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Obama pushes trade partners to add drug rules he opposes in U.S.

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(Bloomberg) — The Obama administration is caught in a trap as it tries to bring home a trade deal with its Pacific Rim partners. Some of the chief beneficiaries may be big drug companies like Novartis AG, Roche Holding AG, and Pfizer Inc. while the losers could be consumers in both the U.S. and the region.

The administration says it’s bound by congressionally imposed instructions to try to get as much current U.S. law as possible into trade accords — including stringent protections for patented drugs that it’s repeatedly tried to ease at home to encourage more cost-saving generics.

The disconnect has put U.S. negotiators in the position of pushing provisions in the 12-nation Trans-Pacific Partnership that would preclude the administration from making further attempts to win the legal changes.

It also has negotiators pressing the region’s developing countries to sign onto a schedule for adopting the stronger rules, reversing previous exemptions to allow them easier access to cheap medicines.

Even though U.S. Trade Representative Michael Froman says the talks are “in a closing mode,” American proposals for tough intellectual-property protections for drugs are meeting resistance from Australia, New Zealand, Canada and other Pacific Rim nations. Chile’s foreign minister, for one, has said flatly that his country won’t accept some key provisions.

Extra costs

At stake: hundreds of billions of dollars or more in extra costs that consumers may have to pay if the proposals make it harder for cheaper generics to win approval. That, or the loss of protections sought by the U.S. for movies, music and software as well as drugs if no agreement is reached on the deal’s intellectual-property provisions.

“The USTR’s drug proposals are an astonishing effort to require other countries to adopt policies that aren’t in their best interests and lock in policies here that the Obama administration doesn’t support,” said Frederick Abbott, a Florida State University law professor and veteran consultant to the World Health Organization and the United Nations on health and trade issues.

Negotiators returned to bargaining this week to try to wrap up the most ambitious trade deal in at least a generation covering about 40 percent of global output. In the U.S., any final accord must be submitted to Congress for an up-or-down vote with no amendments allowed.

Data exclusivity

U.S. negotiators want to win makers of advanced drugs 12 years of exclusivity for data that might otherwise help competitors produce similar, cheaper versions. The administration has repeatedly sought to cut that period to seven years in domestic law.

Negotiators are also seeking language to make it easier for the big drugmakers to win “secondary” patents to strengthen their control over products. The administration has proposed changing U.S. law to make it harder to get such add-ons.

The deal would link the U.S., Canada, Mexico, Japan, Australia, New Zealand, Malaysia, Singapore, Peru, Vietnam, Brunei and Chile.

Talks are being conducted in secret, although members of Congress can read negotiating documents. Information about the U.S. position and opposition to it comes from multiple drafts of the trade pact’s intellectual-property chapter obtained by WikiLeaks, the controversial watchdog group, and from officials familiar with the latest May 11 version as well as recent bargaining over the accord. Details of the administration’s position were reported earlier by Politico. The officials asked not to be identified because of the sensitivity of the talks.

Complex deals

The fight over drug rules reflects the complexities involved in a new generation of trade deals.

Traditionally, such accords focused on removing tariffs and other barriers to the flow of goods across borders. Increasingly however, pacts aim at the bigger target of syncing up countries’ laws and rules.

Advocates argue that such “regulatory harmonization” can improve the global economy by relieving companies of the cost of complying with inconsistent regulations in different countries.

Yet as the bargaining over the drug provisions for the Pacific Rim deal illustrates, the effort is fraught with potential for clashes between a country’s domestic and trade goals, and the needs of developed and developing countries.

The White House referred inquiries about the differing objectives of health-care and trade policies to the U.S. Trade Representative’s office. The USTR reiterated negotiators must seek current law and that bargaining positions are open to change.

Differing views

Trade analysts differ about why U.S. negotiators seem to favor the big drug companies and how it will affect consumers.

Gary Hufbauer, a senior fellow with the Peterson Institute for International Economics, said that with strong competition from generics and growing pressure for the government to control health-care costs, bargainers are seeking to help makers of patented drugs find lucrative markets abroad.

“What they’re really trying to do in these negotiations is shift drug costs, of which the U.S. bears too big a share, to at least other rich countries in the region,” he said.

America, with just 5 percent of the world’s population, accounts for between 33 percent and 40 percent of global pharmaceutical purchases of $1 trillion, according to IMS Health Inc., a Danbury, Connecticut health analytics company.

Keith Maskus, a University of Colorado economist who specializes in trade and intellectual-property issues, agrees that the U.S. trade position favors patented-drug companies, but doubts it will benefit American consumers. The negotiators’ goal “is largely about slowing down the introduction of generics into TPP markets,” Maskus said. “But I don’t think there’s a credible case to be made that doing so would reduce medicine costs for American consumers.”

Lobbied heavily

The U.S. position is supported by large patented-drug companies, many of which have lobbied heavily for the pact through their trade group, the Pharmaceutical Research and Manufacturers of America.

Company executives say their firms will only bear the cost of developing innovative products with protections such as those in U.S. law. “The research-based pharmaceutical industry’s mission is the discovery of new treatments and cures,” said Eric Althoff, spokesman for Basel-based Novartis. “Strong intellectual property rights are essential to fulfill this mission.” Roche and Pfizer executives declined to comment.

Generics companies argue that American negotiators are seeking just those portions of the law that help patented-drug companies, which will raise drug costs.

Saved consumers

“By achieving a delicate balance between innovation and competition, the U.S. generics industry has saved consumers and the U.S. health care system approximately $200 billion annually,” said Mylan NV chief executive officer Heather Bresch of the Canonsburg, Pennsylvania-based company. “If the USTR gets its way, the trade agreement will handcuff nations around the globe” from ensuring cost savings.

Generic drugs accounted for more than 80 percent of prescriptions filled in the U.S., and about one third of the $512 billion in pharmaceutical sales in 2014, according to Bloomberg Intelligence.

President Barack Obama should order his trade negotiators to change their stance “to reflect his administration’s budget proposals and his policy commitments to affordable medicines,” said Ralph Neas, president of the Generic Pharmaceutical Association.

The disconnect between American trade aims and domestic goals is clearest with data exclusivity. U.S. negotiators are trying to win drug companies 12 years of control over clinical data generated to win approval for biologic pharmaceuticals, compared with five years for most standard treatments. Companies say the longer period is needed because the advanced drugs are harder to develop.

Budget proposals

The Federal Trade Commission said in a 2009 study that 12 years is “unnecessary” to convince companies to invest in biologics. Prior to passage in 2010 of a measure that set the longer period, the administration lobbied lawmakers to shorten it to seven years. Every administration budget proposal since then has called for that.

The American proposals especially worry developing countries and advocacy groups such as Doctors Without Borders that say the deal could cost millions of poor people access to life-saving drugs. Congressional Democrats and the George W. Bush administration struck a deal in 2007 that developing countries would be held to less stringent rules to ensure availability of cheaper generics.

“We negotiated with the understanding that it would be the standard for all future trade agreements,” said Representative Sander Levin, a Michigan Democrat.

Now U.S. negotiators want the developing countries in the Pacific Rim group — including Peru, Mexico, Malaysia and Vietnam — to agree to a schedule for adopting the stricter standards.

Countries such as Peru, which signed a trade agreement under the more lenient rules, say they can’t afford the new ones.

“We already have problems with price and supply,” Marlon Castillo, a spokesman for Red Peruana de Pacientes y Usuarios, a Peruvian patient-advocacy group, said in a phone interview from Lima. The earlier pact “was supposed to be the limit.”

The new trade deal could drive prices higher and open Peru’s generics manufacturers to legal challenges, Castillo said. “We can’t allow laboratories to invade our sovereignty.”

— With assistance from John Quigley in Lima, Isabella Cota in Mexico City, Simeon Bennett in Geneva and Cynthia Koons in New York.

See also:

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