Global Trends by Martin Khor

Monday 5 March 2007

The rocky road to an FTA

Talks for a free trade agreement may start with high hopes, but as the FTA with the United States shows, many obstacles emerge that make it difficult to conclude.  The higher cost of medicines is one issue that may worry families the most.


Almost all families have one or more members that have or develop a serious ailment, be it heart disease, hypertension, cancer, asthma, Parkinson’s Disease, HIV/AIDs and so on.

And each patient needs medicines.  Prices are often high and make a big dent in the household budget.  If the cost is too much, the family looks on miserably as the patient endures sickness without the full treatment he or she deserves.

This is the background to the growing debate on one aspect of some Free Trade Agreements (FTAs).

Last week, Malaysia’s generic drug companies publicized their grave concerns that the FTA that Malaysia is negotiating with the United States will hinder or even kill their operations. 

Generic medicines are cheaper than the branded ones.  If there are no or fewer generic drugs, patients have to pay more – maybe ten times more in some cases.

“Patented medicines in Malaysia can be 1,044 per cent more expensive than their generic equivalents, so extensions of (patent) monopolies under Mufta (the Malaysian-US FTA) will condemn Malaysians to paying higher prices for longer,” said Jimmy Piong, Vice-president of the Malaysian Organisation of Pharmaceutical Industries, in a letter in the New Straits Times last week.

There will also be serious restrictions on Malaysia’s ability to issue compulsory licences the way it successfully did in 2003, said the group. 

In that measure, the import of some HIV/AIDs generic drugs from India cut costs to one-seventh, and the Health Ministry could treat many more patients.  It was a pioneering move that other countries (like Indonesia and Thailand) were to follow.  

Piong also revealed that “one of Malaysia’s largest generic manufacturers has announced it will set up its manufacturing operations in India because once the FTA takes effect, it would stand to lose to US-based multinational pharmaceutical companies.”

The organisation’s worries and warnings are well founded.   Almost all patents registered in Malaysia are foreign owned, so the tightening of patent laws due to MUFTA will benefit the foreign companies, at the expense of local companies and consumers.

Both the government and private patients have to shell out more money as drug prices soar.  For example, South Korea will pay US$757 million more a year if drug patents are extended by four years due to an FTA with the U.S., according to the Korean National Health Insurance Corporation.

The Korean Health Minister also warned that under a free trade deal, the damage to Korea’s drug industry may be between US$629 million to US$1 billion.   Colombia’s generic drug industry may lose 71% of its local market share due to the country’s FTA with the U.S., according to an estimate from the World Health Organisation’s model.

One extreme proposal of the FTA is for “data exclusivity”, that data submitted by an originator company to get safety approval from the health authorities for its drug cannot be used as the basis to also approve the safety application for generic versions of the same drug.  This use of the data is presently common practice.

The U.S. demand in other FTAs is that this “data exclusivity” apply (for at least five years) even to non-patented drugs.  Most locally produced or imported generic medicines are versions of non-patented drugs.

With this “data exclusivity”, generic drugs can’t get safety approval and won’t be marketed.  There is thus a danger that the cheaper drugs will not be available, and patients have to pay more for branded products.

Besides medicines, there are other serious issues thrown up by the FTA.  Farmers will be challenged by possible zero tariffs and competition from subsidized (thus artificially cheapened) American farm products, as well as a possible ban on their ability to save and exchange seeds that are subject to intellectual property.

Local banks, retail shops, telecom and broadcast companies, professionals (lawyers, doctors, architects, engineers) and others may face stiffer competition under accelerated liberalization of services.

The government’s procurement business, worth RM100 billion, which is mainly reserved for locals, will be thrown open to American companies, if the US demands are agreed to.  And the many regulations restricting the maximum foreign ownership share of many sectors are also being challenged.

Many national policies and practices are thus being subject to such strong pressures and challenges under an FTA.  The question naturally arises, is it worth paying such a high cost, and for what benefits?

Moreover, once the concessions are made for one country, it is a matter of time before the same has to be given to other countries, that also seek FTAs.

Due to these many problems, many FTA negotiations do not conclude.  Countries start with hopes of many benefits and then decide to suspend or stop the talks when they realize there are too many problems.

Those who have stopped or suspended their FTA talks with the U.S. include Switzerland, Thailand, Southern African countries, and the Free Trade Area for the Americas (involving the US and the South American and Caribbean region).