Posted by: bklunk | April 4, 2007

What Would David Ricardo Say About This?

Are these “unfree trade” agreements?

U.S. Trade Deals Raising Drug Prices Abroad: Oxfam – New York Times

WASHINGTON (Reuters) – Strong intellectual property protections in U.S. free trade deals have hurt developing countries, pushing up drug prices in Jordan by 20 percent, an aid advocacy group said in a report released on Tuesday.

Beefed-up property rights for drug makers, which have been built into U.S. free trade deals like the one with Jordan, ”will make it harder and harder to sustain public health systems,” said Rohit Malpani, a trade analyst with the advocacy group Oxfam in Washington.

U.S. trade officials disputed the report’s findings, saying the trade agreements fairly balanced intellectual property protections and health care needs.

The Oxfam report found that drug prices in Jordan have increased by 20 percent since 2001, when the bilateral deal with the United States was implemented, and are up to six times higher than comparable drug prices in Egypt.

Oxfam said a big driver of higher drug prices is a rule that guards, for a time, against sharing of clinical trial information that can be used to make generic drugs.

“In developing countries … public health systems are very fragile and only a small percentage of the population has health insurance,” so higher drug prices can have serious health consequences, Malpani said.

But a U.S. trade official, who requested anonymity, said: ”We strongly disagree with Oxfam’s contention that intellectual property protection is at odds with an effective response to global health crises.

“We believe that our (trade agreements) represent an appropriate means of advancing high standards of IP protection, while safeguarding the ability of trading partners to respond to legitimate public health needs,” the official added.

Oxfam wants to see trade deals with Peru, Colombia, Panama and South Korea, which still need congressional approval, reworked to soften intellectual property rules.

Malpani believes support is gathering among some Democratic lawmakers for loosening those rules for developing countries.

Democrats on the House of Representatives Ways and Means Committee, which oversees trade, recently released their own vision for trade including a goal to “reestablish a fair balance” in setting IP rules for medicine with developing countries.

Last month, a group of lawmakers sent a letter to U.S. Trade Representative Susan Schwab saying that trade deals ”appear to undermine” a pledge from all World Trade Organization members to give poorer countries flexibility in protecting public health.

Some Democrats are also calling for stronger protection for workers and the environment to be woven into pending deals.

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  1. This is a very sad situation. While these governments are bickering about property rights for drug companies, the people who need medication to maintain a quality of life are suffering. In countries where there are such high poverty rates, it seems so cruel to increase drug prices by 20%. In some cases this could mean the differene between being able to afford medication and having to do without. Further, if the governemnt cannot even provide affordable drug costs in areas that are already are having instability issues, this can only further alienate the citizens from their government.

    I think this is a very interesting example of the organizational process model of government. In this case many different organizations are in control of the drugs in developing countries. This leads to not being able to make fast decisions, since there is so much red tape to deal with. with the situation in Jordan, the government there cannot just overide the trade agreements, even if doing so would provide an optimal solution for their country.

    This situation really seems to hamper the ability of smaller and less developed countries to developing a stable public health system. Citizens of these states need to be able to rely on their government for basic needs, and by raising drug prices by 20% is not doing that.

  2. Eric Jorgensen
    Blog Response #8

    It is often tempting to blame large corporations for our problems, in this case, “serious health consequences” in developing countries like Jordan. Drug companies, especially, make good targets. After all, they have the resources to save and extend lives — shouldn’t they be required to provide their drugs at low costs deemed acceptable by the various public health systems around the world?

    I don’t think so.

    Innovation is vital to the development of all the things that make our lives better. Appliances, better food, Internet technology, etc. have all led to increased a greatly increased quality of life throughout the Western world. Innovation is not, however, without risks. It is entirely possible that a great product will tank when introduced to the market. But, of course, it is not the prospect of failure that causes people to innovate; rather, it is the possibility of great wealth and success. If if is not possible for one to become successful, why would one bother taking any risks at all?

    The protection of intellectual property rights is vitally important to a capitalist system built on risk. Such rights guarantee that an individual or corporation will be able to exclusively market a product for a period of time in order to reap the benefits of their investment. Without such protection, innovation disappears. Consider: Why would Fred spend his time and money developing a product if his competitors can immediately steal it? Trust me, he wouldn’t.

    Corporations are no different. Assured that patents will protect their products, they make expensive investments in R & D to ensure a profitable future. Drug companies, in particularly, spend huge amounts of cash to develop their new wonder drugs. According to figures I’ve seen, it can cost as much as a billion dollars to bring a new drug to market. Yes, a BILLION dollars. And that is only the cost for a drug that gains FDA approval. Countless other drugs never make it that far, but they all cost money along the way. It is an expensive business.

    If, however, intellectual property rights for new drugs are loosened for the sake of the developing world, the incentive for drug companies to produce new drugs will be further diminished. And reduced incentives = less new drugs produced. And will that help the developing world? Hardly.

  3. I appreciate Eric’s insight and explanation regarding the importance of Intellectual Property Rights in the protection of introducing potential miraculous new drugs to market. In an international system with anarchy, companies trying to protect intellectual property in an international context cannot rely on enforcement of rules as they are in a domestic context. Infringement of intellectual property rights is widespread in many third world countries such as Jordan. For example, the 2001 WTO meeting addressed concerns about expensive AIDS medications protected under patent in the West but available from India and Brazil in cheaper generic versions. This dispute slowed the effective distribution of medicines to millions of Africans with AIDS for several years. Although this development of generic medication violated the patent, placing human health needs first instead of adhering to intellectual property rights could have saved countless lives.
    Overall, I believe that it is crucial that the WTO become sympathetic to developing countries where it is more likely that the poor will be unable to afford expensive health necessities.

  4. The question here seems to be a question of regulation, and what constitutes fair regulation. Certainly there should be intellectual property rights due to those who develop ideas and products, in order to ensure competition. However, to say that these rights should be absolute and should last forever is unreasonable. This is the case with any good—whether it is a literary work, a new type of vehicle, or a model for an internet company. Such monopolistic intellectual property rights could actually stagnate the invention of new products by eliminating competitors. In the case of pharmaceuticals, if the companies producing generics have a longer time to wait until intellectual property rights expire on a proprietary drug, the originator of that proprietary drug will be able wait longer before it needs to develop a newer one. I believe this is part of the complaint here—the ‘intellectual property rights’ on drugs are too strong, too long, and prevent faster and wider competition.
    Aside from this, there is also a question of balancing a public good. It is clear that there is difficulty for underprivileged people to achieve life saving drugs at this point. On the one hand, it seems that these people should be entitled to these drugs, in a similar way to the way that a starving person who steals food should be entitled to it. Realistically, perhaps we should evaluate how to regulate this good in almost utilitarian terms—if we allow everyone immediate access, pharmaceuticals could go broke. If we have restrictions on production and competition (by not allowing generic producers), many people die, and pharmaceutical companies make large profits. I believe the claim is that currently, drug companies are making large profits, and this is not because the corporations themselves are evil or have evil motives, but because of intellectual property regulation. Indirectly, the expense may be human lives.
    It is perfectly legitimate for a company to seek profit (the purpose of a company), but, the case of pharmaceuticals or health care is special, because these should in some senses be considered rights as well as goods. Further, in the case of goods such as these, we often ignore the possibility that ‘success’ for companies and individual innovators may be more than monetary. In considering this, I thought of Norman Borlaug, the man considered as the father of the ‘green revolution’, Nobel prize winner, founder of the world food prize, biotech innovator, etc. Norman Borlaug was a scientist and an innovator, and though he likely lives well, and has had opportunities to make lots of money, this seems not to be his only incentive. He is not known for his riches, but for saving millions of lives, and yet he has innovated in biotechnology. Examples like this seem to show that competition can occur in a capitalist society, and not be totally driven by monetary incentives.

  5. There are definitely people who thrive on non-monetary incentives. It is difficult, however, to innovate in expensive areas like pharmaceuticals without the assurance of financial return. Remember, some drugs cost over a billion dollars just to develop. Why would anyone spend a billion dollars on something that might just be given away for free?

  6. I too agree that the matter here lies within the rules of regulation and what constitutes it. It would not be fair to say that these pharmaceuticals have no rights to strong intellectual property protections that essentially help protect “their ideas,” but to have them instate high sales prices upon the poor for profit is absolutely inappropriate. Whether it is due to different trade agreements that have been established or new tariffs etc, the price on medicines or prescription drugs should not fluctuate that much. Many individuals who cannot afford these products, suffer the most, and eventually end up paying a much larger price, which is that of deathly illnesses. Although the World Trade Organization’s agreement on intellectual property rights also known as (TRIPS) trade-related aspects of intellectual property rights, states that WTO member governments must give copyright and patent protection for 20 years to a wide range of new products, including pharmaceutical goods, I don’t believe this is a suitable agreement for all. Hopefully sometime in the near future, the notion of “public goods” verses “private profit” plays a role in determining what is sold and regulated on the international market. Otherwise we will continue to see a rise in private enterprises that sweep the medical arena in developing countries for the benefit of profit, and a larger group of poor people with less access to medical treatment.

  7. What is fair regulation? For whom fair? We cannot expect any change unless the medical arena is not made profitable to these enterprises. This will obviously not happen very soon. Hence, any new regualtion will inevitably continue to protect the interests of the powerful: private enterprises. Therefore, private enterprises will continue to thrive in the medical arena since they are the powerful and can do it. There is only one last thing to do, and that is to take the initiave ourselves in driving the forces for change. We can continue raising global awareness of such wrongdoing (should not be all that difficult with NGO’s constant pressure on such enterprises) to push them into feeling guilt to the point that global awareness will be so great that they will have to surrender to a negotiation that will be beneficial for the poor and human well-being. Although it may be a long process, if we analyze possible benefits and costs, benefits will be greater if we succeed for many will become disgusted with the situation to the point of demanding radical change.

  8. I think that the US and Jordan trade deal is a little unethical. I firmly agree that the US should not have increased its drug prices by 20 percent, when Jordan’s close neighbor is getting it six times cheaper then they are getting them. The author of this blog is also right when they say that smaller, developing countries need to get a little break and not charged more than larger, more developed countries. This is especially true when it comes to health care and prescription drug policies because they are so vital to a country, especially developing ones. They need to be able to rely on getting prescription drugs at somewhat cheaper prices, or they may begin to see a loss in population from simple things that could have been treated if people could afford to get it treated.

  9. I agree that intellectual property protections are important in allowing drug companies to continue developing new products. However, I think that people dying of things we have cures for is a far more serious issue than whether drug companies are making enough money or not. I understand that they need money to innovate, but it’s not like there aren’t millions of people in developed country who will continue to buy the drugs because they can actually afford them. I also doubt that drug companies even make very much money off of the developing countries, because they can’t afford to buy as much as they might need because of the high prices.
    I think it’s important, in a situation like this one, to try and see the issue from the perspective of everyone involved. I think that Eric presented the drug companies’ perspective well, but I think it’s also important to place ourselves in the position of those who live in developing countries and are unable to afford the medicine they need. It’s easy to say that IP protections are the most important issue when our biggest obstacle to getting the medicine we need is the urgent care waiting room. I think that we would all drastically change our opinions, though, if we did not have it so easy.

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