TCS Daily


A Better Way?

By Roger Bate - March 25, 2003 12:00 AM

The world's trade negotiators recently moved from Tokyo to Geneva. But a change of setting didn't help them much in kick-starting a trade round. There is an increasingly bad feeling among developing country politicians and the media towards the US and Europe. The Europeans, led by the French, are largely blamed for the lack of progress on an agricultural agreement; the Americans are getting it in the neck for delaying a deal to improve access to drugs for the poor.

There is little doubt that the blame is in the right place. When it comes to agriculture, the Europeans have disgracefully delayed, obfuscated and down right lied about their intentions to open up their markets to produce from the world's poor. Japan with rice and America on sugar and a few other staples share some of the blame for the rampant protectionism.

When it comes to drugs, the Americans have been the major thorn in the side of an agreement. Some countries, notably Britain, Switzerland and Japan, probably think as the Americans do, but can stand aside and let the US take the heat. They feel safe to do this because the US position is so unyielding.

But unlike the European agricultural position - which is politically driven, pandering to agricultural producers and has no merit at all - the US position is more admirable. It is true that it is heavily influenced by the US pharmaceutical industry, and like the French farmers, they have an obvious profit-orientated agenda, but their demands are considerably more reasonable.

The French farmers want to disadvantage products from most countries (and especially the poor, cheap producing countries) that compete with theirs. They do this by obtaining numerous overt and covert subsidies that amount to a massive intervention that runs to billions of dollars. Hiding behind an overly cautious interpretation of the precautionary principle, they demand food and environmental safety standards that block numerous products including meat from America and grain from Africa. The only advantage to Europeans of the current system is that French farms look quite pretty.

American pharmaceutical companies are the most profitable in the world, in part because the US has on average the highest prices for drugs in the world. Prices are high because the US patent system protects the inventors' monopoly, allowing companies to take advantage of the significant wealth of Americans. Since the value of successful discovery is so high, American firms do more research and development and bring more drugs to the market than the rest of world put together.

In other words, American patients and insurance companies subsidize everyone else. Because the rest of the world has less money to spend, and because of the sunk costs of discovery (the first pill costs $800 million, the second $1 or less), US drug companies charge people in other parts of the world far less for their drugs. But in some parts of the world (nearly all of Africa and much of Latin America and Asia) the companies charge far more than people are capable of paying, and therefore, their political negotiators want an even better deal for their people.

Anti-capitalist activists have always attacked the patent system since it has been politically difficult for the drugs industry to defend its drug pricing, and often large profits. Since economists can't agree what is an efficient level of remuneration for developing a drug, it is easy to say that any level is 'unfair'. The activists can even resort to economics by saying that a fair price will be achieved through competition from companies that copy drugs, breaking the government-backed intellectual monopoly of the patent holder.

There are many arguments that can be used against the patent system, and how it is rigidly enforced in America. Similarly one can criticise numerous aspects of western democracy, but like democracy the patent system has proven better than any alternative.

Historically, government research labs and many academics have produced good ideas, and the former even some drugs and vaccines. But nearly everything on the market today has been produced by western drug companies and mainly American ones at that.

So were the US trade negotiators protecting the model from those trying to overthrow it, or were they simply protecting the profits of the drug companies that donate hugely to political causes? The answer is a mix of the two, but in reality it doesn't matter if the aim is to see development of new drugs for diseases like AIDS.

Over the past three years, drug companies' patents on AIDS drugs have been under constant attack. At the Doha trade meeting in November 2001, a deal was struck to work out a method to attenuate patents - only the US has fought to limit its scope. Since that meeting, 15% of drug companies have quit AIDS research, and almost 28% have over the past three years.

One can argue that American drug companies may be making too much money from their drugs, but until someone comes up with a better system, and the French, Chinese, Cuban, or other government succeeds in discovering AIDS treatments, the system should not be altered significantly. The AIDS patients of the future - to say nothing of those suffering from hypertension, cancer, heart disease, baldness and other illnesses and ailments - will be the ones to pay the price.

Dr Roger Bate is a fellow of the International Policy Network and a TCS columnist.
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