April 25, 2016
The humanitarian group, Doctors Without Borders, along with many other NGOs involved in providing health care to people in the developing world, have come out in opposition to the Trans-Pacific Partnership (TPP) over concerns that the deal will make it more difficult to provide drugs to people in the developing world. Their argument is that it will raise drug prices by making patent protection stronger and longer and by making it more difficult for countries to scale back protections that they may come to view as excessive and wasteful.
But the Washington Post editorial board tells us not to fear, that the TPP is actually “a healthy agreement.” The gist of its argument is an analysis by Council on Foreign Relations Fellow Thomas Bollyky, which finds that there were few incidents of large increases in drug prices for countries following the signing of previous trade deals.
As I noted in a previous post, this analysis almost seemed designed not to find substantial rises in prices. Bollyky looked at changes in drugs prices immediately after a trade deal took effect. The problem with this approach is:
“In most cases, the rules in these agreements will only apply to new drugs, and even then to a subset of new drugs, for example patent protection for a drug that is a combination of already approved drugs. They may also allow for the extension of patent terms beyond the date where they would have expired under pre-trade deal rules, but here again the impact will only be felt gradually over time.
“Furthermore, the date of a trade deal with the United States may not be the key factor in pushing up drug prices. The United States signed a deal with South Korea in 2012 that required stronger patent and related protections, but most of these conditions were already law as of 2009 due to a trade agreement Korea signed with the European Union.”
In other words, this before and after approach is a bit like weighing people the day after they gave up drinking sugary soda to determine whether this decision will affect obesity. It’s not serious stuff.
There is evidence that prior trade agreements have affected drug prices. As I noted in that earlier post:
“An analysis of the impact of the rules in the 2001 trade agreement between the United States and Jordan found that it had increased annual spending on drugs by $18 million by 2004. This is slightly less than 0.16 percent of Jordan’s GDP in that year, the equivalent of $28 billion annually in the U.S. economy today.
“There is a similar story of sharply higher drug spending in Morocco, which signed a pact with the United States in 2006. In Morocco, spending on drugs went from $662 million in 2009 (0.7 percent of GDP) to $1.4 billion (1.4 percent of GDP) in 2015.”
To be clear, Bollyky does have a limited point in his piece, any specific trade deal should not be viewed in isolation. It a process of creating ever stronger and longer patent protections, which mean ever larger gaps between the protected price of drugs and their free market price. (For some reason, none of the modelers ever factor in the negative impact of higher drug prices into their analysis of the economic impact of these trade deals.)
In this sense, the TPP should be understood as working alongside other steps, like the Obama administration’s pressures on the Indian government to give up flexibilities granted under TRIPS, to ensure that U.S. drug companies can get ever higher prices from their drugs as protections are extended more broadly around the world. For people who are concerned about public health and would prefer a less corrupt and more efficient mechanism for supporting drug research, this sounds like a really bad deal.
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