Three of the four interpretive principles set out at the beginning of Annex 2-C (dealing with pharmaceuticals) focus primarily on enhancing the rights of manufacturers of “innovative” pharmaceuticals. They contain no unqualified assertion of consumers’ rights to equitable and affordable access to necessary drugs. This is the core principle of the PBS as well as Australia’s National Medicines Policy, and is supported internationally in the Doha Declaration on the Trade Related Intellectual Property Rights (TRIPS) Convention and Public Health, which states: “Trade agreements should be interpreted and implemented to protect public health and promote universal access to medicines.”13 The AUSFTA interpretive principles also do not explicitly emphasise the crucial role of generic manufacturers in protecting public health by moderating prices when patents have expired or in health emergencies.

Annex 2-C 2(f), under the heading “Transparency,” allows US pharmaceutical applicants (but not consumer or public health organisations) to ask for an independent review of a decision by the Pharmaceutical Benefits Advisory Committee (PBAC) not to list a drug. In briefings, representatives of the Department of Health and Ageing have argued that the proposed review process will not be able to overturn a PBAC decision. However, it seems inevitable that such reviews will increase pressure on the PBAC to list drugs at higher prices, or primarily as a reward for innovation in research and development instead of cost-effectiveness. Ironically, the “transparency” provisions of this section continue to enshrine the “commercial-in-confidence” right of pharmaceutical applicants to deny public access to their PBS submission, despite increasing evidence that some drug companies withhold vital information needed to make informed decisions about treatment.14 We agree with expert pharmacovigilance opinion that “commercial confidentiality” should be confined to details of manufacture and formulation, not to clinical trial methods, data, or results.15

The agreement sets up a “Medicines Working Group” between health officials from each country. In an almost direct reference to dismantling PBS reference and premium group pricing policies (as encouraged by the US Trade Act 2002), Deputy US Trade Representative Josette Shiners recently declared in testimony to the US Senate Finance Committee that this Group “will provide a forum for ongoing dialogue on Australia’s system of comparing generics to innovative medicines and other emerging health care policy issues.”11 Representatives of the Department of Health and Ageing insist that this “dialogue” will not influence Australian pharmaceutical policy formulation in areas such as reference pricing. Once again, US officials appear to have a different view of the likely impact of the Medicines Working Group than do Australian officials.

Provision 2.5 in Annex 2-C permits a pharmaceutical manufacturer to disseminate pharmaceutical information via the Internet (ie, via links on sites frequently used by Australian patients). This appears to be a “toehold” strategy to eventually facilitate direct-to-consumer advertising (DTCA) in Australia. DTCA is legal in the US but not in Australia. It has been associated with a substantial increase in patient demand for and use of products often not in accord with best clinical practice.16 Spokespersons for the Department of Health and Ageing argue that this clause contains nothing new and merely reiterates the current legal situation in both countries. The question as to why this and several other intellectual property and PBS matters are specifically mentioned in AUSFTA (if they contain nothing new) has not been satisfactorily answered.

An exchange of letters between Trade Minister Vaile and Ambassador Zoellick notes that Australia shall provide opportunities for pharmaceutical manufacturers to apply for an adjustment to PBS prices. Representatives of the Department of Health and Ageing argue that provision for price adjustments by the Pharmaceutical Benefits Pricing Tribunal has been available for some time and this clause also adds nothing new.17 There is concern, however, that if this clause is interpreted in the light of the principles at the beginning of Annex 2-C outlined above, it will provide greater opportunities for US companies to seek price rises for “innovation,” as distinct from cost-effectiveness.

Several intellectual property provisions of AUSFTA are likely to delay the introduction of cost-effective generic drugs. Others prevent our generic drugs industry from alleviating public health crises in neighbouring countries (Article 17.9.6). Article 17.9.8 of AUSFTA locks in the preferential patent term extensions accorded to pharmaceuticals. Article 17.10.4 takes the radical step of linking and indefinitely “preventing” market approval by the Therapeutic Goods Administration if any type of patent has been “claimed” over the relevant drug. This facilitates litigation replacing innovation in Australia, as it has in the US and Canada. Original patent owners will seek to “evergreen” their exclusive rights over “blockbuster” (high sales volume) pharmaceuticals, with speculative and ultimately spurious “claims” over the process or capsule rather than the active ingredient.

Research at the Australia Institute in Canberra has estimated that if such changes succeed in delaying by 24 months market entry of generic versions of just the top five PBS expenditure drugs due to come off patent, this could increase the cost of the PBS by $1.5 billion over 2006–2009.18 Delayed entry of generic drugs will not only affect the prices of PBS-listed medicines and hospital medicines supplies, but also non-PBS products sold in Australia. These include pharmaceuticals purchased by private and public hospitals and over-the-counter medicines not covered by government subsidies or safety nets. The end result will be much higher pharmaceutical costs for the federal and state governments as well as consumers and the potential collapse of the PBS.

Chapter 21, on dispute resolution, gives a panel of three trade lawyers nominated by the Parties (Article 21.7) the power to interpret compliance with obligations in AUSFTA, including the provisions that shift the focus of our PBS towards greater rewards for drug “innovation”. Faced, for example, with determining whether the PBS “review mechanism” actually fulfils AUSFTA obligations, the panel will rely on the interpretive “principles” set out at the beginning of Annex 2-C. As previously mentioned, these principles are heavily weighted towards the agenda of the US pharmaceutical industry’s emphasis on “innovation,” “R&D” and “transparent, expeditious and accountable procedures”, as well as “competitive markets”. The principles contain no unqualified reference to universal access to affordable, essential medicines. In addition, Article 21.2 (c) allows a damages claim if a “benefit” the United States could reasonably have expected to accrue under AUSFTA is not realised, even though no specific provision has been breached. The upshot of this is that PBAC decisions not to “list” “innovative” new US drugs (because they are not cost-effective) will be made in the shadow of possible US trade retaliation in important areas such as manufacturing and agriculture.