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Clash continues on US-Central America trade deal

Intellectual Property Watch, Geneva, 1 March 2005

Clash Continues On U.S.-Central America Trade Deal

by William New

Protection of pharmaceutical patents may not be the biggest reason the Bush administration is struggling to line up congressional votes for a free trade agreement with five Central American countries and the Dominican Republic, but it remains critical to its passage.

The issue pits two sides against each other within a larger, ongoing struggle to find the right balance between protecting drug industry investments and providing sufficient access to medicines in smaller economies. But in some ways, it is simply about a country’s ability to change its laws after signing a trade agreement with the United States.

While the Central American market is relatively small, the agreement’s reception in the U.S. Congress will be seen as a sign of what is achievable in agreements to come, U.S. industry sources said.

“If CAFTA fails, it’s going to be incredibly disheartening for [other] ongoing negotiations,” such as those with the Andean nations, Thailand and the World Trade Organisation, an industry lobbyist said. That is because, in addition to pharmaceutical issues, they all face similar political hurdles relating to agriculture, textiles, labor and environmental issues.

With CAFTA, a key issue is the United States’ pressure on Guatemala to undo a law that entered into force on December 24, 2004. Aimed at increasing access to affordable generic medicines, the law restored the ability to use brand-name drug companies’ test data.

The United States argues that under the agreement it signed last summer with Guatemala, Costa Rica, El Salvador, Honduras, Nicaragua, and the Dominican Republic (DR-CAFTA), the test data may not be used until the five-year period is up. Non-profit groups counter that such data protection will undermine governments’ ability to respond to health emergencies by granting compulsory licenses to generic producers, an argument denied by U.S. authorities.

U.S. officials say the Guatemalan law risks the entire agreement. The Office of the U.S. Trade Representative has indicated that the DR-CAFTA trade bill will not be sent to U.S. Congress until Guatemala rescinds the December 24 law. In a January op-ed in the Guatemalan newspaper Diario Siglo Veintiuno, U.S. Ambassador John Hamilton said that Guatemala could cause the failure of an agreement that could otherwise generate wealth that could be used to improve its citizens’ health and the public health system.

Hamilton argued that Guatemala’s December 24 law gives the impression that the country is not serious about its trade commitments, and, according to an unofficial translation, warned that this could cause the agreement not to pass or even get a single vote in the U.S. Congress.

U.S. officials have since applauded the Guatemalan government’s introduction in January of a new bill that would again protect clinical trial data for five years for drugs without marketing approval in Guatemala. The bill was accompanied by implementing legislation for the trade agreement, and both are expected to move soon in the Guatemalan Congress, possibly separately.

The Case Against CAFTA

Yet, also in late January, eleven Democratic members of Congress sent a letter to then-U.S. Trade Representative Robert Zoellick arguing that the inclusion of test data secrecy or exclusivity provisions in the agreement violates congressional direction under presidential trade-negotiating authority (formally known as Trade Promotion Authority). The letter reiterates a message the same group sent to USTR twice last fall.

Among the signatories was Rep. Charles Rangel of New York, the ranking Democrat on the House Ways and Means Committee, which has oversight of trade agreements. Rangel is generally supportive of trade agreements but, according to a Democratic committee aide, is unhappy with the current DR-CAFTA text because it reflects an ongoing Republican tactic of compromising only far enough to pass an agreement by a razor-thin margin rather than with true bipartisanship. It also shows that Republicans intend to continue with the strategy despite changes in the congressional make-up that include the loss of some key moderate Democrats who were able to broker critical crossover votes, the aide said.

Under the congressionally-mandated presidential authority, the executive branch is directed to uphold the 2001 WTO Declaration on the TRIPS Agreement and Public Health, and protocols on its implementation. The intent of the Doha Declaration was to ensure that trade rules on intellectual property do not interfere with the ability of developing countries to take “measures to protect public health ... and to promote access to medicines for all,” the Democrats noted in their letter.

The inclusion of test data secrecy and market exclusivity provisions in an agreement with small developing economies “interferes directly with this central purpose of the Doha Declaration,” they said. The provisions prevent generic competition to brand name drugs for five years even if they have no patent protection in the country. In addition, the absence of a clear exception to the provisions creates “uncertainty” as to whether drugs produced under a compulsory license but subject to test data secrecy may be granted marketing approval even in public health emergencies, they said. This will have the effect of slowing the introduction of generic drugs, decreasing competition, raising prices and hindering access to life-saving medicines in the DR-CAFTA countries, they added.

These points also have been made by non-governmental groups such as Médicins Sans Frontières (MSF), Consumer Project on Technology and Oxfam. UNICEF and the Pan American Health Organisation also have weighed in against the change to Guatemalan law.

Oxfam Policy Advisor Stephanie Weinberg said CAFTA would be “particularly damaging” to poor patients by raising the cost of their generic medicines. MSF highlighted the high number of AIDS cases in Guatemala, and charged that in recent years, there has been a “systematic dismantling of the Doha Declaration through bilateral trade agreements with the United States,” which include so-called TRIPS-‘plus’ provisions (TRIPS-‘plus’ refers to provisions that force countries beyond the commitments they made under the 1994 TRIPS agreement).

Sen. Ted Kennedy, D-Mass., also made the same points for the Congressional Record on February 16, calling the Bush administration’s policy “outrageous” because it blocks access to critical generic drugs in the developing world, violates U.S. trade-negotiating law, and breeds greater international resentment and hatred against the United States by denying the needy.

In 2004, a side letter that reinforced countries’ rights to take actions in the interests of public health was developed to accompany the DR-CAFTA agreement. Yet, both the non-profit groups and Democratic members argue that it is legally insubstantial, noting that already the U.S. pressure on Guatemala to drop its law runs against the spirit of the side letter.

But USTR countered in a February briefing note that the agreement “expressly states” it “will not affect Guatemala’s ability to take measures necessary to protect public health or to use the WTO solution to import drugs.”

USTR also argued that stronger patent and data protection will encourage companies to release drugs in markets, thereby increasing the availability of drugs there. It cited positive impacts in Jordan of the data protection provisions included in the 2000 U.S.-Jordan free trade agreement. In addition, USTR says data protection is consistent with Article 39.3 of TRIPS, which states that countries must protect test data against “unfair commercial use,” and that five years is the same period as in U.S. law.

Health Gap, a non-profit group, and Fred Abbott, a Florida State University law professor who provided legal advice to developing countries on the Doha Declaration, separately questioned the soundness of the side letter approach.

“The side letters of the CAFTA and Morocco agreements presumably intended to ameliorate the harsh effects of the agreements are ambiguous, they rewrite the WTO texts in a way the United States sought to negotiate but failed, and in any case, the U.S. interpretation of the side letters raises serious questions as to whether the letters will have any legal effect,” Abbott said. “The puzzle remains why PhRMA considers it necessary or appropriate to extract additional intellectual property rents from small developing countries.”

Industry Strategy Highlights Merits Of Pact

U.S. industry groups are currently most worried about losing Republican votes for the DR-CAFTA if Guatemala is allowed - as some Republican members view it - to alter the agreement after it was signed, a non-pharmaceutical industry source said. That concern outweighs worries of losing Democrats whose support industry may never have had due to the concerns about Guatemalans’ public health and violations of the Doha Declaration, he said.

Mark Grayson of the Pharmaceutical Research and Manufacturers of America (PhRMA) said the key concern is about governments changing terms they agreed to in negotiations after the fact. “Once you start ... others will say, ‘You didn’t have it there, why do you need it here?’” he said. “We believe these FTAs are designed to make these economies get better, and have better standards of living. And we believe it is important for them to operate under the same rules, [which] encourage these populations to have access to these medicines.”

Grayson also said that the U.S. pharmaceutical industry has stepped up in times of need. “In public health emergencies like AIDS, any time people have needed these medicines, we’ve been able to reach agreements and make them available,” he said.

The effort to shore up votes on DR-CAFTA is continuing on a variety of fronts. Government and industry groups continue to hold meetings around the country with problem sectors such as agriculture and textiles, as well as to address labor and environmental concerns.

PhRMA is holding back on its lobbying of Congress on the agreement until Guatemala passes its new law, an executive there said last week.

But other companies and industry groups are actively working to construct congressional support for the agreement. Leading the charge is the Business Coalition for U.S.-Central American Trade, whose secretariat is the Emergency Committee for American Trade, and which includes PhRMA, several drug companies, the U.S. Chamber of Commerce and the Business Roundtable (which is a high-level executives’ group with numerous drug industry members).

In response to advice that U.S. Congress will not take up the agreement until Guatemala changes its law, industry lobbyists are visiting with members to inform them of the merits of the agreement and explaining that the Guatemala issue will be resolved soon. Earlier reports that a House vote might be sought by the Memorial Day congressional recess at the end of May are still possible depending on Guatemala’s timing, one industry source said this week.

But with the vote likely still months away, it is considered early for many members of Congress to lock in their positions on the agreement, the source said. Members from districts with concerns about the agreement are most likely to be silent on their intentions at this early stage, he added. Lobbyists, meanwhile, have analyzed members’ voting records for their likelihood to back the agreement and are targeting those likely to go either way by working to build knowledge of the agreement.

The Business Roundtable led a congressional delegation to Guatemala and El Salvador last week, bringing staff from the Senate Finance and House Ways and Means committees, as well as from the offices of committee members such as Sen. Jeff Bingaman, D-New Mexico, and Reps., Kevin Brady, R-Texas, William Jefferson, D-Louisiana. Staff from the office of Roy Blunt, R-Missouri, were also expected to attend.

Invitations were extended to key Republican and Democratic committee staff, according to a Business Roundtable spokeswoman, and the trip was intended to be for “educational and fact-finding” purposes. The group was expected to meet with government and business leaders, including the president of El Salvador. But it was unclear how meetings would address pharmaceutical issues.

“The goal is to provide an opportunity to discuss the DR-CAFTA,” including benefits to the business community, and improvements that the countries in the agreement have made to their labor and environmental laws and enforcement mechanisms that will help companies “build the capacity they need to improve the enforcement of those laws,” the spokeswoman said.

A new tack in the Bush administration’s strategy in recent weeks was to suggest that a vote against the agreement would be “anti-Hispanic.” This led 16 of the 21 members of the Congressional Hispanic Caucus to send a letter to agency heads complaining about the “highly offensive” attempt to “inject ethnic rhetoric” into the debate. And some reports have said additional administration agency heads, including new Commerce Secretary Carlos Gutierrez, are now being called into battle.

This week, two high-profile public events on CAFTA are being held in Washington, giving a venue to administration officials, members of Congress, Central American ambassadors, industry and NGO representatives to air their views.

With or without the rhetoric, one thing is clear, the years-old political caucophony around this issue has only just begun again.

 source: IP Watch