I.10 Provisions included in modern trade agreements with possible effects on national pharmaceutical policies

Table I.10 Provisions included in modern trade agreements with possible effects on national pharmaceutical policies

Type of provision

Stronger intellectual property protection than provided in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS-plus) Investor-State dispute settlement mechanisms

Government procurement rules

Regulatory requirements for assessing the safety, efficacy and quality of drugs

Procedural requirements with respect to national pharmaceutical pricing and reimbursement programmes Rules on State-owned pharmaceutical companies and designated monopolies Possible effects

Long exclusivity periods for patented drugs, along with other market entry barriers applied to generic medicines and biosimilars, can reduce competition and force governments and consumers to pay monopoly prices for lengthy periods. Investment disputes can cause pharmaceutical policy decisions to be reversed or even give rise to “regulatory chill” situations. This can result in long periods of exclusivity, relaxation of regulatory standards or inability to support local producers.

Governments / hospitals may pay lower prices as a result of open tenders. The viability of the domestic pharmaceutical industry may be compromised unless preferences can be granted to local suppliers. National standards can be influenced by pressures from pharmaceutical industry trade partners (for example pressure to speed up regulatory approval processes could lead to increased safety risks). Cooperation on pharmaceutical inspection issues can improve drug quality and consumer safety. Pharmaceutical policy-making may be subject to pressure from business partners with large pharmaceutical industries, including the possibility of pharmaceutical companies challenging the decisions of health authorities. The viability of domestic industry in developing countries may be affected if State-owned enterprises have to operate as commercial entities, cannot receive financial support or preferential treatment, or cannot give preference to local suppliers. Pressure to reform State-owned enterprises can lead to increased competition and lower prices. Possible effects on pharmaceutical policies

Affordable access to medicines may be reduced.

Affordable access to medicines may be reduced. Local production, rational use of medicines and health standards could be compromised. Medicines could become more affordable. Local production could be compromised. The safety, efficacy and quality of medicines could decrease or increase.

Affordable access to medicines and their rational use could be either enhanced or compromised. Local production and health safety could be either enhanced or compromised.

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of D. Gleeson and others, “Analyzing the impact of trade and investment agreements on pharmaceutical policy: provisions, pathways and potential impacts”, Globalization and Health, vol. 15, No. 78, 2019.

The impact of FTA provisions on a country’s capacity to promote the local production of medicines can be either positive or negative, depending crucially on the structure of its pharmaceutical industry (in particular, the share of innovative drugs relative to generics). The following provides a conceptual assessment of the three types of provisions considered most relevant.

(a) Intellectual property8

The pharmaceutical industry in Latin America and the Caribbean consists mostly of producers of generic drugs. Accordingly, “TRIPS-plus” provisions that extend the period of exclusivity enjoyed by patented drugs beyond the 20 years stipulated in the TRIPS Agreement harm local industries that manufacture generic versions, by delaying the market entry of their products. The main provisions of this type included in the FTAs signed by the countries of the region with the United States are the following: (i) Changes in the duration of pharmaceutical patents to compensate for the “unjustified curtailment” in the effective patent term, as a result of the marketing approval process of the patented drug; (ii) At least five years’ exclusivity over the test data used to support the marketing application for a drug; and (iii) Linkage mechanisms (making the granting of a marketing authorization for a generic drug subject to the patent status of the original drug).

8 This analysis is based only on the FTAs signed with the United States, since they contain the most detailed provisions on intellectual property and are the most ambitious (in other words the furthest removed from the TRIPS standard).

These three types of provisions are included (and with very similar language) in all FTAs signed by the countries of the region with the United States (Chile, the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), Colombia, Panama, Peru, the United States-Mexico-Canada Agreement (USMCA). As the most recent agreement, USMCA establishes a higher standard of protection than previous FTAs; and, in addition to the aforementioned provisions, it includes the following: (i) Patent term adjustment is added to compensate the patent holder for any “unreasonable delays” in the granting of the patent itself (article 20.46). (ii) The period of test data exclusivity is extended to at least 10 years for biological drugs (article 20.49). This additional protection applies expressly to vaccines. (iii) An additional requirement to grant patents for new uses of already known products, as well as new methods or procedures of use of a known product (in this case, a new medical use of an already known substance, known as a second-use patent).

These additional provisions contained in USMCA were also found in the text of the Trans-Pacific Partnership (TPP). Nonetheless, following the withdrawal of the United States, it was decided to suspend their application in its successor agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

(b) Investor-state dispute settlement

Nearly all FTAs and investment promotion and protection agreements signed by countries in the region with developed partners contain investor-State dispute settlement (ISDS) mechanisms. These allow a foreign investor to sue the host State before an ad hoc international tribunal (generally within the framework of the International Centre for Settlement of Investment Disputes (ICSID)), if it considers that some of the guarantees contained in the respective agreement have not been respected.

The guarantees to foreign investors included in FTAs (national treatment, fair and equitable treatment, non-imposition of performance requirements, prohibition of indirect expropriation, among others) are generally cross-cutting and, therefore, do not refer to any industry in particular. However, they can affect the pharmaceutical industry in several ways. Firstly, the agreements grant protection to the intellectual property of the foreign investor (patents, trademarks, trade secrets, and so forth), so any measure adopted by the host State that could be interpreted as impinging on these rights could be challenged before an international court. Secondly, provisions such as the prohibition on performance requirements could, for example, prevent the host State from requiring a foreign pharmaceutical company to purchase locally produced inputs or to share its specialized know-how with local partners or suppliers.

The mere possibility of a measure being challenged before an international court may lead the host State to decide to reverse it, or to even refrain from implementing it (a phenomenon known as regulatory chill). For example, in the pharmaceutical sector, in 2016 Colombia desisted from granting a compulsory license for the drug imatinib (brand name Glivec/Gleevec), used in cancer treatments, after the patentholding laboratory (Novartis) filed notice of an international lawsuit (Gleeson and others 2019). In the same year, Ukraine de-registered a generic hepatitis-C drug after the Gilead Sciences laboratory (patent holder of the original drug, Sovaldi) indicated that it would pursue international arbitration (Gleeson and others, 2019).

Growing international pressure against the use of investor-State dispute settlement mechanisms to challenge public health measures has led to the most recent agreements (including CPTPP) restricting, but not eliminating, this possibility. A different approach, which gives greater guarantees to the host State, is exemplified by the Peru-Australia Free Trade Agreement, which expressly excludes measures to promote or protect public health from the scope of investor-State mechanisms.