempted to export all of US law. It has not attempted to export many provisions of US law that protect the users of IP protected goods through limitations and exceptions to patents or copyright.

The statement is noteworthy is the apparent concession in its tone that it is not going to actually obtain 12 years of data exclusivity in the agreement. This is consistent with reports of various groups talking to the White House and Members of Congress that they are being told that although the USTR has offered a 12 year data exclusivity provision in the TPP, it does not expect to get that provision in the final agreement.

The mere offer of the proposal is controversial in the administration itself. The USTR statement mentions that “opinions vary” on 12 years of data exclusivity — and that is true within the administration. Indeed, President Obama’s Budget asked Congress to endorse a reduction of data exclusivity in the US to 7 years. This is an area in which there is no US – much less international – consensus on what minimum terms (if any) of data exclusivity should apply to biologic drugs.

Still No Word on Pharmaceutical Reimbursement Restrictions

Nothing in the statement addresses the administration’s proposals to restrict public programs that reduce prices of medicines through public reimbursement programs.

Early leaks of the USTR position displayed that it was not offering to carve out Medicaid and other US programs from its restrictions, which has raised ire among US health groups. These groups have been meeting with the White House and Congress on the issue, and there are reports that Ambassador Froman has been calling key health groups to attempt to allay concerns, albeit without showing anyone the actual text of the US proposal. According to some, Froman has stated that the US has changed its reimbursement proposal from that which was leaked in 2011. But there are no reports of such changes having been vetted with USTR cleared advisers or having been formally offered in the negotiation.

The public remains in the dark on whether the US is continuing to push standards that, as leaked in 2011, would endanger the ability of many public health programs — like Medicare and Medicaid — to restrain spiraling medicine prices. It is notable that this is a very new issue to be regulated by trade agreements. Only two previous free trade agreements — ever — have included provisions regulating pharmaceutical reimbursement programs towards the goal of raising priced within them.