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Agony in the Antipodes The generic drug provisions of the


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									      Journal of Generic Medicines: The Business
       Journal for the Generic Medicines Sector

 Agony in the Antipodes: The Generic Drug Provisions of the Australia-USA Free Trade Agreement
          Journal of Generic Medicines: The Business Journal for the Generic Medicines Sector 2005 2: 316
                                        DOI: 10.1057/palgrave.jgm.4940084

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                             Agony in the Antipodes:
                             The generic drug provisions
                             of the Australia–USA Free
                             Trade Agreement
                             Received: 17th January, 2005

                             Kevin Outterson
                             is an Associate Professor of Law at West Virginia University and an appointed member of the West Virginia Pharmaceutical
                             Cost Management Council.

                             Abstract The Australia–USA Free Trade Agreement (AUSFTA), which entered into force on
                             1st January, 2005, contains many remarkable provisions of interest to generic drug companies. The
                             AUSFTA selectively exports US generic drug laws of great import to generic drug manufacturers,
                             and is uniquely intrusive into domestic pharmaceutical and political spheres. The AUSFTA is
                             important both in its own right, and as a model for future US free trade agreement negotiations.

                             Keywords: Australia–USA Free Trade Agreement (AUSFTA); Agreement on Trade-Related Aspects of
                             Intellectual Property Rights (TRIPS); TRIPS+; Free Trade Agreement (FTA); pharmaceuticals; generic;
                             Hatch–Waxman Act; pharmaceutical benefits scheme (PBS)

                             INTRODUCTION                                                                       aspects of particular interest to the generic
                             On 1st January, 2005, the Australia–USA                                            drug industry.
                             Free Trade Agreement (AUSFTA) entered
                             into force (Table 1 shows the timeline for                                         ATTACKING FREE RIDERS
                             the AUSFTA negotiations).1 Apparently                                              THROUGH HIGHER
                             for the first time,2 a free trade agreement                                         DRUG PRICES
                             modifies domestic pharmaceutical pricing                                            The most important pharmaceutical goal
                             policy,3 moving well beyond the                                                    for the USA in the AUSFTA was to raise
                             intellectual property (IP) provisions of                                           Australian drug prices.7 Since most drugs
                             the World Trade Organization (WTO)                                                 in Australia are reimbursed under the
                             Trade-Related Aspects of Intellectual                                              Pharmaceutical Benefits Scheme (PBS), the
                             Property Rights (TRIPS) Agreement.4                                                AUSFTA had to modify the PBS in order
                             The AUSFTA also exports some                                                       to meet US objectives. Brand-name drug
                             provisions of the US Hatch–Waxman Act,                                             companies have complained for years that
                             with some interesting domestic political                                           PBS prices are too low; independent
Kevin Outterson
West Virginia University
                             implications in both the USA and                                                   researchers have generally lauded the PBS
PO Box 6130                  Australia. Generics manufacturers would                                            as paying for value through an economics-
Morgantown                   do well to pay careful attention to the                                            driven Phase IV reimbursement process.
WV 26506                     process of international trade agreements.5                                        The USA took the former view in the
Tel:+1304 293 8282
                                Several excellent articles are available on                                     negotiations, and sought to raise Australian
E-mail: kevin.outterson@     the pharmaceutical provisions of the                                               drug prices, so that Australia would stop                 AUSFTA;6 this paper focuses on the                                                 ‘free riding’ and pay its ‘fair share’ of drug

316                        © HENRY STEWART PUBLICATIONS 1741–1343. JOURNAL OF GENERIC MEDICINES. VOL. 2. NO 4. 316–326. JULY 2005

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                               The generic drug provisions of the Australia–USA Free Trade Agreement

  Table 1: AUSFTA pharmaceutical provisions timeline
   + January 2003 Pharmaceutical Research and Manufacturers of America lobbied the US trade representative (USTR),
     demanding that Australia ‘refrain from trade distorting, abusive, or discriminatory price controls such as the current
     PBS [Pharmaceutical Benefits Scheme] reference pricing’.48
   + March 2003 First round of the Australia–USA Free Trade Agreement (AUSFTA) negotiations begin, including
     discussions about the PBS drug pricing system.
   + October 2003 President Bush and Prime Minister Howard meet. President Bush is reported to have pushed for
     higher PBS prices as a key goal for the AUSFTA, suggesting that Australia was free riding on American innovation.49
   + December 2003 Sen. Ian Campbell, representing the Australian Health Minister, stated in Parliament: ‘The Prime
     Minister and the Minister for Trade have both made it very clear that the PBS is not on the table... The US has made
     no proposals to Australia concerning the PBS’. Stephen Deady, Australia’s chief negotiator, later told the Senate
     inquiry that PBS was discussed at the first round of negotiations, in March 2003.50
   + February 2004 Treaty negotiations completed in record time (11 months). Trade Minister Vaile claims: ‘The PBS, in
     particular the price and listing arrangements that ensure Australians access to quality, affordable medicines, remains
     intact’.51 But USTR Zoellick was congratulated by members of the US Senate Finance Committee that the AUSFTA
     achieved its goal to raise Australian drug prices.15
   + 18th May, 2004 AUSFTA signed by USA and Australia.
   + 14th–15th July, 2004 Approval by US House and Senate, respectively.
   + 3rd August, 2004 US implementing legislation signed by President Bush.
   + 13th August, 2004 Australian Senate approval of the Implementation Bill, with three Labour Amendments.
   + 1st January, 2005 AUSFTA enters into force.

  R&D costs. The current author is sceptical                                   reviewer, who will look at the PBAC file,
  about many aspects of the free rider                                         as well as other data which may be
  argument, but has written about it                                           submitted by the companies or the
  elsewhere and will not belabour the point                                    government.13 Commentators with direct
  here.8                                                                       experience of the PBAC believe that this
     What is the scope of Australia’s alleged                                  process will put pressure on the PBAC to
  free riding? The US International Trade                                      list drugs that they would not otherwise
  Administration recently calculated the                                       have listed, or to list drugs at higher
  amount as US$400m per year.9 Australian                                      reimbursement prices than otherwise
  estimates of the USA’s price-rise ambitions                                  would have been the case.14 Indeed,
  were similar, topping A$500m per year.10                                     higher prices were the explicit purpose of
  Figure 1 illustrates the extent to which the                                 the provision; at least for the US
  US International Trade Administration                                        negotiators.
  considers that drug prices should rise                                           The question of free riding places
  in several Organisation for Economic                                         Australian and US politicians in the
  Co-operation and Development (OECD)                                          position of quietly undermining each
  countries. The process will require further                                  other’s announcements. In the USA, US
  trade agreements.11                                                          trade representative (USTR) Zoellick was
     The primary AUSFTA mechanism for                                          congratulated on a job well done,15 which
  increasing PBS prices was the addition of                                    means that the process will cause PBS drug
  an appeal in the Australian Government’s                                     prices to rise. In Australia, Trade Minister
  pharmaceutical reimbursement process.12                                      Vaile, in the midst of the recent Australian
  Under the AUSFTA, if the Pharmaceutical                                      election campaign, insisted that prices
  Benefits Advisory Committee (PBAC)                                            would not rise at all.16 Success cannot
  declines to list a drug for reimbursement at                                 have come to both.
  a particular price, the drug company may                                         Independent observers expect the
  request an independent review. The appeal                                    appeals process and other AUSFTA
  will apparently rest with a single                                           provisions to have a significant upward
  Department of Health and Aging (DoHA)                                        impact on PBS drug prices.17 Whether it

© HENRY STEWART PUBLICATIONS 1741–1343. JOURNAL OF GENERIC MEDICINES. VOL. 2. NO 4. 316–326. JULY 2005                    317

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              Figure 1: International Trade Administration estimated annual pharmaceutical free riding (in
              millions of US$)
              Source: [US] International Trade Administration (2004), fig. 5 (standard units, 2003 data)

              reaches the magnitude of US$400m per                                            inapposite. Low-income countries cannot
              year remains to be seen. More                                                   contribute much global drug R&D cost
              importantly, the AUSFTA will not affect                                          recovery, and should be considered fair
              90 per cent of the alleged OECD free                                            followers rather than free riders. The
              riding described in the US International                                        eminent economist F. M. Scherer
              Trade Administration report. US officials                                         described this policy in a recent article,
              suggest that additional trade agreements are                                    echoing the cries of essential medicines
              in the offing on this issue.                                                      advocates like Médecins Sans Frontières.19
                 The trade agreement strategy is unlikely
              to be effective. To raise global prices
              significantly, the USA must force Canada,                                        EXPORTING
              Australia, Japan and all of Europe to                                           HATCH–WAXMAN
              change an important domestic policy. Is                                         The Hatch–Waxman Act20 regulates the
              this likely to be effective? Would it be a                                       generics entry process, striking an often-
              prudent use of US diplomatic and trade                                          controversial compromise between
              leverage?                                                                       innovation and low-cost generics access.
                 It is far more likely that the USA will                                      The current state of the Hatch–Waxman
              ‘succeed’ in raising drug prices in smaller                                     Act leaves much to be desired, but it
              and more vulnerable countries. In the face                                      probably reflects the current political
              of genocidal access issues, do we really                                        balance of power between the
              want to raise drug prices in Central                                            Pharmaceutical Research and
              America and the Dominican Republic                                              Manufacturers of America (PhRMA) and
              through CAFTA-DR? Through the free                                              those who pay for drugs, including
              trade agreements of Morocco or Jordan?                                          governments and managed care companies.
              Or in sub-Saharan Africa? Can anyone                                              Whatever its charms for the US
              imagine a worse idea for global drug                                            population, it seems unlikely that the
              pricing?18                                                                      Hatch–Waxman Act represents the ideal
                 When it comes to the world’s poorest                                         policy for countries as diverse as Israel, the
              countries, the free rider label is especially                                   Dominican Republic, Morocco or


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                               The generic drug provisions of the Australia–USA Free Trade Agreement

  Australia. When the USA inserts Hatch–                                       for the regulatory approval process were
  Waxman provisions into trade agreements,                                     admittedly remote, they are now even
  the policy debate is not transparent.21                                      more remote. More fundamental reforms
  Health experts are frequently not involved.                                  to the drug innovation system, such as the
  Hatch–Waxman provisions may be quietly                                       Hubbard–Love R&D proposal,26 face
  accepted in exchange for limited US                                          additional barriers due to the AUSFTA.
  concessions regarding market access for                                      The political effects of the AUSFTA
  agricultural or manufactured products.                                       process are discussed in more detail below.
  These processes lack transparency and                                           Notably missing from the AUSFTA was
  democratic legitimacy.                                                       the Bolar Amendment, which permits
     Several provisions of the AUSFTA are                                      generics companies to perform the research
  grafted from the Hatch–Waxman Act. Art.                                      necessary to have a generic drug ready for
  17.10.4 of the AUSFTA introduces into                                        market upon patent expiration.27,28
  Australian law the new ‘26B Certificate’.22                                      Beyond the AUSFTA, recent US free
  The 26B Certificate is similar to the                                         trade agreements have tinkered with
  Hatch–Waxman provision which ties                                            various Hatch–Waxman and related
  marketing approval to patent status.                                         provisions, including data exclusivity
  Generics entry in the USA has been                                           delaying generics entry, the Bolar
  greatly delayed by litigation under this                                     Amendment, exhaustion rules on parallel
  provision, particularly the automatic                                        trade and freedom to utilise the Doha
  30-month stay. The Federal Trade                                             paragraph 6 process for compulsory
  Commission criticised many anti-                                             licensure.29
  competitive aspects of this situation,23
  which has now been modified.24 Trading
  partners should carefully review the US                                      The Labour Party amendments
  experience with these provisions before                                      Australian critics charged that the
  importing them unawares. Generics                                            AUSFTA could permit ‘evergreening’, the
  companies with experience of the Hatch–                                      Australian term for artificially extending
  Waxman system could be valuable sources                                      the effective length of patents and
  of advice to governments negotiating free                                    exclusive marketing periods.30 Independent
  trade agreements with the USA.                                               researchers determined that the AUSFTA
     Another provision of the AUSFTA                                           would probably delay generics entry by an
  provides patent term extensions for the                                      average of three years.31 The Australian
  regulatory approval process.25 This portion                                  Labour Party, then in the control of the
  of the Hatch–Waxman Act is now ‘carved                                       Senate, offered amendments to the
  in stone’ in both US and Australian law,                                     AUSFTA, implementing legislation to
  and cannot be modified without approval                                       address this concern. The amendments
  from both governments. Since the USA                                         caused quite a stir in Washington, which
  initiated this provision of the AUSFTA, it                                   threatened to undo the AUSFTA on that
  has, in a sense, tied its own hands,                                         basis alone.32 In the end, the USA
  preventing some future amendments to the                                     reluctantly allowed the amendments to
  Hatch–Waxman Act in the USA. Upon                                            stand, but reserved its right to challenge
  closer examination, it was the USTR,                                         the practice at a later date.
  under the strong influence of PhRMA and                                          The Labour amendments can best be
  with the consent of Congress under fast-                                     described as a toothless tiger. The most
  track authority, who tied the hands of                                       important amendment permits an A$10m
  future Congresses. While the chances of                                      penalty for drug patent litigation in bad
  Congress repealing patent term extension                                     faith. This penalty will never be imposed.

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              The amendment provides broad exceptions                                         This law was upheld by the US Supreme
              for ‘reasonable grounds’ for suing for                                          Court in 2003.37 The law protects Mickey
              infringement.33 Any decent legal opinion                                        in Southern California, but what about
              will immunise the company against the                                           Australia? Attempts to get a similar law
              A$10m penalty. Proving bad faith will be                                        passed in the Australian Parliament were
              difficult, absent a smoking gun document                                          apparently unsuccessful, so the proponents
              from the drug company. The final                                                 of longer copyrights resorted to the
              provision of the penalty requires a promise                                     AUSFTA process. Carefully placed in the
              to conduct the patent litigation ‘without                                       1,000 page document, and receiving
              unreasonable delay’.                                                            precious little public attention, was
                 If, by some chance, the penalty is ever                                      Australia’s concession to extend copyright
              proposed against a company, it may be                                           terms from 50 years to 70 years following
              challenged under WTO rules. The USA                                             the death of the creator, even if the
              has already warned of a challenge under                                         creator was already dead. Walt Disney died
              WTO non-discrimination rules.34                                                 on 15th December, 1966, and the original
                 The other two amendments lower the                                           period would have expired in Australia on
              standard for the Australian generics                                            15th December, 2006.
              certification of non-infringement to
              ‘reasonable grounds’, and regulate the
              process for interlocutory (declaratory)                                         Lock-in current law
              injunctions.35 The Labour amendments                                            The AUSFTA also includes many
              failed to include many suggestions from                                         provisions which allegedly do not reflect a
              Australian academics, including requests for                                    change in law, such as the ‘side letter’
              a transparent ‘Orange Book’ register in                                         provision permitting company applications
              Australia; a process for obtaining Orange                                       to the PBAC for subsequent price
              Book data for other countries to facilitate                                     adjustments.38 Another Australian example
              generics exports from Australia; and more                                       is direct to consumer (DTC) advertising.
              rigorous review of pharmaceutical patents                                       With the exception of New Zealand,
              by both IP Australia and the PBAC.36 It                                         PhRMA has been unable to persuade
              also failed to take full advantage of the                                       other major markets to embrace US-style
              negative US experience with declaratory                                         DTC advertising. The AUSFTA includes a
              judgment actions involving generic drugs.                                       provision on web-based advertising
                                                                                              provision in paragraph 5 of Annex 2C. A
                                                                                              US example is the provision blocking
              POLITICAL EFFECTS OF                                                            US importation of cheaper drugs from
              THE AUSFTA PROCESS                                                              Australia while the issue was being hotly
              Free trade agreements permit companies to                                       debated in Congress.39
              achieve an indirect legal change that has                                          Australian officials insist that these
              been blocked through direct routes, and                                         provisions (and many others, found in
              do so with less transparency. The                                               Table 2) merely reflect current law,40 but
              AUSFTA was no exception.                                                        their protestations ring hollow, for at least
                                                                                              three reasons. Paragraph 5 of Annex 2C
              Changing domestic law                                                           will be taken as the example, but similar
              In the USA, for example, copyright terms                                        arguments apply to most of these
              were extended by an additional 20 years in                                      provisions.
              1998 to protect the nearly-expired                                                 First, if paragraph 5 merely reflects
              copyrights on Mickey Mouse and other                                            current law, why give it a prominent place
              early 20th century copyrighted works.                                           in the AUSFTA?41 At the very least,


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                               The generic drug provisions of the Australia–USA Free Trade Agreement

  Table 2: Comparison of AUSFTA pharmaceutical provisions with TRIPS and the (Australian)
  AUSFTA Implementation Bill 2004.
   AUSFTA                                                                                  TRIPS+?        FTA Bill52
   Annex        Principles (priority of R&D, ‘access’ an issue only in the context of Yes
   2-C.1        gaining marketing approval, market distribution of pharmaceuticals Arts 7, 8, 30
                unless appropriate value paid by government)
   Annex        Transparency                                                          Yes
   2-C.2                                                                              Art. 63
   Annex        Medicines Working Group                                               Yes
   Annex        Internet marketing permitted                                               Yes
   17.1.9       Grandfathers all existing IP rights under the AUSFTA                       No
                                                                                           Art. 70
   17.9.2       Patent scope: ordre public and morality, etc                               No             Sch. 8
                                                                                           Art. 27
   17.9.2       Patent scope: plant and animal patents                                     Yes            Sch. 8
                                                                                           Art. 27.3(b)
   17.9.3       Limits the exceptions to patents                                           No             Sch. 8
                                                                                           Art. 30
   17.9.4       Adopts the domestic exhaustion rule, preventing parallel imports           Yes
                of patented goods. This provision allows companies to price                Art. 6
                discriminate on a State basis.
   17.9.5       Revocations only on basis which would have justified refusal to            Yes            Sch .8
                grant, or fraud, misrepresentation or inequitable conduct                  Art. 32
   17.9.6       Allows a Party to permit generic drug companies to use patented            Yes
                products solely to prepare for marketing approval
   17.9.7       Addresses compulsory licensure and bypassing patents for anti-             Yes
                competitive reasons                                                        Art. 31
   17.9.8(a)    Party must lengthen patent term if patent approval was delayed             Yes
                more than four years after application, or two years after a               Art. 33
                request for examination, or was otherwise delayed unreasonably.
                Unclear whether the ‘compensation’ must be a day for day
   17.9.8(b)    Party must lengthen pharmaceutical patent term to compensate               Yes
                for unreasonable curtailment of the effective patent term for the
                marketing approval process
   17.9.11      Disclosure: eliminates the TRIPS requirement that the ‘best mode’          Yes
                be disclosed                                                               Art. 29.1
   17.10.1(a)   Use of safety and efficacy data by generic applicants: five year           Yes            Existing TGA §25A(2)
                exclusivity                                                                Art. 39.3
   17.10.1(c)   Use of third State’s marketing approval:                                   Yes
                five year exclusivity                                                      Art. 39.3
   17.10.2      Data on ‘similar’ products: three year exclusivity                         Yes
                                                                                           Art. 39.3
   17.10.3      Exclusive marketing rights can extend beyond the expiration of             Yes
                the 20 year patent                                                         Art. 33
   17.10.4      Measures to block generics marketing if a patent is claimed                Yes            Sch. 7- New §26B of TGA

  enshrining a rule in the AUSFTA prevents                                     trade agreements to lock-in domestic
  the Australian Parliament from adopting a                                    political gains is weak, for it effectively
  different rule later, absent the consent of                                   gives a veto to the other country for
  the USA. This ‘lock-in’ effect is                                             certain domestic legal changes.
  significant, preventing later reconsideration                                    A second major change is procedural. If
  of the issue in the Australian Parliament.                                   a drug company mounts an overly
  The democratic legitimacy of using free                                      aggressive web-based DTC advertising

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              campaign, the AUSFTA now provides a                                             with direct input into Australian drug
              process and a remedy outside of Australian                                      policy, dominated by pro-PhRMA
              law (see Pfizer Australia’s Viagra site42 for                                    constituencies.
              a possible example). The matter will not
              be decided solely under Australian law: the                                     Affecting multilateral
              USTR may get involved; it can be                                                trade negotiations
              discussed at the Medicines Working Group                                        A final example of the political effects of
              (MWG);43 and the USA may apply                                                  the AUSFTA is its use subtly to
              ‘Special 301’ pressure, or request                                              undermine multilateral agreements
              consultations under Chapter 21 of the                                           promoting production of generic
              AUSFTA. Ultimately, if compromise                                               medicines. The Doha Declaration to the
              proves impossible, it will be decided by a                                      TRIPS Agreement states that ‘trade
              panel of trade experts.                                                         agreements should be interpreted and
                 Finally, while the Australian government                                     implemented to protect public health and
              seems confident today that they would                                            promote universal access to medicines’.47
              win such a case, trade lawyers may                                              The interpretative principles found in
              disagree. Paragraph 5 includes apparent                                         Annex 2-C of the AUSFTA focus
              standards for web-based DTC advertising,                                        primarily upon the intellectual property
              and the panel may well decide that the                                          rights of drug companies, omitting the
              paragraph was intended to have some                                             proper balance of affordable access to
              meaning, rather than none at all. The                                           therapy. Most notably, the interpretive
              panel hearings and deliberations need not                                       principles omit the Doha language and
              be public, and are not required to                                              other TRIPS provisions protective of
              welcome submissions from non-                                                   public health. This is the language which
              governmental organisations and trade                                            has been used by advocates of essential
              associations.44                                                                 access to speed the delivery of generic
                                                                                              anti-retroviral drugs to sub-Saharan Africa
                                                                                              and other impoverished areas stricken
              Creating new law-                                                               under the AIDS crisis. The absence of this
              making processes                                                                language in the AUSFTA is a missed
              We can also expect the AUSFTA to                                                opportunity by the Australian generics
              continue to provide new law-making                                              industry to participate in compulsory
              processes, far from the public eye. The                                         licensing for export under TRIPS. It also
              AUSFTA created the MWG to facilitate                                            bodes ill for any future Australian attempt
              further discussions on pharmaceutical issues                                    to claim the benefit of the TRIPS public
              under the Agreement. The creation of the                                        health language to address the needs of the
              MWG is significant, and is likely to                                             Australian public. Global advocates of
              represent the cutting edge of the US                                            essential medicines access (and the generics
              PhRMA agenda. The terms of reference                                            companies that supply such medicines)
              are unbalanced, including ‘the importance                                       should have had a larger role in the
              of pharmaceutical research and                                                  negotiation of the AUSFTA.
              development’ but excluding universal
              access to medicines.45 Much as the
              generics industry was shut out of USTR’s                                        CONCLUSION
              Industry Trade Advisory Committee 3                                             Generics companies and their customers
              (ITAC-3),46 it may also lack representation                                     have much to lose in free trade agreements
              or clout on the MWG. The MWG will be                                            negotiated around the world. Policy
              a political process which is not transparent,                                   arguments are available to counter


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                               The generic drug provisions of the Australia–USA Free Trade Agreement

  PhRMA’s one-sided lobbying, but the                                                Witness: Ambassador Robert Zoellick, US
  industry and its customers must be more                                            Trade Representative. McClellan, M. B. (2003)
                                                                                     ‘Speech before the First International
  fully engaged in the process of agenda                                             Colloquium on Generic Medicine’, 25th
  setting and negotiations in future trade                                           September, available at
  agreements.                                                                        speeches/2003/genericdrug0925.html. Serafini,
                                                                                     M. W. (2004) ‘Drug prices: A new tack’,
                                                                                     National Journal, Vol. 36, p. 16 (‘So Hastert and
                                                                                     Kyl championed the novel idea that the key to
  References and notes                                                               lowering US prescription drug prices is to
   1. Australia–United States Free Trade Agreement                                   persuade foreign governments to raise their
      (2004), available at                                   prices . . . The idea of trying to level the
      trade/negotiations/us.html.                                                    international playing field on prescription drug
                                                                                     pricing originated with the U.S. pharmaceutical
   2. Becker, E. and Pear, R. (2004) ‘Trade pact may                                 industry. But Hastert and Kyl played significant
      undercut inexpensive drug imports’, New York                                   roles last fall in persuading the Bush
      Times, 12th July.                                                              administration to embrace this strategy . . . The
                                                                                     result was the United States’ first free-trade
   3. In Australia’s case, the modification is made to
                                                                                     agreement that included modest concessions on
      the government’s decision to list a drug for
                                                                                     pharmaceutical price controls’.) Of course,
      reimbursement at an agreed price under the
                                                                                     increased prices for brand-name drugs would be
      Pharmaceutical Benefits Scheme (PBS).
                                                                                     good news for generics makers, permitting them
   4. World Trade Organization, Trade Related                                        to increase their own prices while still
      Intellectual Property Agreement (1994). The                                    undercutting the competition.
      ‘TRIPS Plus’ provisions of AUSFTA are listed                               8. See Outterson, K. (2004), ‘Free trade against
      in Table 2.                                                                   free riders?’, Pharma Pricing & Reimbursement,
   5. While generic drug industry trade organisations                               Vol. 9, pp. 254–255.
      submitted testimony in both Australia and the                              9. International Trade Administration (2004)
      USA, the brand-name drug industry was much                                    ‘Pharmaceutical price controls in OECD
      more active and effective, as demonstrated by                                  countries: Implications for US consumers,
      the provisions of the AUSFTA.                                                 pricing, research and development, and
   6. See, for example Harvey, K. (2004) ‘Patents,                                  innovation’.
      pills and politics: The Australia–United States                          10. The estimate was A$1.5bn over 2006–2009.
      Free Trade Agreement and the Pharmaceutical                                  Productivity Commission (2001), ‘International
      Benefits Scheme’, Australian Health Review, Vol.                              pharmaceutical price differences: Research
      28, pp. 218–226. Drahos, P. and Henry, D.                                    report’, available at
      (2004) ‘The free trade agreement between                                     study/pbsprices/finalreport/pbsprices.pdf
      Australia and the United States: Undermines                                  (assumes that the top five PBS expenditure
      Australian public health and protects US                                     drugs are delayed). For a higher estimate, see
      interests in pharmaceuticals’, British Medical                               Burton, B. (2004) ‘Australia’s free trade deal
      Journal, Vol. 328, pp. 1271–1272). See also the                              with US hangs in balance on drugs’ British
      submissions to the Australian Senate by the                                  Medical Journal, Vol. 329, p. 7461.
      Generic Medicines Industry Association Pty
      Ltd., the Doctors Reform Society, the Public                             11. Becker, E. and Pear, R. (2004) ‘Trade pact may
      Health Association of Australia, Inc., the                                   undercut inexpensive drug imports’, New York
      Australian Nursing Federation, Catholic Health                               Times, 12th July (statements of Dr Mark B.
      Australia, the National Center for Epidemiology                              McLellan, former head of the Food and Drug
      and Population Health, the Australian                                        Administration (FDA)and current administrator
      Consumers’ Association and Dr Ken Harvey, all                                of Medicare and Medicaid; and Joseph M.
      available at                                   Damond, Associate Vice President of PhRMA).
      committe/freetrade_ctte/indes.htm.                                           Maher, S. (2004), ‘US drug makers pressure
                                                                                   Canberra’, The Australian, 29th December
   7. Pharmaceutical Research and Manufacturers of                                 (statements of US Senators Rick Santorum and
      America (2003) ‘PhRMA ‘‘Special 301’’                                        Jon Kyl).
      submission to the Office of the United States
      Trade Representative: Australia’, available at                           12. AUSFTA (2004) Annex 2-C, paragraph 2(f). Colebacht, T. (2003)                                13. Burton (2004) op. cit. at p. 7461.
      ‘Bush wants end to medicine subsidies’, The
      Age, Melbourne, 24th October, p. 5. Hearing of                           14. See, for example, Harvey, K., et al. (2004),
      the US Senate Finance Committee (2004), ‘The                                 ‘Will the Australia–United States Free Trade
      Administration’s international trade agenda’,                                Agreement undermine the Pharmaceutical

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                   Benefits Scheme?’, Medical Journal of Australia,                                in free trade agreements with the United States’,
                   Vol. 181, pp. 256–259. Dr Harvey is a former                                   pp. 4–6, available at http://www.accesmed-
                   member of the PBAC. See also Drahos, P. et al.                       ;
                   (2004) ‘The FTA and the PBS: A submission                                      Vivas-Eugui, D. (2003) ‘Regional and Bilateral
                   to the Senate Select Committee on the                                          Agreements and a TRIPS-Plus World: The
                   US–Australia Free Trade Agreement’, p. 3.                                      Free Trade Area of the Americas (FTAA)’,
                                                                                                  Quaker UN Office, pp. 16–18.
              15. Hearing of the US Senate Finance Committee
                  (2004), ‘The Administration’s international trade                           22. US Free Trade Agreement Implementation Bill
                  agenda’ (Witness: Ambassador Robert Zoellick,                                   2004, The Senate, The Parliament of the
                  US Trade Representative).                                                       Commonwealth of Australia, Canberra.
              16. Vaile, M. (2004), ‘Free trade agreement with                                23. Federal Trade Commission (2002) ‘Generic
                  the United States’, media release, 8th February,                                drug entry prior to patent expiration’,
                  2004 (MVT08/2004), available at http://                                         pp. 13–23.
                                              24. Pub. L. No. 108-173, 117 Stat. 2066 (2003),
                  mvt008_04.html). See also Abbott, T. (2004)                                     (partially codified at 21 USC s. 355(j)). The
                  ‘Australia–United States Free Trade Agreement                                   Congressional Research Service prepared a
                  (AUSFTA), Implementation of the obligations                                     summary of the Act, which provides some
                  to improve transparency of the Pharmaceutical                                   guidance on Congress’ intent in amending the
                  Benefits Scheme (PBS) through an independent                                     Hatch–Waxman Act. See Congressional
                  review mechanism, Hearings before the                                           Research Service (2003) ‘Prescription Drug and
                  Pharmaceutical Benefits Advisory Committee                                       Medicare Improvement Act of 2003, Bill
                  (PBAC)’, 25th July (statement of The Hon.                                       Summary and Status, s.1, 108th Congress’,
                  Tony Abbott, MP, Minister for Health and                                        13th June.
                                                                                              25. AUSFTA (2004), Art. 17.9.8.
              17. Drahos, P. et al. (2004) ‘The FTA and the PBS:
                  A submission to the Senate Select Committee                                 26. Hubbard, T. (2003) ‘Alternatives to the price
                  on the US-Australia Free Trade Agreement’,                                      system’, Presentation at Columbia University,
                  p. 1.                                                                           4th December, available at http://
              18. Outterson, K. (2005) ‘Pharmaceutical arbitrage:                                 accesstomedicines_papers.html). Love, J. (2003)
                  Balancing access and innovation in international                                ‘A new trade framework for global healthcare
                  prescription drug markets’, Yale Journal of Health                              R&D’, Presentation at Columbia University,
                  Policy, Law & Ethics, Vol. 5, pp. 193–286.                                      4th December, available at http://
              19. ‘t Hoen, E. (2002) ‘TRIPS, pharmaceutical                                       accesstomedicines)papers.html).
                  patents, and access to essential medicines: A
                  long way from Seattle to Doha’, Chicago Journal                             27. Jaeger, K. (2004) ‘Statement of Kathleen Jaeger,
                  of International Law, Vol. 3, p. 27. See also                                   Generic Pharmaceutical Association’, US House
                  Reichman, J. H. (1997) ‘From free riders to fair                                Ways & Means Committee Hearings on the
                  followers: Global competition under the TRIPS                                   US–Australia Free Trade Agreement.
                  agreement’, New York University Journal of                                  28. AUSFTA (2004), Art. 17.10(1)(c); Jaeger, K.
                  International Law and Politics, Vol. 29, pp. 11–93;                             (2004) ‘Statement of Kathleen Jaeger, Generic
                  Scherer, F. M. ‘A note on global welfare in                                     Pharmaceutical Association’ US House Ways &
                  pharmaceutical patenting’, World Economy, Vol.                                  Means Committee Hearings on the US -
                  27, pp. 1127–1141.                                                              Australia Free Trade Agreement.
              20. Drug Price Competition and Patent Term                                      29. Letter to Robert B. Zoellick from Charles B.
                  Restoration Act of 1984, Pub. L. No. 98-417,                                    Rangel, Jim McDermott, Sander M. Levin
                  98 Stat. 1585 (codified as amended in scattered                                  and Henry A. Waxman (2004) 15th July
                  sections of 15, 21, 28 and 35 U.S.C.)                                           (US-Morocco FTA); Médecins sans Frontières
                  (hereinafter the Hatch–Waxman Act). Under                                       (2004), ‘MSF Briefing note: Access to medicines
                  the Hatch-Waxman Act, the FDA also                                              at risk across the globe: What to watch out for
                  influences the patent process, since the Hatch–                                  in free trade agreements with the United States’,
                  Waxman Act extends the patent for half of the                                   pp. 4–6, available at http://www.accessmed-
                  period that a drug is undergoing clinical trials,                     ;
                  plus the full amount of time spent in the FDA                                   Vivas-Eugui, D. (2003) ‘Quaker U.N. office,
                  approval process. 35 U.S.C. ss. 155, 155A and                                   regional and bilateral agreements and a
                  156 (2000).                                                                     TRIPS-plus World: The Free Trade Area of
                                                                                                  the Americas (FTAA)’, pp. 16–18.
              21. See, for example, Médecins sans Frontières
                  (2004), ‘MSF Briefing note: Access to medicines                              30. For Australian concerns about evergreening, see
                  at risk across the globe: What to watch out for                                 Lokuge, B., Faunce, T. and Denniss, R. (2003)


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                               The generic drug provisions of the Australia–USA Free Trade Agreement

       ‘A backdoor to higher medicine prices?                                        21st June, 2004; personal communications with
       Intellectual property and the Australian–US Free                              Ruth Lopert, DoHA.
       Trade Agreement’, The Australia Institute. See
       also Bulow, J. ‘The gaming of pharmaceutical                            41. A remarkable number of the AUSFTA
       patents’, in Innovation Policy and the Economy,                             pharmaceutical provisions are apparently already
       Vol. 4.                                                                     provided in Australian law. The Australian FTA
                                                                                   Implementation Bill covered only a limited
  31. Drahos, P. et al. (2004) ‘The FTA and the PBS:                               range of issues raised in the AUSFTA, namely
      A submission to the Senate Select Committee                                  the issues of patent scope and the new ‘26B
      on the US-Australia Free Trade Agreement’,                                   Certificate’, which a generics company must
      p. 2.                                                                        provide when applying for marketing approval.
                                                                                   The scope of lock-in appears to have been
  32. Letter from US Trade Representative Robert                                   great.
      Zoellick to Australian Trade Minister Mark
      Vaile, 17th November, 2004.                                              42. See

  33. US Free Trade Agreement Implementation Bill                              43. Indeed, the US planned to call the first meeting
      2004, Amendment (2), The Senate, The                                         of the Medicines Working Group in early 2005
      Parliament of the Commonwealth of Australia,                                 to complain about Australian attempts to reduce
      Canberra (codified as new section 26C of the                                  drug prices; however, as of May 2005, a date
      Therapeutic Goods Act 1989).                                                 for the public meeting had not been
                                                                                   announced. Maher, S. (2004), ‘US drug makers
  34. TRIPS requires patent laws to not discriminate                               pressure Canberra’, The Australian, 29th
      on the basis of technological field. The US                                   December.
      argument would be that Australia’s amendment                             44. AUSFTA (2004) Art. 21.5–21.11.
      discriminates against the field of drug patents,
      since the provision does not apply to non-drug                           45. AUSFTA (2004) Annex 2C.
      patents. This raises the interesting question as to
                                                                               46. This Committee advised USTR on
      whether the entire US Hatch–Waxman
                                                                                   pharmaceutical intellectual property issues in the
      apparatus violates TRIPS non-discrimination
                                                                                   AUSFTA. The Committee includes several
                                                                                   representatives from PhRMA or PhRMA
  35. US Free Trade Agreement Implementation Bill                                  member companies, but no representative from
      2004, Amendments (1) and (3), The Senate,                                    generics manufacturers or healthcare consumer
      The Parliament of the Commonwealth of                                        interests. The GPhA did not testify before the
      Australia (codified as new section 26B(1)(a) and                              Committee on Ways and Means Hearing on
      26D of the TGA).                                                             AUSFTA, but submitted a written statement
                                                                                   only: List of witnesses to appear before
  36. Drahos, P. (2004) ‘Dealing with evergreening’.                               Committee on Ways and Means, Full
                                                                                   Committee, on hearing on Implementation of
  37. Eldred v Ashcroft, 538 U.S. 916 (2003).                                      the United States–Australia Free Trade
  38. AUSFTA side letter.                                                          Agreement, 16th June, 2004.
                                                                               47. WTO (2001) ‘Declaration on the TRIPS
  39. Becker, E. and Pear, R. (2004) ‘Trade pact may
                                                                                   Agreement and public health’, DoHA WTO
      undercut inexpensive drug imports’, New York
                                                                                   Ministerial, WT/MIN(01)/DEC/2, (20th
      Times, 12th July. Shaffer, E. and Brenner, J.
                                                                                   November, 2001).
      (2004) ‘The US–Australia Free Trade
      Agreement can preempt drug reimportation                                 48. Pharmaceutical Research and Manufacturers of
      bills’, 12th July, available at http://                                      America (2003) ‘PhRMA ‘‘Special 301’’ The debate was primarily about                                Submission to the Office of the United States
      imports from Canada, yet one has to ask why                                  Trade Representative: Australia’, available at
      the USTR insisted on blocking cheap imports                        
      from Australia when Congress was considering
      permitting imports. By placing the provision in                          49. Colebacht, T. (2003) ‘Bush wants end to
      a free trade agreement, USTR locked in the                                   medicine subsidies’, The Age, Melbourne, 24th
      law for Australia, safe from Congressional                                   October, p. 5.
      legislation. One commentator suggests that the                           50. Senate Committee Report (2004), ‘Final Report
      AUSFTA provision actually commits the USA                                    on the Free Trade Agreement between Australia
      to forgo re-importation from any country.                                    and the United States of America’, The
      Weissman, R. (2004) ‘Patent provisions in                                    Parliament of the Commonwealth of Australia,
      Australia FTA’, IP-Health list-serve, 7th July.                              p. 103.
  40. See, for example, Senate Select Committee                                51. Vaile, M. (2004), ‘Free Trade Agreement with
      on the AUSFTA Roundtable on the PBS,                                         the United States’, media release, 8th February

© HENRY STEWART PUBLICATIONS 1741–1343. JOURNAL OF GENERIC MEDICINES. VOL. 2. NO 4. 316–326. JULY 2005                            325

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                   (MVT08/2004), available at http://                                         be seen, most of the provisions of the AUSFTA
                                             are not covered by the FTA Bill. In a few
                   mvr008_04.html).                                                           instances, citations to existing law are given (ie
                                                                                              Therapeutic Goods Act of 1989, §25A(2)), but
              52. This column lists the provisions of the FTA                                 references to existing Australian law have not
                  Bill, which implements the AUSFTA. As can                                   been made systematically.


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