from Global Health Program

The Long Fight Over Trade and Medicines

U.S. trade deals may not be spurring the large drug price increases and shifts away from lower-cost generics in U.S. trading partners that many predicted. 

March 21, 2016

Article
Current political and economic issues succinctly explained.

Pharmaceuticals are at the center of the debate over the Trans-Pacific Partnership (TPP), as they have been for every recent U.S. trade deal. Health activists argue U.S. trade deals raise drug prices and restrict access to cheaper generic medicines, “literally kill[ing] people” by ensuring the other countries in those deals cannot provide lifesaving medicines to all their people who need them. Industry representatives insist that greater rewards for innovative drugs spur more R&D and that weakening the pharmaceutical rules in U.S. trade deals would “chill global investment and slow development of new breakthrough treatments for suffering patients."

More From Our Experts

Underlying this long fight is an assumption that both sides of the debate share: that the drug patents and other guarantees of exclusivity in recent U.S. trade deals will operate in practice as those rules do in the United States. If so, one would expect to see higher prices and more spending on patented and newly-approved medicines, resulting from delayed competition with low-cost generics. In short, the drug markets in countries with recent U.S. trade deals should become more like the United States.

 

To date, this has not proven to be the case. IMS Institute for Healthcare Informatics, the leading source for pharmaceutical sales data worldwide, has data on fifteen of the seventeen countries with recent U.S. trade deals that include pharmaceutical terms that go beyond World Trade Organization (WTO) requirements. Some of these U.S. trade deals are more than a decade old.

 

 

More on:

Trade

This data shows national drug spending has remained flat as a share of overall health expenditure in the countries with recent U.S. trade agreements. The growth in per capita pharmaceutical spending in these countries is in line with nations of similar income that have not entered into U.S. trade deals and have no market exclusivity requirements, such as Brazil, Thailand, and South Africa. The volume of pharmaceuticals consumed has increased. There has been no discernable trend toward more expensive original or branded versions of medicines and away from cheap unbranded generic drugs, either as a matter of volume or spending.

 

 

Those results do not change when focusing just on the medicines most likely to be affected by U.S. trade deals. U.S. trade deals require countries to grant exclusivity to newly approved medicines and their uses, delaying otherwise off-patent “originator” drugs from having to compete with low-cost generics. For four of the countries with recent U.S. trade deals, IMS Health has data on the off-patent, originator medicines launched before and after those agreements. This data shows no upward trend in the prices of drugs launched in the three years after these agreements entered into force. Different results might emerge with larger sample sizes and data from more countries with recent U.S. trade deals.

More From Our Experts
 

 

There is no obvious correlation in these data with the length of time in which the U.S. trade deals have been in force or the stringency of their provisions on pharmaceutical patents or exclusivity. For countries with older trade deals, a greater share of drugs on that market will have been launched after that agreement entered into force and should show more of the effects of its terms. Trade deals with more expansive patent and exclusivity provisions should result in more originator medicines with higher prices from having delayed lower-cost generic competition.

 

 

A group of protesters stand outside the World Trade Organization ministerial meeting venue in Cancun, September 10, 2003. The sign reads: "I have cancer, don't let me die."
A group of protesters stand outside the World Trade Organization ministerial meeting venue in Cancun, September 10, 2003. The sign reads: "I have cancer, don't let me die."

It must be emphasized that the absence of evidence is not necessarily evidence of absence. There are circumstances when patents have enabled inflexibly high pricing and reduced patient access to much-needed medicines, most notably in the HIV/AIDS treatment access crisis soon after the advent of the WTO. The full effects of expanded pharmaceutical patents or exclusivity in more recent U.S. trade deals may take longer than a decade to manifest. Aggregate pharmaceutical sales measures might not capture the disproportionate impact that these deals have on certain drugs or classes of medicines. This is especially true for the six Central American countries for which IMS Health only has combined sales data.The IMS Health data do not necessarily have comprehensive coverage of all drug distribution channels, particularly in low- and middle-income countries, but it is the same dataset Oxfam used to study drug prices after Jordan’s trade deal with the United States.

Still, if the concern is drug prices and spending, the current evidence suggests that the pharmaceutical provisions in U.S. trade deals may not justify the large claims made for or against their inclusion. An explanation of the potential reasons for the (as of yet) limited effects of recent U.S. trade deals on medicines and its implications for the TPP appears in Foreign Affairs. The methodology annex for this analysis and its data sources is posted below.

More on:

Trade

Close

Methodology Annex

Scientific and Academic

Scientific and Academic

Mark Duggan, et al., “The Market Impacts of Pharmaceutical Product Patents in Developing Countries: Evidence From India,” World Bank and Stanford University, September 2014

Margaret Kyle and Yi Qian, “Intellectual Property Rights and Access to Innovation: Evidence from Trips,” NBER Working Paper No. w20799, December 2014

Keith Maskus, “Private Rights and Public Problems: The Global Economics of Intellectual Property in the 21st Century, Chapter 5,” Peterson Institute for International Economics, September 2012

Rohit Malpani, “All Costs, No Benefits: How TRIPS Plus Intellectual Property Rules in the U.S.-Jordan FTA Affect Access to Medicines,” Oxfam International, March 2007

Ellen Shaffer and Joseph Brenner, “A Trade Agreement’s Impact on Access to Generic Drugs,” Health Affairs, August 2009*

Ted Alcorn, “TPP: Trade-offs for Health Behind Closed Doors,” The Lancet, March 2016

Jing Luo and Aaron Kesselheim, “The Trans-Pacific Partnership Agreement and Implications for Access to Essential Medicines,” The Journal of the American Medical Association, October 2015*

Ellen ’t Hoen et al., Driving a decade of change: HIV/AIDS, patents and access to medicines for all, Journal of the International AIDS Society, March 2011

Reed Beall & Randall Kuhn, Trends in Compulsory Licensing of Pharmaceuticals Since the Doha Declaration: A Database Analysis,  PLoS Med 9(1), 2012. 

Bhaven N. Sampat, Institutional Innovation or Institutional Imitation? The Impacts of TRIPs on Indiaʼs Patent Law and Practice, unpublished working paper, July 2010. 

* This resource is behind a paywall.

Top Stories on CFR

Sanctions

For many policymakers, economic sanctions have become the tool of choice to respond to major geopolitical challenges such as terrorism and conflict.

China

The Trump administration has declared China a currency manipulator, but what that means for the ongoing trade war is far from clear.

Women and Economic Growth

The education gender gap costs the world between $15 trillion and $30 trillion in human capital. U.S. aid programs need to equip girls and women to participate in the modern digital economy.