iPolitics Insight | Sep 26, 2012

US pharma companies could be real beneficiaries of Canada-EU trade deal

By John Weekes

The Canada-EU Comprehensive Economic and Trade (CETA) negotiations resumed last week in Ottawa. The EU continues to push Canada to adopt even higher standards on pharmaceutical patents than it is willing to adhere to itself. Canada has so far refused to agree.

Let’s start by looking at two points fundamental to consideration of the CETA that have been missing in the public discussion.

First of all, U.S. brand-name pharmaceutical companies would be the biggest winners in a deal between Canada and the EU. Under CETA, most concessions will be exchanged on a preferential basis between Canada and the EU. This is particularly true for border measures like tariffs. However, with changes to intellectual property protection, and other internal measures, the changes will apply to all. So, although the EU is asking Canada to change its patent regime, it is not possible to do so just for the EU. The actual beneficiaries would be all of the world’s brand-name companies – not just those from the EU. Of the world’s top 12 health care companies by revenue only three or four (depending on how the data are compiled) are resident in the EU.

An objective in any trade negotiation is to obtain reciprocity, to get paid for concessions being made. Normally those concessions would be negotiated with the principal beneficiary — in this case the United States. Negotiating with Europe on a deal that benefits the U.S. would mean giving a free ride to the Americans and getting nothing in return. This would be strange behaviour, particularly when we are just beginning a negotiation with the United States in the TransPacific Partnership negotiations.

Second, the CETA will need to be approved by the European Parliament as a result of changes to the EU treaty-making powers in the 2009 Treaty of Lisbon. This procedure has been used already for the ratification of the EU’s FTA with South Korea and to seek ratification earlier this year of the Anti-Counterfeiting Trade Agreement (ACTA). However, in the latter instance the European Parliament decisively rejected the treaty following a groundswell of public opposition particularly over its internet copyright enforcement obligations which were seen by opponents as violating personal freedom.

After the debacle over ACTA the EU would seem to be on shaky ground in asking other countries to make new commitments on intellectual property matters.

In addition, one might well ask whether the EU Commission has been briefing its Parliament on how the CETA will affect the EU’s domestic capacity to change its own patent regime, and that of its member states, in response to growing healthcare cost pressures inside the EU. This issue might become more important if, as appears probable, the CETA will need to be approved by the parliaments of all 27 members of the EU.

Over the last few months, two primary policy issues have stood out in the public debate — the potential cost of the EU proposals to the health care of Canadians; and the potential effects the proposals could have on Canada’s life sciences sector.

Proponents of the EU proposals suggest that it is “fear mongering” to draw attention to the increased health care costs that would result. However, the only detailed study [1] on the matter, by two of Canada’s leading health economists, estimated the EU proposals would delay the availability of generic drugs by an average of 3.5 years at a cost to Canadians of $2.8 billion annually. While proponents of the EU position point out that the study was funded by the generic industry, they have been unable to develop evidence to question its veracity.

On the second point, the brand-name and generic pharmaceutical industries each employ about the same number of Canadians, with the generic industry serving as Canada’s primary pharmaceutical manufacturers and exporters. Brand pharmaceutical companies claim that agreeing to the EU proposals would mean more investment in research in Canada. Yet the 2011 Annual Report of the Patented Medicine Prices Review Board shows that annual domestic research and development (R&D) expenditure by the brand-name drug industry has slipped to 6.7% of Canadian sales revenue from a promised level of 10% when amendments to the Patent Act, favourable to the industry, were made in 1987. In the face of these facts, proponents of increased protection continue to argue, on a wing and a prayer, that agreeing to the proposals would mean more investment in research in Canada.

It is clear from the importance of the issues at stake, and from what has not even been considered so far in the discussion, that the government will need to think long and hard before formulating final positions on these matters.

John Weekes is a veteran of 40 years in the field of trade policy and negotiations. He is a senior business adviser at Bennett Jones LLP, providing advice on a broad range of international trade issues and other policy matters to clients in business and government. In particular he advises the Canadian Generic Pharmaceutical Association. He had a distinguished career in the public service, including serving as Canada’s ambassador to the WTO from 1995-99 and as chief negotiator for the NAFTA negotiations. In the 1970s he participated in the Tokyo Round of GATT negotiations.