The final text of the Australia-United States Free Trade Agreement ('AUSFTA') was signed in Washington on 18 May 2004, by the Australian Trade Minister and the United States Trade Representative. On 17 November 2004, the parties exchanged notes accepting their respective implementing processes and the agreement entered into force on 1 January 2005. The AUSFTA contained numerous provisions either directly or indirectly related to medicines regulation in Australia, particularly Annex 2C of Chapter Two, Chapter Seventeen on intellectual property and Chapter Twenty One on dispute resolution.
It remains uncertain whether the AUSFTA will have either a detrimental or beneficial impact on access to medicines and the promotion and maintenance of good health in Australia. There does, however, appear to have been a substantial difference in opinion between the Parties over procedural changes that would result in Australian medicines regulation.
Throughout the negotiations, the Australian Government's position was either that the government cost-effectiveness reimbursement system, the Pharmaceutical Benefits Scheme ('PBS'), would not be included in the AUSFTA, or that if it was, it was an item of public health policy whose core components would be protected. After signature, the Australian government maintained that the fundamental architecture of the PBS remained unchanged. It acknowledged commitments to make improvements to the transparency and timeliness of PBS processes. It also affirmed its reasonable expectations that, as a result of the AUSFTA, Australian citizens would benefit from faster access to new prescription medicines, that the price of medicines on the PBS would not increase and that the text of the AUSFTA made no changes to the cost-effectiveness methods used to set PBS reimbursement levels.
On the other hand, the Deputy US Trade Representative stated to the US Congress:
The U.S.-Australia FTA is the first to include non-tariff market access provisions to address issues in the pharmaceutical sector. Recognizing the sensitivity of this issue, we drew on studies prepared by the Australian government to propose changes that would improve transparency and the regulatory procedures for listing new drugs in Australia. Under the FTA, the United States and Australia agreed to common principles on facilitating high quality health care and continued improvements in public health, including through government support for research and development in the pharmaceutical industry. We also agreed to establish a Medicines Working Group to discuss emerging health policy issues. Australia committed to specific steps to improve the transparency, accountability and promptness of the listing process, including establishment of an independent review of listing decisions.
Representatives of the multinational brand-name pharmaceutical industry, including its regional organisation Medicines Australia, claimed that there was no basis to claims that the US wanted the PBS dismantled. They argued that the regulatory changes required by these areas of the AUSFTA would (a) help redress an alleged current undervaluing of pharmaceutical 'innovation' in Australian pricing arrangements and (b) stimulate locally-based research and development, as well as the local, mostly generic, pharmaceutical industry. They asserted the negotiated modifications would make Australia's regulatory system more oriented to the global market pressures on industry, more responsible in its approach to intellectual property rights and so more attractive to private investment, resulting in a net welfare benefit.
Others, however, have pointed to US legislation requiring that nation's negotiators to seek in the AUSFTA provisions facilitating the "elimination of government measures such as price controls and reference pricing which deny full market access for United States [pharmaceutical] products". The Australian Senate Select Committee on the AUSFTA concluded:
While no single one of the specific commitments will create immediate and measurable price rises for the PBS, the new measures may well over time alter the bargaining power between the PBS and pharmaceutical companies. This may have long term ramifications that are not in the interest of Australian consumers.
Concern has been expressed about AUSFTA provisions with the potential to encourage higher medicines prices in Australia. These include provisions in chapter 17 (Intellectual Property) that expand the obligations of the Trade Related Intellectual Property Rights ('TRIPS') agreement by prohibiting parallel importation, restricting compulsory licensing to "national emergencies of extreme urgency," prohibiting generic manufacturers exporting to a patent-expired market when a domestic patent exists and increasing data exclusivity protections.
A significant additional worry for these commentators was article 17.10.4. For the first time in Australia, this linked generic regulatory market approval on quality and safety grounds with the patent status of the relevant brand name product. This Hatch-Waxman-type provision was felt to risk brand name manufacturers "evergreening" soon-to-expire pharmaceutical patents, as had occurred after comparable regulations were introduced in jurisdictions such as the US and Canada. The academic, community and parliamentary concern in Australia was so great on this issue, that it resulted in the Australian government passing "anti-evergreening" amendments to its AUSFTA implementing legislation. These imposed a $A10 million penalty for a bad faith challenge by a brand name manufacturer of a generic notification certificate under the new s26B of the Therapeutic Goods Act 1989 (Cth). They also allowed cost recovery in such circumstances by the Australian government.
Provisions in Annex 2C(1) emphasising the need for increased government recognition of pharmaceutical "innovation" and "research and development" were likewise viewed by such critics as having the potential to encourage brand name industry lobbying. This could potentially weaken, in the long term, the capacity of Australia's Pharmaceutical Benefits Advisory Committee ('PBAC') to reject, on clinical and cost effectiveness grounds, new medicines from inclusion in the government's PBS positive reimbursement list, or to reference their reimbursement price against older products with equivalent efficacy but much reduced price.
In this paper, we present a rationale and outline a draft plan for a three-year study, funded by the Australian Research Council ('ARC'), which will examine the impact of the AUSFTA on a range of regulatory, public health and industrial interests involved with access to medicines in Australia. An important initial point to make is that we consider the AUSFTA is best researched as a component of an ongoing process of interaction with Australia's medicines policy by the global pharmaceutical industry. This trade agreement should be viewed, in other words, either as a catalyst that may enhance the speed of regulatory change, or a tangible manifestation of industry lobbying principles that, till now, may have been more implicit. It would be misleading, in any event, to investigate the AUSFTA's potential impacts on Australian medicines policy in isolation of demonstrable long-term corporate strategies.
Some central issues our study will examine include to what extent the AUSFTA requires, facilitates, or is likely to result in, changes to Australia's generic pharmaceutical industry, as well as its PBS cost-effectiveness system of pharmaceutical regulation. We also aim to consider relevant net welfare gain or loss; whether the Australian community will get the same value-for-dollar spent on medicines, either through Commonwealth government reimbursement, hospital or patient purchase.
We propose to investigate these questions empirically (and provide a sound structure for the gradual acquisition of suitable data). This will be done first by identifying, with the assistance of qualitative interviews, actual or likely AUSFTA-associated changes to the structure and process of Australia's PBAC, as well as the marketing processes, development and sector competitiveness of generic pharmaceutical manufacturers in Australia. This aspect of the study will also review the legitimacy of such actual or proposed alterations by examining the history of Australia's PBS as a social justice measure designed to ensure universal access to essential medicines. We will also review such proposed changes for coherence with basic norms of bioethics, domestic law and international human rights. We shall then attempt to determine their actual or potential impact on a range of indicators including drug prices expenditure and affordability, drug availability and equity of access.
We hope that publishing an outline of our proposed study will further encourage policy discussion, facilitate collaborations and provide a template for governments of other countries planning to enter such agreements. Although much of the detail of the AUSFTA is specific to Australia, there are important elements likely to be relevant to future trade agreements involving the US or other countries that have a major vested interest in the production, export and rent generation associated with patented medicines. These include whether the strengthening of pharmaceutical intellectual property protection and weakening of medicines clinical and cost-effectiveness evaluation and/or reference pricing, necessarily involves a weakening of a nation's social and economic fabric, or the capacity of its population to age well and age productively.